Weekly highlights—25 May 2017

Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 25 May 2017.

Brexit

ECB official discusses euro clearing post-Brexit

On 18 May 2017, an official at the European Central Bank (ECB) raised concerns about the impact of Brexit on the future of euro clearing in the UK. In a speech on financial market integration given at the Government Borrowers Forum in Luxembourg on 18 May 2017, Yves Mersch, member of the executive board of the ECB, also called for Eurobonds to be settled in the TARGET2-Securities (T2S) system by 2018, and urged the development of a Europe-wide primary market for securities.

Financial Conduct Authority updates

FCA May round up now available

On 18 May 2017, the Financial Conduct Authority (FCA) published its May 2017 regulatory round up.

Regulatory architecture

EACT says ESAs should not make EU policy decisions

On 17 May 2017, the European Association of Corporate Treasurers (EACT) responded to the European Commission’s consultation on the operations of the European Supervisory Authorities (ESAs), calling for more clarity around the ESAs’ remit. EACT said it should be made clear that the ESAs provide technical work, while policy decisions impacting the wider European economy and its functioning are systematically taken by the European Commission, the European Parliament and the Council.

ESMA risk analysis officer on the opportunities and threats of RegTech

On 18 May 2017, the European Securities and Markets Authority (ESMA) published a speech by a senior risk analysis officer in its innovation and products team, Patrick Armstrong, concerning the role of regulatory technology (RegTech)—ie technologies that ‘solve regulatory and compliance requirements more effectively and efficiently’.

Council of EU update on financial services proposals

On 18 May 2017, the General Secretariat of the Council of the EU updated the Council on progress on key financial services legislative files, in advance of a meeting of the Economic and Financial Affairs Council (ECOFIN) on 23 May 2017.

Regulation on consumer participation in financial services policy published in the Official Journal

On 19 May 2017, Regulation (EU) 2017/826 of the European Parliament and of the Council of 17 May 2017 on establishing a Union programme to support specific activities enhancing the involvement of consumers and other financial services end-users in Union policy-making in the area of financial services for the period of 2017-2020 has been published in the Official Journal (OJ).

New Ofcom consultation begins into changing mobile provider proposals

On 19 May 2017, Ofcom proposed changes to the process by which consumers switch mobile phone providers. It is also recommending changes to the rule forcing people to pay for their old service during the notice period once they switch companies, saving people around £10m a year in double payment. The consultation will close on 30 June 2017.

Council of the European Union issues revised roadmap of actions

On 19 May 2017, the Council of the EU set out the areas of financial services work it intends to focus on over 2017-2018. One topic the Council said it will work on throughout 2018 is financial literacy, and the development of innovative solutions to increase small-to-medium business’ knowledge, supporting them in accessing alternative sources of finance.

Briefing summarises recent ESRB activity for ECON meeting

On 23 May 2017, the European Parliament provided a briefing ahead of the regular public hearing with the chair of the European Systemic Risk Board (ESRB), Mario Draghi. The briefing focuses on recent ESRB activity, including the ESRB’s latest assessment of the risks to financial stability.

Authorisation, approval and supervision

Regulation extending EFRAG funding published in the Official Journal

On 19 May 2017, Regulation (EU) 2017/827 of the European Parliament and of the Council of 17 May 2017 amending Regulation (EU) No 258/2014 establishing a Union programme to support specific activities in the field of financial reporting and auditing for the period 2014 to 2020 has been published in the OJ.

ESMA letters on International Accounting Standards

On 23 May 2017, ESMA published three new comment letters on the IFRS 9 accounting standard on financial instruments. Under the International Accounting Standards Regulation (EC) 1606/2002, EU issuers of shares traded on regulated markets are required to follow IFRS standards. IFRS 9 will apply for annual periods beginning on or after 1 January 2018.

Prudential requirements

EBA lists specialised credit institutions exempted or subject to a higher cap on inflows

On 17 May 2017, the EBA published a list of specialised credit institutions exempted or subject to a higher cap on inflows in accordance with the second subparagraph of Article 33(5) of Commission Delegated Regulation (EU) 2015/61, which supplements the Capital Requirements Regulation.

Regulation on partial property transfer under the BRRD published in the Official Journal

On 20 May 2017, Commission Delegated Regulation (EU) 2017/867 of 7 February 2017 on classes of arrangements to be protected in a partial property transfer under Article 76 of the Bank Recovery and Resolution Directive (Directive 2014/59/EU) (BRRD) was published in the OJ.

