Weekly highlights—26 January 2017

Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 26 January 2017.

Brexit

Brexit, macroeconomic uncertainty and competition dampen sector’s spirits, survey finds

On 23 January 2017, a survey published by the Confederation of British Industry (CBI)/PricewaterhouseCoopers (PwC)  found that optimism in the financial services sector fell for a fourth consecutive quarter in the three months to September 2016—the longest period of deteriorating sentiment since the global financial crisis in 2008. But profitability is expected to improve across financial services in the next quarter (excluding building societies), as cost pressures continue to ease. The survey also found firms to be eyeing FinTech closely for opportunities in process automation, data analytics and digital transformation.

IRSG proposes bespoke passporting and EU TCRs scheme

On 23 January 2017, the International Regulatory Strategy Group (IRSG), in collaboration with Hogan Lovells, produced a report that assesses EU third-country regimes and possible post-Brexit alternatives to passporting. Published by TheCityUK, the report concludes that the focus of the Brexit negotiations should be on designing and delivering a bespoke UK–EU deal rather than reforming or adapting existing frameworks.

Select Committee discusses Brexit negotiation strategy and impact on service sector

On 24 January 2017, the International Trade Committee continued its inquiry into UK trade options beyond 2019 with an evidence session covering issues including EU and non-EU trade negotiations and the impact of Brexit on the UK service sector, including financial services. This was the committee’s first opportunity to consider the contents of the Prime Minister’s speech setting out the path to Brexit.

BoE analyses the sterling flash crash and the market response to Brexit

On 24 January 2017, the Bank of England (BoE) executive director of markets, Chris Salmon, delivered a speech on the importance of central banks understanding the structure and functioning of core financial markets. The speech focused on the lessons learned about market functioning from the period immediately after the EU referendum and from the sterling ‘flash crash’. Mr Salmon then explained how the BoE’s analysis of market structure shaped the design of its corporate bond purchase scheme, and how the scheme may have affected the functioning of the market.

Regulatory architecture

PFS chief executive says regulatory burden ‘strangling’ personal finance sector

On 23 January 2017, a survey published by the Personal Finance Society (PFS) shows that for the fifth year in a row regulation and compliance costs have topped the PFS member survey’s list of major concerns facing the financial advice profession. Seventy-five per cent of the 1,600 respondents to the October–November 2016 survey said regulatory cost and uncertainty are the ‘biggest threat to the success of financial advice firms’.

Maltese Presidency sets out ECOFIN priorities

On 24 January 2017, the European Parliament released a briefing setting out the Maltese Presidency’s priorities in the economic and financial fields, including a number of items of relevance to financial services, and the latest developments in completing the Banking Union. ECOFIN President and Minister for Finance of Malta, Edward Scicluna, will attend a meeting of the Parliament’s Economic and Monetary Affairs Committee (ECON) on 25 January 2017 for an economic dialogue and exchange of views.

UKSA calls for consumer responsibility and proactive FCA approach

On 24 January 2017, the UK Shareholders’ Association (UKSA) published its response to the Financial Conduct Authority (FCA) ‘Our future Mission’ consultation. The UKSA welcomed the chance to respond, saying it was important for those affected by financial regulation to think carefully about what they want from the system, but was critical of a number of the FCA questions, saying the consultation document fails to define key terms, and that there is too much focus on redress and not enough on stopping problems happening in the first place.

Bank of England and Financial Services Act 2016 (Commencement No 4 and Saving Provision) Regulations 2017

SI 2017/43: Provisions of the BoE and Financial Services Act 2016 (BEFSA 2016), including those concerning membership of court of directors and accounts relating to BoE’s functions as Prudential Regulation Authority (PRA), are brought into force on 1 March 2017. The Regulations bring into force certain provisions of BEFSA 2016, including sections 12–15, which end the subsidiary status of the PRA.

