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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 27 October 2016.
On 20 October 2016, it was announced that Mark Carney, the Governor of the Bank of England (BoE), was scheduled to give evidence to the House of Lords Select Committee on Economic Affairs at 3.35pm on Tuesday 25 October 2016. The focus of the evidence session was the economic consequences of the vote to leave the European Union and the BoE’s response.
On 26 October 2016, the Financial Conduct Authority (FCA) published a consultation on its future Mission. The FCA has set out its Mission around a set of guiding principles around the strategic choices it makes. The FCA said the launch of the consultation on its future role is designed to understand how the regulator can ‘make the biggest difference in making markets work well’ and meet the increasingly complex needs of consumers. The consultation is open until 26 January 2017.
On 20 October 2016, Verena Ross, executive director of the European Securities and Markets Authority (ESMA), gave a speech entitled ‘Regulatory and supervisory developments, the challenges ahead—a European perspective’ at the Finanstilsynet 30th Anniversary International Conference in Oslo, Norway. Ms Ross spoke of the importance of investor protection to Capital Markets Union (CMU), and described some of ESMA’s recent workstreams in the areas of disclosure, distribution, supervisory convergence and data collection. She also noted the ongoing integration of Norway and other European Economic Area (EEA) and European Free Trade Association (EFTA) states with the European Union, a topic that will be of interest to those considering possible models for the UK post-Brexit.
On 20 October 2016, the European Central Bank (ECB) published a speech given by Danièle Nouy, Chair of the Supervisory Board of the ECB, at the European Financial Round Table in Frankfurt on 19 October 2016. Ms Nouy spoke on major changes affecting banking, the new supervisory and regulatory landscape macroeconomic change and technological change.
On 24 October 2016, the 11th meeting of the Financial Stability Board’s (FSB) Regional Consultative Group for Europe (RCG Europe) took place in Lisbon, Portugal. RCG Europe is one of six FSB Regional Consultative Groups which bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.
On 24 October 2016, Minouche Shafik, the BoE deputy governor for markets and banking gave a speech—‘Think Global, Act local’—at the BoE’s joint conference with the International Monetary Fund and Hong Kong Monetary Authority on Monetary, Financial and Prudential Policy Interactions in the Post-Crisis World.
On 24 October 2016, it was announced that Katherine Braddick had been appointed to the role of director general for financial services at HM Treasury. Ms Braddick will be responsible for all issues relating to financial services, the financial system and financial stability at HM Treasury and takes up the new roll immediately from Charles Roxburgh who was appointed second permanent secretary to the Treasury in June.
On 25 October 2016, Cass Business School and New City Agenda published a report ‘Cultural change in the FCA, PRA and Bank of England—Practising what they preach?’ which recommends cultural change in the FCA, Prudential Regulation Authority (PRA) and Bank of England (BoE).
On 25 October 2016, the European Commission published its 2017 work programme. Delivering a Europe that 'protects, empowers and defends' are the aims of the work programme. The programme outlines 21 key initiatives across ten main areas. These include strengthening Economic and Monetary Union and building a more effective migration policy. The work programme also includes such issues as international trade, boosting investment and taxation, with a relaunch of the Common Consolidated Corporate Tax Base (CCCTB) and further measures to prevent tax evasion.
On 20 October 2016, the BoE published speeches given by Minouche Shafik, BoE deputy governor, and James Proudman, BoE executive director, UK Deposit Takers, at the New York Federal Reserve’s conference ‘Reforming culture and behaviour in the financial services industry—Expanding the dialogue’.
SI 2016/1023: Secondary legislation is amended in consequence of amendments made to the Financial Services and Markets Act 2000. These changes come into effect on 21 November 2016. The Financial Services (Banking Reform) Act 2013 (FS(BR)A 2013) made several changes to provisions of the Financial Services and Markets Act 2000 (FSMA 2000) relating to the conduct of those working in the financial services sector, in order to implement recommendations made by the Parliamentary Commission on Banking Standards in its final report, ‘Changing banking for good’.
