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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 27 July 2017.
The informal Brexit liaison group held its first meeting of the 2017–19 parliamentary session, where it discussed with the deputy governor of the Bank of England, Sir Jon Cunliffe, the issue of transferring the EU acquis and ensuring good regulation of financial services in the UK. One possible option discussed was using the established framework for financial services in the UK, where the regulators already have a legislative function.
The Financial Conduct Authority (FCA) published Handbook Notice No. 46, which included changes to the FCA Handbook made in instruments adopted by the FCA Board in June and July 2017, together with feedback on consultations that would not have a separate policy statement published by the FCA. It also described changes due to be made by the board of the Financial Ombudsman Service to its standard terms on 26 July 2017.
The FCA held its fourth annual public meeting on 18 July 2017, at which it discussed its annual report 2016/17. The meeting was opened by the FCA chair, John Griffiths-Jones, who acknowledged that the period had been an uncertain one for parts of the financial sector, due in part to Brexit. However, Mr Griffiths-Jones was unequivocal in stating it would not derail the objectives of the FCA as 'there is a significant amount to deliver regardless’.
The FCA published its monthly email to all regulated firms. The round-up highlights the FCA's publication of its Asset Management Market Study report, and the expansion of the scope of the FCA's advice unit. It also highlights the publication of a new MIFID II consultation paper and policy statement, the publication of finalised guidance on the treatment of politically exposed persons, and the publication of a consultation on the implementation of the EU Benchmark Regulation.
The Financial Conduct Authority (FCA) has released three impact assessments examining the impact and cost on business, and the impact of good practice, in three areas the FCA has previously reviewed including packaged bank accounts, the HBOS Report and the handling of insurance claims for SMEs.
The Financial Conduct Authority (FCA) launched proposals to help customers make effective comparisons of the service levels available for personal current accounts and business current accounts. The FCA wants information to be easy for consumers and comparison services to access and compare, which it hopes will drive increased competition between firms to offer improvements in service quality.
The FCA issued a reminder to firms that MiFID II comes into force on 3 January 2018. Firms that have missed the 3 July 2017 deadline for applications for authorisations or variations of permission should apply ‘without further delay’. The FCA said it would determine complete applications received after 3 July 2017 within six months, but cannot guarantee to have done so by 3 January 2018.
The European Securities and Markets Authority (ESMA) updated its technical reporting instructions for MiFIR transaction reporting, which was originally published in October 2016. The amendments include changes to the validation rules in Annex 1, and some changes to the XSD files for messages to be used to report data, which are provided in Annex 2.
The PRA and FCA published proposals to extend the Senior Managers and Certification Regime (SM&CR) to all authorised firms. The PRA’s proposals would extend the SM&CR to insurers and the FCA’s proposals would extend the SM&CR to almost all regulated firms. The new regime will essentially replace the Approved Persons Regime.
The Council of the EU published the minutes of the Agriculture and Fisheries Council meeting on 17 and 18 July 2017. Among other things, at the meeting, the Council decided not to object to a number of European Commission Regulations including MiFIR, Solvency II and EMIR Delegated Regulations.
Guideline (EU) 2017/1362 of the European Central Bank (ECB) of 18 May 2017 amending Guideline (EU) 2015/510 on the implementation of the Eurosystem monetary policy framework (ECB/2017/12) was published in the Official Journal of the EU.
The Opinion of the ECB on a proposal for a directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU (Second Company Law Directive) was published in the Official Journal of the EU. The Opinion was published on 7 June 2017.
The Prudential Regulation Authority (PRA) published policy statement (PS) 20/17, which covers feedback on the response to consultation paper (CP) 6/17 ‘Regulatory reporting: occasional consultation paper’. The PRA received one response, which agreed with the proposals, and is making the final rules without change. PS20/17 contains those rules, an updated supervisory statement (SS) 34/15 ‘Guidelines for completing regulatory reports’, and updated templates and instructions (PRA101 to PRA103, and PRA108).