Savings (Government Contributions) Act 2017

Provision is made for, and in connection with, government bonuses and other account features, for two new government-supported savings accounts—Lifetime Individual Savings Accounts and Help-to-Save accounts. The Act is part of a government commitment to support people at all income levels and all stages of life to save, recognising the important role that savings can play in promoting aspiration and supporting households’ standards of living.

Reporting requirements

New changes and corrections to supervisory reporting XBRL taxonomy

On 18 January 2017, the European Banking Authority (EBA) updated the XBRL taxonomy that Competent Authorities should use for the remittance of data under the EBA Implementing Technical Standards (ITS) on supervisory reporting. The revised taxonomy will be used for reference dates from 30 June 2017 onwards and includes changes and corrections to validation rules.

Authorisation, approval and supervision

ECB’s 2017 focus on stability and credit risk

On 25 January 2017, the European Central Bank (ECB) published details of a speech by the chair of its Supervisory Board Danièle Nouy, given in Frankfurt on 25 January 2017, which set out the ECB’s supervisory priorities for 2017. Ms Nouy stated that the ECB would focus on three main actions in 2017: adaptation of banks’ business models, risk management, and credit risk and non-performing loans.

FCA chief economist on behavioural finance and ‘the knowledge frontier’

On 25 January 2017, the FCA published excerpts from a speech given in June 2016 by its chief economist, Peter Andrews, on behavioural finance. The speech sets out the FCA’s use of new disciplines and technologies to better understand consumers, firms, and the real causes of market problems.

Prudential requirements

PRA clarifies Supervisory Statement on building societies’ treasury and lending activities

On 23 January 2017, the PRA released a revised Supervisory Statement, ‘Supervising building societies’ treasury and lending activities’ (SS20/15), providing clarification and corrections following its initial publication on 1 December 2016. The statement, which applies to all building societies, sets out the PRA’s expectations in respect of building societies’ compliance with the requirements of the Building Societies Act 1986 (BSA 1986), the Financial Services and Markets Acts (FSMA 2000), the PRA Rulebook and SS24/15.

Corrigendum to Capital Requirements Directive published in the Official Journal

On 25 January 2017, a Corrigendum to Directive 2016/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (Capital Requirements Directive) was published in the Official Journal of the EU.

Corrigendum to Capital Requirements Regulation published in the Official Journal

On 25 January 2017, a Corrigendum to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation) was published in the Official Journal of the EU.

FSB sets out stability and transparency work on collateral re-use

On 25 January 2017, the Financial Stability Board (FSB) published two reports, 'Re-hypothecation and Collateral Re-use: Potential Financial Stability Issues, Market Evolution and Regulatory Approaches' (the Re-hypothecation and Collateral Re-use Report) and 'Non-Cash Collateral Re-use: Measure and Metrics' (the Non-Cash Collateral Re-use Report). The reports form part of the FSB’s work to transform shadow banking into resilient market-based finance.

Risk management and controls

WP29 adopts 2017 GDPR action plan

On 16 January 2017, it was announced that the European Commission’s Working Party 29 (WP29) had adopted the 2017 General Data Protection Regulation (GDPR) action plan, which sets its priorities for the year ahead. The action plan commits the WP29 to finalising work on topics undertaken in 2016, including guidelines on certification, administrative fines and the setting up the European Data Protection Board. For the year ahead, the WP29 intends to produce new guidelines on consent, profiling and transparency.

Bank of Jiangsu adopts Equator Principles

On 20 January 2017, it was announced that the Bank of Jiangsu has become China's first city commercial bank to adopt the Equator Principles (EP), a risk management framework for determining, assessing and managing environmental and social risks in projects.

Financial crime

MEPs reject Commission's blacklist of states at risk of money laundering under MLD4

On 19 January 2017, the European Parliament adopted a text, 'Objection to a delegated act: Identifying high-risk third countries with strategic deficiencies', following MEPs’ rejection of a European Commission blacklist of states deemed to be at risk of money laundering and terrorist financing under the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4). The MEPs were of the view the list was too limited, and should be expanded to include territories that facilitate tax crimes.