EU regulators say recovery well established but euro area integration stalled

On 19 May 2017, the ECB presented in two papers (Financial integration in Europe and European financial stability and integration review 2017) published at a joint conference in Brussels on financial integration in Europe. The papers found that the European economy is on the road to recovery and EU banks are more stable than they were in the past, but financial integration in the euro area has stalled in the past year.

TARGET2 report released by European Central Bank

On 22 May 2017, the ECB published a report presenting the main facts relating to the TARGET2 system, the second-generation Trans-European Automated Real-time Gross settlement Express Transfer system for the euro. The report is mainly addressed to decision-makers, practitioners, lawyers and academics wishing to acquire an in-depth understanding of TARGET2.

EBA issues final technical standards on valuation in resolution

On 24 May 2017, the EBA published its final draft Regulatory Technical Standards (RTS) made under Articles 36 and 74 of the BRRD on valuation in resolution. The draft RTS are a crucial piece of regulation for the resolution framework as they aim to provide the independent valuer with common criteria for the valuation, which will inform the decisions made by resolution authorities, thus promoting a consistent approach to such valuations across the EU.

European Parliament update on G-SIBs in Europe

EBA European Parliament updated a briefing which focuses on global systemically important banks (G-SIBs). It explains the definition agreed at international level and describes the regulatory and supervisory framework for G-SIBs in the EU, and gives an overview of the financial profile of European G-SIBs.

Risk management and controls

FCA publishes new webpage on cyber resilience

On 18 May 2017, the FCA reminded firms of their obligation to report material cyber incidents and produced a webpage setting out when and how to do so. The FCA says firms of all sizes need to develop a security culture, ‘from the board down to every employee’. Firms should be able to identify and prioritise their information assets, which include hardware, software and people. The FCA urges firms to protect these assets, detect breaches, respond to and recover from incidents, and constantly evolve to meet new threats.

EBA seeks views on its cloud security recommendations

On 18 May 2017, the EBA launched a consultation on its guidance for the use of cloud service providers by financial institutions. The EBA recommendations aim to clarify the EU-wide supervisory expectations if institutions intend to adopt cloud computing, so as to allow them to get the benefits of using cloud services while ensuring that any related risks are adequately identified and managed. The consultation runs until 18 August 2017.

FSB misconduct report assesses incentives reforms

On 22 May 2017, the Financial Stability Board (FSB) published a report on its ongoing work to tackle misconduct risks in the financial sector, looking at governance frameworks and including an international stocktake of activities already underway in this area. The report focuses on whether the post-crisis reforms on incentives are working to reduce misconduct, and includes detailed summaries of the stocktake of efforts by national authorities, firms, international bodies, and industry associations to strengthen governance frameworks to mitigate misconduct risk, as well as the findings from a literature review on the root causes of misconduct.

Financial crime

Conservatives propose to merge SFO into NCA

The Serious Fraud Office (SFO) is to be abolished if the Conservatives win the general election in June, its remit to be rolled into the National Crime Agency.

Rosneft v HM Treasury and others—Court of Justice preliminary ruling

On 22 May 2017, the judgment of the Court of Justice of the European Union in PJSC Rosneft Oil Company, formerly OJSC Rosneft Oil Company v Her Majesty's Treasury, Secretary of State for Business, Innovation and Skills, the Financial Conduct Authority (2017/C 161/02) was published in the OJ. This case was referred to the Court of Justice for a preliminary ruling by the Divisional Court in February 2015 in R (on the application of OJSC Rosneft Oil Company) v Her Majesty's Treasury and others[2015] EWHC 248 (Admin).

Report calls for risk-based, multi-stakeholder approach to politically exposed persons

On 23 May 2017, the Wolfsberg Group, an association of 13 global banks which aims to develop frameworks and guidance for the management of financial crime risks, particularly with respect to know your customer, anti-money laundering and counter-terrorist financing policies, published an updated version of its guidance on politically exposed persons (PEPs). Building on its 2003 report of the same name, and its 2008 FAQs on the subject, the new guide’s objective is to explain what has changed since and how PEP identification and risk management have evolved in the context of a more holistic customer risk assessment process.

FCA secures £2.2m confiscation orders for unauthorised activity

On 24 May 2017, the FCA reported that the Central Criminal Court made confiscation orders against the two final defendants who were convicted of offences following one of the FCA's largest investigations into unauthorised activity.