The PRA published policy statement (PS) 19/17, which covers feedback on the responses to consultation paper (CP) 2/17 ‘Occasional consultation paper’, the final rules, updated supervisory statement (SS) 34/15 ‘Guidelines for completing regulatory reports’, and SS9/13 ‘Securitisation’.
The Financial Stability Board (FSB) published an overview of responses to its 16 December 2016 consultation document ‘Guiding Principles on the Internal Total Loss-absorbing Capacity of G-SIBs ('Internal TLAC')’. Respondents generally welcomed the clarification provided by the consultative document on issues relating to the implementation of internal TLAC, but a number of respondents expressed the view that the consultative document contained some shortcomings and did not address certain issues.
The FSB published an overview of responses to its 16 December 2016 consultation on continuity of access to financial market infrastructures (FMIs) for a firm in resolution. Respondents welcomed the FSB's focus on continuity of access to FMIs and generally supported the objectives of the guidance.
The European Parliament published a report on whether banks have structurally changed since the financial crisis, looking at bank profitability, activity mix, size, balance sheet composition, and loan impairment. The study reports mixed findings, with a range of stronger ratios, a decline in the size of the average Eurozone global systemically important banks (G-SIB), and increased capitalisation rates for directly supervised banks all suggesting improvement. But low return on assets, high NPL ratios and a highly countercyclical pattern of loan loss provisioning in directly supervised banks remain causes of concern.
The FSB completed its peer review of France, looking at the macroprudential policy framework, and public disclosures of financial sector data. The review focused on the steps taken by the French authorities to implement reforms in these areas and found ‘significant progress’ had been made at both the EU and the national level.
HM Treasury launched a consultation on the impact and drafting of regulations intended to improve oversight of the anti-money laundering supervisory regime, in particular by the creation of a new Office for Professional Body Anti-Money Laundering Supervision (OPBAS). The consultation closes on 16 August 2017.
The FCA issued a consultation: Office for Professional Body Anti-Money Laundering Supervision: a sourcebook for professional body supervisors (GC 17/7), setting out draft expectations about how professional body supervisors can meet their obligations in relation to AML supervision. The consultation proposes text for a specialist Sourcebook for professional body supervisors that sets out expectations in relation to anti-money laundering supervision. The sourcebook codifies what the FCA understands to be existing good supervisory practice. Comments are sought by 23 October 2017.
Her Honour Judge Korner CMG QC sitting at Southwark Crown Court made a confiscation order of £350,000 against Damian Clarke, a convicted insider dealer. The order must be paid within three months or Mr Clarke will face a further three years in prison.
The House of Lords secondary legislation scrutiny committee published correspondence between its chair and HM Treasury about the government's 'lack of appropriate concern' over the Parliamentary scrutiny of three sets of regulations implementing the EU Fourth Money Laundering Directive (MLD4).
The FCA released a policy statement—PS17/18: ‘CASS 7A and the special administration regime review’—summarising the feedback it received on its consultation (CP17/2) on aspects of the client assets regime, in particular regarding the client money distribution rules and their interaction with the special administration regime.
Price comparison website Moneysupermarket.com Ltd was fined £80,000 by the Information Commissioner’s Office (ICO) after it sent millions of emails to customers who had previously opted out of direct marketing. The ICO emphasised that it is illegal to try to persuade people to consent to future marketing messages when they have already opted out.
The 2nd US Circuit Court of Appeals in New York overturned the convictions of two former Rabobank employees charged with manipulating the London Interbank Offered Rate (LIBOR). The court held that the constitutional rights against self-incrimination of the former employees, Anthony Allen and Anthony Conti, who are both from the UK, had been violated because testimony they had been compelled to give to the FCA was used at their trial.
The Serious Fraud Office (SFO) launched an investigation looking into potential corruption of the Rio Tinto group’s conduct of business in the Republic of Guinea. This investigation relates to the conduct of its employees and others associated with the business.