Fighting fraud is a serious business—SFO speech

On 19 January 2019, in a speech given at the Fighting Fraud and Eliminating Error Conference, Hannah von Dadelszen, Joint Head of Fraud at the Serious Fraud Office (SFO), stressed that fighting fraud is no easy task. As suspects and defendants become increasingly well-resourced and clever, the SFO also needs to be, and has attempted to create the best environment to foster integrity, professionalism and effectiveness.

Commission roadmap on proposed restrictions on payments in cash

On 23 January 2017, the European Commission published a report setting out its objectives in relation to an initiative to reinforce the EU framework on the prevention of terrorism financing by enhancing transparency of cash payments through a restriction of cash payments. Organised crime and terrorism financing rely on cash for payments for carrying out illegal activities and benefitting from them.

Economic Secretary to the Treasury issues written statement on proposed Prospectus Regulation

On 24 January 2017, the Economic Secretary to the Treasury, Simon Kirby, issued a statement confirming the government has decided not to opt in to provision requiring information sharing between competent authorities where the criminal sanctions regime within the proposed Prospectus Regulation is adopted. As the provision requires cooperation involving law enforcement bodies, the government believes these are Justice and Home Affairs (JHA) obligations and therefore the UK's JHA opt-in is triggered. The government will inform the Council of its decision not to exercise its right to opt in to the relevant provision.

FCA conduct requirements

FCA seeks views on return of client assets

On 23 January 2017, the FCA opened a consultation on ‘CASS 7A & the Special Administration Regime Review’ (CP17/2), inviting views on a number of aspects of the client assets regime, in particular the client money distribution rules set out Chapter 7A of the Client Assets Sourcebook (CASS).

Enforcement and redress

EU survey highlights lack of consumer rights awareness

On 17 January 2017, the European Commission published responses to its consultation for the Fitness Check of EU consumer and marketing law, which closed on 12 September 2016. The Commission has also published a summary of responses. Nearly half of respondents to an EU consultation on consumer and marketing law had experienced consumer rights-related problems in the last year, including lack of key information from traders and being misled by marketing statements.

FCA director speaks on trends in enforcement

On 19 January 2017, the director of enforcement and market oversight at the FCA, Mark Steward, delivered a speech at the Practising Law Institute’s annual seminar on securities regulation in Europe, in which he highlighted some trends in enforcement. Topics covered included financial penalties, the senior managers regime, the resolution process and collaboration with other agencies.

HSBC sets up £4m redress scheme for historical debt collection practices

On 20 January 2017, the FCA announced that HFC Bank and John Lewis Financial Services (JLFS) customers unfairly charged debt recovery fees are to be reimbursed. HSBC Bank Plc, which owns both HFC and JLFS, voluntarily agreed to set up a redress scheme for customers who were charged recovery fees as a percentage of their debt which bore no relation to actual costs of recovery.

CC dismisses complaint against FCA but says COMP rules could be more accessible

On 23 January 2017, the Complaints Commissioner (CC) published a final report where it has decided not to investigate a complaint against the Financial Conduct Authority (FCA), which argued that the rules in the FCA’s Compensation sourcebook (COMP), in particular COMP 7.4.1, are detrimental to consumers. In a letter dated 19 January 2017, the CC concluded that complaints about the regulators’ rulemaking are excluded from the Complaint Scheme. However, the CC acknowledged that the COMP rules are not clearly accessible for consumers on the websites of the FCA and the Financial Services Compensation Scheme (FSCS).

Lloyds Banking Group and Aviva face PPI reprimand

On 25 January 2017, the Competition and Markets Authority (CMA) published letters to Lloyds Banking Groupand Aviva about breaches of the Payment Protection Insurance Market Investigation Order 2011.

Consumer finance

New FCA guidance clarifies ‘default’ for guarantor loans

On 19 January 2017, the FCA issued guidance to consumer credit firms on its interpretation of the requirement in the Consumer Credit Act 1974, s 87 (CCA 1974), to serve a default notice before the creditor or owner enforces a guarantee or indemnity following breach of a regulated agreement. Among other clarifications, the FCA differentiates between ‘default’ in the context of a default notice under the CCA where, for example, the borrower has failed to pay, and the different meaning of ‘default’ in an accounting context and in relation to CRA reporting.