Enforcement and redress

FSCS working with administrators on Strand Capital Ltd

On 18 May 2017, having reached an assessment that it was no longer solvent, investment management firm Strand Capital Ltd formally entered the Special Administration Regime (SAR) insolvency proceedings on 17 May 2017. The Financial Services Compensation Scheme (FSCS) said it is working with the joint special administrators Smith & Williamson and LA Business Recovery Ltd to understand what this might mean for the firm’s customers.

Markets and trading

ESMA finds improvements by NCAs on MiFID fair, clear and not misleading information rules

On 18 May 2017, ESMA published a follow-up report on the actions undertaken by ten National Competent Authorities (NCAs) in addressing deficiencies identified in the 2014 Peer Review on the Markets in Financial Instruments Directive (MiFID) conduct of business rules relating to fair, clear and not misleading information (2014 Review). ESMA has stated that it welcomes the efforts made by most of the ten NCAs.

IOSCO conference focuses on securities market resilience

The International Organization of Securities Commissions (IOSCO) annual conference in Jamaica, held between 15-19 May 2017, focused on the challenges of strengthening market resilience, addressing financial misconduct and financing the real economy through capital markets.

CLLS responds to FCA consultation on MiFID II implementation

On 19 May 2017, the City of London Law Society (CLLS) published its response to the FCA's fourth consultation paper on MiFID II implementation (CP16/43). In its response, dated 20 February 2017, the CLLS repeats its earlier objection to the FCA's proposal to extend the MiFID II taping regime to non-MiFID business related to commodity or exotic derivatives. It also calls for transitional arrangements for tied agents.

ESMA guidance on ‘traded on a trading venue’ under MIFID II

On 22 May 2017, ESMA issued an opinion regarding the implementation of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). The opinion clarifies the concept of ‘traded on a trading venue’ (TOTV), which is relevant for a number of provisions under MIFID II and MiFIR.

Law Society responds on the review on the effectiveness of UK primary markets

On 22 May 2017, the Law Society and CLLS released a joint response to the discussion paper issued by the FCA in February 2017 based on feedback it received from stakeholders as part of its review of the effectiveness of primary markets in the UK.

Investment funds and wealth management

FCA publishes results of its Assessing Suitability Review

On 18 May 2017, the FCA published its long-awaited report setting out the findings from its review into the market for pensions and investment advice, which was highlighted as one of the seven priorities in its 2016/17 business plan. The results show that the vast majority of advisers provide suitable advice, but a significant proportion fail to disclose charges in line with the regulator’s rules.

CLLS queries ESMA’s Q&A on delegation under the AIFMD

On 19 May 2017, the CLLS published a letter dated 16 May 2017, to the FCA expressing concern about an updated version of the European Securities and Markets Authority (ESMA) Q&A on the application of the Alternative Investment Fund Managers Directive (AIFMD). The CLLS letter follows, and supports, similar concerns raised by the Alternative Investment Management Association and the Alternative Credit Council about ESMA's response to a question on delegation, which the three bodies say is based on an incorrect interpretation of the relevant provisions of the AIFMD.

Directive amending Shareholders' Rights Directive published in the Official Journal

On 20 May 2017, Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC (Shareholders' Rights Directive) as regards the encouragement of long-term shareholder engagement was published in the OJ.

ESMA consults on rules for stability and integrity of money market funds

On 24 May 2017, the European Securities and Markets Authority (ESMA) published a consultation paper on the Money Market Funds Regulation (MMFR). The CP contains proposals on draft technical advice (TA), draft implementing technical standards (ITS), and guidelines under the MMFR. The key proposals relate to asset liquidity and credit quality, the establishment of a reporting template and stress test scenarios. Feedback on the proposals is sought by 7 August 2017.

Insurance and pensions

New IASB standard allows for international comparison of insurance contracts

On 18 May 2017, the International Accounting Standards Board (IASB) issued IFRS 17 Insurance Contracts, replacing IFRS 4. This first truly international IFRS Standard for insurance contracts is aimed at helping investors and others better understand insurers’ risk exposure, profitability and financial position.

Regulation laying down Solvency II technical information published in the Official Journal

On 18 May 2017, Commission Implementing Regulation (EU) 2017/812 of 15 May 2017 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 31 March until 29 June 2017 in accordance with Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) has been published in the OJ.