On 24 October 2016, the PRA provided an update on its next steps following the closure of its consultation CP 24/16 ‘Credit union regulatory reporting’. The PRA said it is currently reviewing the responses it received to the consultation, which closed on 5 September 2016, with the aim of publishing its final policy by the end of 2016 and putting in place new rules with effect from 3 January 2017.
On 20 October 2016, the PRA published a statement clarifying the PRA’s interpretation of the concept of ‘durable link’, which is important for ascertaining whether a holding of less than 20% in another undertaking is to be treated as a ‘participation’ for the purposes of article 4(1)(35) of the Capital Requirements Regulation (EU) 575/2013(CRR).
On 20 October 2016, correspondence between the Chairman of the Treasury Committee and the Director General of HM Treasury was published on proposed amendments to legislation regarding the bank ring-fencing regime. An explanation of the amendments was also been published by the Committee.
On 20 October 2016, the European Banking Authority (EBA) issued an opinion giving further technical advice on two of the recommendations made in the EBA’s Report on Investment Firms (EBA/Op/2015/20) published in December 2015.
On 20 October 2016, the EBA announced it is to hold a public hearing on 18 November 2016 to outline its draft proposals on the European covered bond framework. The hearing follows the recommendation by the European Systemic Risk Board (ESRB) on the funding of credit institutions, which requested the EBA to report on how the frameworks for covered bonds have functioned according to its best practice principles from 2014 and to recommend further actions. The final report is expected to be published by the end of 2016.
On 20 October 2016, the EBA guidelines on stress tests under the Deposit Guarantee Schemes Directive 2014/49/EU, were published in 23 official EU languages. The guidelines were first published in May 2016 and provide a systematic methodology for planning, running and reporting on stress tests conducted by deposit guarantee schemes to assess their resilience to various types of scenarios in times of banking stress.
On 24 October 2016, the European Commission adopted a Commission Delegated Regulation supplementing the Capital Requirements Directive (2013/36/EU) (CRD IV) with regard to regulatory technical standards (RTS) for benchmarking portfolio assessment standards and assessment sharing procedures pursuant to Article 78(7) of CRD IV. Prior to the adoption of the Delegated Regulation by the Commission, the EBA carried out a public consultation on the draft technical standards submitted to the Commission in accordance with Article 78(7) of CRD IV.
On 25 October 2016, the Council of the EU published a Committee of Regions Opinion concerning European Deposit Insurance Scheme (EDIS).
On 24 October 2016, Danièle Nouy, the chair of the ECB supervisory board, made a speech at the 2016 Banking Conference at Bocconi University in Milan regarding European banking supervision: ‘Safe and sound banks for a strong economy—The benefits and challenges of European banking supervision’. The ECB released the slides from the presentation which focus on the benefits and challenges of European banking supervision and the challenges of the European banking sector.
On 25 October 2016, the EBA published Consultation Paper EBA/CP/2016/1: Draft Implementing Technical Standards (ITS) on procedures and templates for the identification and transmission of information by resolution authorities to the EBA, on minimum requirements for own funds and eligible liabilities (MREL) under Article 45(17) of Directive 2014/59/EU (BRRD). The consultation is open until 21 November 2016.
On 24 October 2016, the Financial Action Task Force (FATF) published guidance explaining its requirements in the context of correspondent banking services to manage, rather than avoid, the money laundering and terrorist financing risks associated with these business relationships. In particular, the guidance clarifies that the FATF Recommendations do not require correspondent financial institutions to conduct customer due diligence on each individual customer of their respondent institutions’ customers. The guidance also clarifies that not all correspondent banking relationships carry the same level of money laundering or terrorist financing risks, therefore any enhanced due diligence measures must be commensurate to the degree of risks identified.