Free debt advice helps debtors and creditors, says MAS

On 24 January 2017, a study published by the Money Advice Service (MAS) found that within three to six months of receiving regulated advice, nearly two-thirds (65%) of those with debts are either repaying them or have repaid them in full. MAS says free debt advice helps to improve financial capability by giving people the knowledge and confidence they need to deal with financial difficulties.

Markets and trading

Commission amends phase-in of margin requirements under EMIR

On 20 January 2017, the European Commission adopted a Delegated Regulation correcting Delegated Regulation (EU) 2016/2251, which sets out risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty under EMIR (Regulation (EU) 648/2012). The new Delegated Regulation adds a phase-in provision on variation margin requirements to intra-group transactions in a way analogous to initial margin requirements, which due to a technical error was omitted from the original Delegated Regulation.

AFME publishes MiFID II questions for exchanges

On 20 January 2017, the Association for Financial Markets in Europe (AFME) issued a questionnaire containing a standardised set of questions that can be sent from investment firms to exchanges which fall under the scope of the recast Markets in Financial Instruments Directive (MiFID II).

Commission seeks input on CMU progress and prospects

On 20 January 2017, the European Commission announced a public consultation ahead of its Capital Markets Union (CMU) mid-term review (MTR). The CMU is the EU-wide plan to strengthen capital markets and investment in the long term. Evidence-based feedback and specific operational suggestions are sought by 17 March 2017.

EMIR Delegated Regulation published in the Official Journal

On 21 January 2017, Commission Delegated Regulation (EU) 2017/104 of 19 October 2016 amending Delegated Regulation (EU) 148/2013 supplementing EMIR with regard to regulatory technical standards (RTS) on the minimum details of the data to be reported to trade repositories was published in the Official Journal of the EU.

EMIR Implementing Regulation published in the Official Journal

On 21 January 2017, Commission Implementing Regulation (EU) 2017/105 of 19 October 2016 amending Implementing Regulation (EU) No 1247/2012 laying down implementing technical standards (ITS) with regard to the format and frequency of trade reports to trade repositories according to EMIR was published in the Official Journal of the EU.

IVSC—new valuation standard ‘will bring greater efficiency to capital markets’

On 23 January 2017, the International Valuation Standards Council (IVSC), the global standard setter for valuation practice and the valuation profession, launched IVS 2017, aimed at harmonising valuation practice across the world. It seeks to underpin consistency, transparency and confidence in valuations, in order to assist investment decisions and financial reporting.

ESMA Chair speaks on EMIR and benchmarks reforms

On 23 January 2017, the chair of ESMA, Steven Maijoor, spoke about the reforms of the over-the-counter (OTC) derivatives markets and benchmarks at the PRIME Finance 6th Annual Conference in The Hague on 23 January 2017. He also discussed the system of third-country equivalence in both of these reforms, and ESMA’s role as a mediator between national regulators.

SIFMA AMG and IAA publish letter on variation margin requirements

On 24 January 2017, the US Securities Industry and Financial Markets Association’s Asset Management Group (SIFMA AMG) submitted a follow-up letter regarding its request for a transitional period for variation margin implementation. The letter provides additional information in support of AMG’s 16 December 2016 letter requesting six-month transitional relief from the 1 March 2017 variation margin requirements and additional transitional relief for foreign exchange (FX) clients.

IBA gives LIBOR evolution update and opens additional consultation

On 24 January 2017, ICE Benchmark Administration (IBA) published a summary of the evolution of the London Interbank Offered Rate (LIBOR, also known as ICE LIBOR) and an additional consultation relating to LIBOR evolution, closing 15 February 2017.