The Office of the Complaints Commissioner (OCC) published a letter dated 10 July 2017 in which it sets out its reasons for upholding the Financial Conduct Authority (FCA)’s rejection of a complaint against it, but made a number of criticisms of the FCA’s handling of the matter.
The City of London Law Society and Law Society Company Law Committees’ joint working parties on market abuse, share plans and takeovers code (joint working parties) published an update to its Q&A on Regulation (EU) 596/2014 (the Market Abuse Regulation). The update states that the committees are in the process of revising Q&A 7 in light of recent guidance published by ESMA.
The FSB published an overview of responses to its 1 February 2017 consultation on guidance on central counterparty (CCP) resolution planning. Respondents generally supported the proposed guidance as an important step towards addressing the financial disruption that could occur in the event that a CCP fails.
The European Systemic Risk Board (ESRB) published an opinion on a central counterparty recovery and resolution framework, referring principally to the European Commission legislative proposal of November 2016 and the Presidency compromise text published in April 2017. The ESRB identifies a number of areas where it feels the provisions of the compromise text should be amended or expanded in order to better address macroprudential considerations.
The Joint Board of Appeal of the European Supervisory Authorities (ESAs), published its decision in an appeal brought by FinancialCraft Analytics Sp. z o.o. (formerly named Global Rating Sp. z o.o.) against an ESMA decision.
The ESMA established a Memorandum of Understanding (MoU) with the Securities and Exchange Board of India (SEBI) in connection with central counterparties (CCPs) that have applied for EU recognition under the European Markets Infrastructure Regulation (EMIR).
UK Finance and the Association for Financial Markets in Europe (AFME) published a guide to the use of league tables in pitch presentations. The guidance establishes the minimum information that AFME and UK Finance believes should be made available to clients with respect to league tables, with an overarching principle that the information presented in them must be fair, clear and not misleading.
The FSB published the 12 responses it received to its consultation on unique transaction identifiers (UTIs). The primary purpose of the UTI is to uniquely identify individual financial transactions in reports to trade repositories (TRs). In particular, a UTI helps to ensure the consistent aggregation of OTC derivatives transactions by minimising the likelihood that the same transaction will be counted more than once, for instance because it is reported by more than one counterparty to a transaction, or to more than one TR.
The European Commission published a report on the plan to produce an interpretative communication on the legal treatment of intra-EU investments, which would provide guidance on existing EU rules for the treatment of cross-border EU investments. The Commission said greater clarity on investors’ EU rights would be useful for EU investors, national administrations, stakeholders and for legal practitioners. The assessment says it would provide greater transparency on the effective protection of EU investor rights in the single market and create a more positive environment to attract investments.
The ESMA delivered an opinion to the European Commission, the Council and the Parliament setting out possible clarifications of the asset segregation requirements under both the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) and the Undertakings for Collective Investment in Transferable Securities Directive 2009/65/EC (UCITS), and the application of depositary delegation rules to central securities depositaries (CSDs).
The FCA published an Insight article that outlines the FCA's recent use of browsing data (known as clickstream data) which highlights that investors on the whole pay little attention to the cost of funds on investment websites, even though they may say otherwise.
SI 2017/787: The National Savings Regulations 2015 (2015 Regulations) are amended and certain eligibility requirements that currently apply to all individual savings accounts offered by national savings and investments are dis-applied. The legislation comes into force on 15 August 2017.
The FCA published the findings of its review into fund suspensions and pricing adjustments following the vote to leave the European Union. The FCA says that the findings show that property funds should take external events into account as part of their planning in order to deal with potential liquidity risks.
ECB decisions on the implementation of the corporate sector purchase programme (Decision (EU) 2017/1359), third covered bond purchase programme (Decision (EU) 2017/1360), and asset-backed securities purchase programme (Decision (EU) 2017/1361) were published in the Official Journal of the EU.