EIOPA releases methodology and calculations for ultimate forward rates

On 23 May 2017, the European Insurance and Occupational Pensions Authority (EIOPA) published its final report on consultation paper no 16/003 on the methodology to derive the ultimate forward rate (UFR) and updated its calculation of the UFR for 2018.

EU/US insurance and reinsurance agreement adopted

On 23 May 2017, the Council of the European Union adopted a bilateral agreement between the EU and the US on prudential measures regarding insurance and reinsurance. The agreement acknowledges the growing need for co-operation between EU and US supervisory authorities, including the exchange of confidential information, given the increased globalisation of insurance and reinsurance markets. The agreement eliminates, under specified conditions, local presence and collateral requirements, and, again under specified conditions, establishes that the Home supervisory authority, and not the Host supervisory authority, will exercise worldwide prudential insurance group supervision.

Payments and fintech

EBA stakeholders group broadly positive on PSD2 complaints procedure

On 18 May 2017, the EBA's Banking Stakeholder Group (EBA BSG) published its response to the EBA consultation on the Draft guidelines on procedures for complaints of alleged infringements of the Payment Services Directive 2. The BSG supports the widest possible application of the guidelines to allow all stakeholders including PSPs and other entities to make use of the complaints procedures.

ECB executive calls for harmonisation and consistency in payment systems

On 18 May 2017, a member of the executive board of the European Central Bank, Yves Mersch, delivered a speech at the Deutsche Bundesbank’s payment and securities settlement symposium 2017, on the efforts made by legislators and regulators to provide a clear legal framework so that innovative payment services can be developed for the European market as a whole. Mr Mersch said the Eurosystem is committed to keeping pace with innovation in financial services while, at the same time, safeguarding the safety and efficiency of its financial market infrastructure.

Bank of England publishes FAQ on its FinTech Accelerator

On 19 May 2017, the Bank of England (BoE) published FAQs on its FinTech Accelerator. The FAQs explain what the Accelerator is and how it is relevant to the BoE’s work, how firms can benefit from working in partnership with the Accelerator, and what the application process involves.

Global FinTech report looks at impact and potential risks

On 22 May 2017, the FSB and the Committee on the Global Financial System (CGFS) published a joint report on FinTech credit: market structure, business models and financial stability implications. The study was undertaken because of the significant uncertainty as to how FinTech credit markets will develop and how they will affect the nature of credit provision and the traditional banking sector.

PSR gives details of events to be held in Leeds and Manchester

On 24 May 2017, the Payment Systems Regulator (PSR) announced that following the success of its annual plan event held in at the Barbican Centre, London on 29 March 2017, it will host two stakeholder events this July in Leeds and Edinburgh.

Dates for your diary

Key Date Subject Event
26 May 2017 Financial crime—anti-money laundering and counter-terrorist financing Deadline for responses to the Joint Money Laundering Steering Group's (JMLSG) proposed revisions to Parts II and III of its guidance on the prevention of money laundering and the financing of terrorism for the UK financial services industry.
29 May 2017 Capital Requirements Regulation Deadline for responses to EBA consultation paper 'Draft RTS on the specification of the nature, severity and duration of an economic downturn in accordance with Articles 181(3)(a) and 182(4)(a) of the CRR'.
29 May 2017 Risk management and controls Deadline for responses to the European Commission's consultation on whistle-blower protection.
31 May 2017 Insurance EIOPA guidelines on facilitating an effective dialogue between insurance supervisors and statutory auditors (EIOPA16/858) become effective from this date.
31 May 2017 Prudential requirements Deadline for responses to the Prudential Regulation Authority's (PRA) consultation 'CP3/17: Refining the PRA’s Pillar 2A capital framework'.
1 June 2017 Insurance Deadline for responses to the International Association of Insurance Supervisor's (IAIS) consultation 'Revised Insurance Core Principles (ICPs) and ComFrame material integrated with ICPs'.
1 June 2017 Markets and trading Deadline for responses to the FCA's consultation 'CP17/5: Reforming the availability of information in the UK equity IPO process'.
1 June 2017 Prudential Requirements Date the prohibition of proprietary trading under European Commission Bank Structural proposal becomes effective.
2 June 2017 Bank Recovery and Resolution Directive Deadline for responses to EBA 'Consultation Paper: Recommendations on the coverage of entities in a group recovery plan (CP/EBA/2017/03)'.
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