Corrigendum to EMIR Implementing Regulation published in the Official Journal

On 25 January 2017, a Corrigendum to Commission Implementing Regulation (EU) 2017/105 of 19 October 2016 amending Implementing Regulation (EU) No 1247/2012 laying down implementing technical standards with regard to the format and frequency of trade reports to trade repositories according to EMIR was published in the Official Journal of the EU.

Insurance and pensions

CLLS on HMT’s insurance-linked securities framework

On 19 January 2017, the City of London Law Society’s Insurance Law Committee (ILC) published a detailed response to the HM Treasury (HMT) consultation on draft regulations implementing a framework for insurance-linked securities.

CMA orders Co-op to clarify cost of car insurance

On 19 January 2017, the CMA announced that following action by them, drivers are to get better information about the actual price of Co-op Insurance’s no-claims bonus (NCB) protection. The CMA has insisted the insurer provide more price information to motorists, to comply with the Private Motor Insurance Market Investigation Order 2015. The order requires private motor insurance providers offer better information on NCB protection by 1 August 2016. Co-op Insurance was the only one of the major insurers which failed to meet this deadline.

EIOPA updates Solvency II template Q&As

On 23 January 2017, the European Insurance and Occupational Pensions Authority (EIOPA) issued new sets of Q&As on the templates for submission of information to the supervisory authorities, and the procedures, formats and templates of the solvency and financial condition report set out in Commission Implementing Regulations (EU) 2015/2450 and (EU) 2015/2452.

ECON scrutiny of Insurance Distribution Directive delegated acts and implementing measures

On 24 January 2017, the European Parliament prepared a briefing paper to support a 25 January 2017 Committee on Economic and Monetary Affairs (ECON) scrutiny session on implementing measures under the Insurance Distribution Directive (Directive (EU) 2016/97) (IDD).

Pension scams evolving to conceal underlying investments, says FCA

On 24 January 2017, the FCA issued an alert warning that scammers are becoming increasingly sophisticated in developing products designed to defeat firms’ due diligence efforts. It says the risks arise from authorised firms failing to carry out appropriate due diligence on investment offerings, and encourages firms to review their systems and controls.

FCA announces expectations for advising on pension transfers

On 24 January 2017, the FCA raised concerns that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested, putting consumers at risk of transferring into unsuitable investments or being scammed. In its alert the FCA points out that transferring pension benefits is usually irreversible, and it may be many years before ‘the merits or otherwise’ become apparent, so it is crucial that clients are fully informed of the implications before proceeding with a transfer.

EU insurance regulation examined by Treasury Committee

On 25 January 2017, the Treasury Committee announced it is to examine the Solvency II Directive with insurance and financial services providers to understand how opportunities for greater control of insurance regulation could result from Brexit.

FCA launches insurance value data pilot

On 25 January 2017, the FCA published the first set of data in its general insurance value measures pilot, covering the year ending 31 August 2016. The move follows an FCA finding of poor value in both add-on and some stand-alone products sold by firms, with consumers struggling to assess value due to the lack of a commonly available measure.

Payments and fintech

ECP gears up for November 2017 launch of SEPA Instant Credit Transfer Scheme

On 19 January 2017, the European Payments Council (EPC) opened registration to and published a Guide for Adherence to the Single Euro Payments Area (SEPA) Credit Transfer Scheme, the SEPA Instant Credit Transfer Scheme (the ICT Scheme), the SEPA Core Direct Debit Scheme and the SEPA Business-to-Business Direct Debit Scheme (EPC012-17). Payment service providers can now apply for adherence to the SEPA ICT Scheme, which will become effective in November 2017.

PSR infograph explains its communications approach

On 19 January 2017, the Payment Systems Regulator’s (PSR) payment system operator delivery group published an infograph showing how it will be complying with its responsibility to communicate with stakeholders, including delivery group members.

ESMA officer speaks on FinTech and the securities sector

On 23 January 2017, ESMA published a speech by the senior risk analysis officer in the innovation and products team, Patrick Armstrong, at the Oslo Børs ASA: Stock exchange and Securities Conference on 18 January 2017, providing a regulatory perspective on the opportunities and challenges arising from financial technology and the securities sector. According to Mr Armstrong, most academic literature places technology and regulation as the primary drivers of financial innovation. The challenge is determining the ‘tipping point’ when the regulator should step in.