The Bank of England’s executive director for financial stability, Alex Brazier, has warned in a speech of the rising level of household debt. Although, in the last two years, lending has grown in line with the economy, consumer credit has been growing very rapidly. In the past year, outstanding car loans, credit card balance transfer and personal loans have increased by 10%, while household incomes have risen by only 1.5%. Mr Brazier said the BoE had strengthened banks’ defences against losses by raising the capital buffers they are required to hold on all their lending, and had accelerated the 2017 stress test of banks’ consumer credit loans, to make sure they have the strength to deal with very severe recessions without cutting back their lending.
The Financial Guidance and Claims Bill entered the committee stage at the House of Lords, the first chance for line by line scrutiny. Members discussed aspects including the function and sufficiency of debt advice services, creating a breathing space scheme, increased financial inclusion and the duties of the proposed single financial guidance body. A second day of committee stage is scheduled for 6 September 2017.
UK Finance updated its Access to Banking Standard, which aims to help minimise the impact of bank branch closures on customers and local communities. The Lending Standards Board will oversee the operation of the standard, and ensure that the 12 banks and building societies which have signed up to the standard fulfil their requirements, and that the intended outcomes for customers are reached.
The European Court of Justice decision in Gelvora UAB v Valstybinė vartotojų teisių apsaugos tarnyba has confirmed that that debt collection agency's activities are within scope for the Unfair Commercial Practices Directive.
The FCA issued Insurance Distribution Directive Implementation—Consultation Paper 2 (CP17/23), setting out its proposals for the changes required to comply with the Insurance Distribution Directive (Directive 2016/97/EU) (IDD). Comments are sought by 20 October 2017.
The PRA published an update on insurance special purpose vehicles (ISPVs). Under the new approach set out by HM Treasury on 20 July 2017—in the response to the PRA/Financial Conduct Authority consultation paper 42/16 on the authorisation and supervision of insurance special purpose vehicles (ISPVs) and updated Regulations—the PRA would authorise a multi-arrangement ISPV (MISPV)’s scope of activities, including the parameters within which future cells may be established, and the scope of the firm’s permission will be limited on this basis.
HM Treasury published regulations implementing a new regulatory and tax framework for insurance linked securities, following a consultation launched in November 2016. The goal is to position the UK as a leader in the rapidly growing global reinsurance market. The regulations will be laid before Parliament after summer recess and will come into force in the autumn of 2017.
The European Commission released a draft Commission Delegated Regulation supplementing the IDD with regard to information requirements and conduct of business rules applicable to the distribution of insurance-based investment products. The Delegated Regulation aims to specify the criteria and practical details for the application of the rules on conflicts of interest, on inducements and on the assessment of suitability and appropriateness.
The European Commission published a draft Commission Delegated Regulation supplementing the IDD with regard to product oversight and governance requirements for insurance undertakings and insurance distributors. The draft regulation is open for feedback until 17 August 2017.
The FCA published policy statement 17/16, Regulatory reporting: Retirement income data, which provides feedback on consultation paper CP16/36 and final rules, introducing two new data items on retirement income. The rules and guidance will come into effect on 30 September 2018.
As part of its plan to develop a risk-based global insurance capital standard (ICS), the International Association of Insurance Supervisors (IAIS) published ‘Risk-based Global Insurance Capital Standard Version 1.0 for Extended Field Testing’. While field testing remains a voluntary exercise, the IAIS aims for all internationally active (or potentially active) insurance groups (IAIGs) to be involved in field testing as the ICS project further develops towards ICS Version 2.0.
The Competition Appeal Tribunal (CAT) handed down its judgment in relation to the collective proceedings order (CPO) application in Walter Hugh Merricks v MasterCard, dismissing the application after finding it did not meet the criteria, in particular that the claims were not eligible for inclusion in a collective proceeding as there was not sufficient commonality in issues between the claims, in particular in relation to the actual damage suffered, especially in relation to passing-on of any loss.