ECB seeks views on market interest in TIPS

On 23 January 2017, the ECB launched a consultation seeking views on the market interest in the proposed TARGET Instant Payments Settlement (TIPS) service. On the basis of the responses received, the Eurosystem will assess if there is enough interest and potential market demand to proceed with the realisation phase of TIPS.

Dates for your diary

Key Date Subject Event
27 January 2017 Prudential Requirements Deadline for responses to EBA survey on internal ratings-based (IRB) models to analyse the impact of the EBA draft Guidelines (EBA/CP/2016/21) on the estimation of risk parameters for non-defaulted exposures, namely of the probability of default (PD) and the loss given default (LGD), and on the treatment of defaulted assets.
27 January 2017 Markets and Trading Deadline for responses to ECB consultation 'Draft guidance on leveraged transactions'.
28 January 2017 Capital Requirements Directive IV and Capital Requirements Regulation Deadline for responses to EBA Consultation Paper: Draft Guidelines on internal governance (EBA/CP/2016/16.
28 January 2017 Capital Requirements Directive IV and Capital Requirements Regulation Deadline for responses to ESMA and EBA 'Consultation Paper: ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders under CRD IV and the CRR'.
30 January 2017 Prudential requirements Following the publication of PS/117 by the PRA, the deposit protection limit increases from £75,000.00 to £85,000.00 from this date. The PRA expects firms to:

  1. make all changes to customer-facing materials required to implement the new deposit limit as soon as practicable after 30 January 2017, and in any event on or before 30 June 2017, and
  2. train their customer-facing staff to answer questions from customers about the change in the deposit limit, regardless of when a firm’s written materials are amended, by 30 January 2017 or as soon as practicable after 30 January 2017

30 January 2017 Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation The FCA will open the gateway for draft applications for authorisation under MiFID II and MiFIR for FCA solo regulated firms on this date.
See the FCA's 'MiFID II – Application and notification user guide' for further information.
31 January 2017 Prudential requirements—reporting requirements The PRA to issue details of the systems which will be used by firms in relation to reporting requirements relating to forecast capital (Capital+) data in the Regulatory Reporting Part of the PRA Rulebook on the PRA website. See the ‘CRD firms—Reporting Requirements’ webpage and 'Policy Statement: Responses to Chapter 3 of CP17/16—forecast capital data—PS32/16'.
31 January 2017 Prudential requirements Deadline for responses to the Transfers and Re-registration Industry Group (TRIG) consultation 'Improving Pension and Investment Transfers and Re-registration'.
31 January 2017 Brexit Deadline for responses to the Treasury Committee's call for written submissions on transitional arrangements.
31 January 2017 Regulatory architecture Deadline for responses to the Financial Ombudsman Service's (FOS) consultation on its plans and budget for 2017/2018.
31 January 2017 Securities Financing Transactions Regulation and the European Market Infrastructure Regulation Deadline for responses to ESMA's 'Consultation Paper: ESMA’s technical advice to the Commission on fees for TRs under SFTR and on certain amendments of for fees under EMIR certain amendments certain amendments to the fees under EMIR (ESMA/2016/1672)'.
1 February 2017 FCA conduct requirements Changes to the FCA Handbook set out in 'PS16/23: October 2016 Smarter Consumer Communications—removing ineffective disclosure requirements in our Handbook' take effect from this date. Except for the removal of the rules for short reports and the Consumer-Friendly Principles and Practises of Financial Management (CFPPFM), which took effect from 22 November 2016.
2 February 2017 Prudential requirements Deadline for responses to EBA 'Discussion Paper: Designing a new prudential regime for investment firms (EBA/DP/2016/02)'.
2 February 2017 FCA conduct requirements Deadline for responses to chapters 3, 4, 5, 7 and 8 of FCA consultation 'CP16/39: Quarterly Consultation Paper No.15'.
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