The FCA released details of the first set of general insurance events taking place from September to December 2017 across the UK, including interactive workshops with a focus on working to prevent harm, and Q&A roundtables with a panel of FCA and industry representatives. The FCA is also planning two presentations in its London office in autumn 2017—one aimed at retail insurers and the other at Lloyd’s and London Markets firms. Details for these presentations will be available on the Live & Local webpage in September.
The European Insurance and Occupational Pensions Authority (EIOPA) published new sets of Q&As on Commission Implementing Regulation (EU) 2015/2450 with regard to the templates for the submission of information to the supervisory authorities, and has also published answers to questions on Commission Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138/EC (Solvency II).
Insurance Europe (IE) provided feedback to the European Commission on its proposal for amending key areas of the European Market Infrastructure Regulation (EMIR) regulation.
The European Banking Authority (EBA) is consulting on its draft regulatory technical standards (RTS) and implementing technical standards (ITS) on the electronic central register under the Payment Services Directive (Directive (EU) 2015/2366) (PSD2). The RTS and ITS set requirements on the development, operation and maintenance of the register and the information to be contained in it. The RTS also set out requirements related to access to the register, the validation of information, the management and maintenance of the register by the EBA, the search of information and the display of the search results. The consultation runs until 15 September 2017.
SI 2017/752: The Payment Services Regulations 2009 are revoked to transpose in part Directive 2015/2366/EUon payment services in the internal market and set out a regulatory regime for providers of payment services, restrict the provision of payment services as a regular business to certain types of entities (payment service providers), and require the authorisation or registration of providers of payment services which do not otherwise have the status of payment service provider. Most of the changes come into force on 13 August 2017.
The European Commission launched a public consultation on transparency and fees in cross-border transactions in the EU. It seeks to collect views from a broad range of stakeholders, as well as from the public, to help the Commission define the best way forward to reduce the cost of cross-border payments. Responses are sought by 30 October 2017.
The Payment Systems Regulator (PSR) published minutes of its board meetings on 17 May and 21 June 2017. Items discussed at the May meeting include updates on the Which? super complaint, monitoring of compliance with the Interchange Fee Regulation (IFR), and the card acquiring market.
The Securities and Futures Commission in Hong Kong (SFC) and the FCA reached a memorandum of understanding (MOU) regarding mutual assistance in the supervision and oversight of regulated entities in the jurisdiction of the Authorities.
Five US financial regulators are to review the treatment of certain foreign funds under section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule. These foreign funds are investment funds organised and offered outside of the US that are excluded from the definition of ‘covered fund’ under the agencies' implementing regulations. However, complexities in the statute and the implementing regulations may result in some excluded funds becoming subject to regulation, and a number of non-US banking entities, non-US government officials and other market participants have expressed concern about possible unintended consequences and extraterritorial impact.
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Chris is a member of the New York Bar with more than two decades of experience as a financial services and capital markets lawyer in London. Before joining LexisNexis in 2016, Chris worked as a Senior Professional Support Lawyer at Linklaters LLP, supporting the firm’s market-leading Financial Regulation Group, with a particular focus on MiFID II. Chris also worked as Legal Analyst at Bloomberg, where he drafted analytical articles on EU, UK and US financial services law and regulation for Bloomberg journals and developed practical guidance content for the award-winning Bloomberg LAW legal research platform. Prior to that, Chris was a partner in the U.S. law group at Allen & Overy, advising issuers and underwriters on a wide range of capital markets and corporate finance transactions including SEC-registered and Rule 144A debt and equity offerings and mergers and acquisitions, as well as providing general U.S. securities law advice. He also co-founded the firm’s Microfinance Working Group and advised on a variety of matters including two landmark securitisations of loans to microfinance institutions.
Chris has written extensively on legal and regulatory issues for numerous publications and lectured on financial regulation, microfinance and capital markets.
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