On 25 October 2016, the European Commission published roadmaps for three counter-terrorist financing (CTF) and anti-money laundering (AML) initiatives. Roadmaps are produced by the commission to provide a first description its planned initiatives, and assess the problem the initiative is designed to solve. The roadmaps are as follows:
A possible European system complementing the existing EU-US Terrorist Financing Tracking Programme (TFTP)
Appraisal of an EU framework for administrative terrorist asset freezing measures under Article 75 Treaty on the Functioning of the European Union (TFEU), and
Proposal for a Directive on criminalisation of money laundering
On 25 October 2016, a report published from BT and KPMG found that while awareness of the threat of cybercrime has never been higher, the majority of businesses do not fully understand the methods and motivations of the attackers or the scale of the threat. The report ‘Taking the Offensive: Working together to disrupt digital crime’, contains findings and recommendations drawn from interviews with their clients and evidence gathered as part of their work, and stresses the importance of gathering intelligence on criminal activities taking a collaborative approach across sectors and building partnerships with law enforcement.
On 25 October 2016, the Council of the EU announced that The Working Party on Financial Services (AML—attachés) will meet on 3 November 2016 (10am).
On 25 October 2016, the Council of the EU published a European Economic and Social Committee (EESC) Opinion concerning a Commission Proposal for a Directive amending the Fourth Money Laundering Directive (Directive 2015/849/EU) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC) (COM(2016) 450).
On 24 October 2016, the Financial Ombudsman Service (FOS) issued a consultation on proposed administrative changes to the terms of FOS’s voluntary jurisdiction, as set out in the Dispute Resolution: Complaints sourcebook (DISP) of the FCA Handbook.
On 25 October 2016, the Financial Services Compensation Scheme (FSCS) issued a statement on Gable Insurance (Gable). The FSCS said it has not yet declared Gable in default and understands the firm is in discussions with the regulator in its home country.
On 26 October 2016, the Financial Services Compensation Scheme (FSCS) announced that from 26 October 2016 it expects motor policies with Enterprise Insurance to be terminated. FSCS said it is currently finalising how it will pay compensation and has been working the provisional liquidator Freddie White, of Grant Thornton. FSCS said it is paying Enterprise indemnity claims now and preparing to cover the return of premium for customers from 26 October, starting with motor insurance.
On 20 October 2016, the Futures Industry Association (FIA), the Global Financial Markets Association (GFMA), the Institute of International Finance (IIF), the International Swaps and Derivatives Association (ISDA) and the Clearing House (TCH) issued a joint response to the consultative report Resilience and recovery of central counterparties (CCPs): Further guidance on the PFMI issued by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) in August 2016.
On 20 October 2016, the Committee on Payments and Market Infrastructures (CPMI) and the International Organisation of Securities Commissions (IOSCO) published a consultative report Harmonisation of critical OTC derivatives data elements (other than UTI and UPI)—second batch.
On 20 October 2016, ESMA published its guidelines on the steps and the records that the persons receiving market soundings (MSR) will have to consider and implement according to Article 11(11) of the Market Abuse Regulation (EU) No 596/2014 (MAR) of the European Parliament and of the Council. The guidelines will apply from 20 December 2016.
On 20 October 2016, ESMA translated its final guidelines (ESMA/2016/1478) on legitimate interests of issuers to delay the disclosure of inside information under MAR into the official languages of the EU and published them on its website triggering their application date. The guidelines will apply from 20 December 2016.
On 21 October 2016, a corrigendum making minor corrections to the text of the MAR was published in the Official Journal.
On 21 October 2016, the European Council called for the Capital Markets Union initiative to be completed and implemented by 2018. In conclusions adopted at its meeting in Brussels on 20-21 October 2016, the Council said that work should be taken up promptly on the completion of the Capital Markets Union, notably by swiftly reaching an agreement with the European Parliament on prospectus rules to improve access to finance for companies and on securitisation.
On 21 October 2016, the FCA announced a series of events and workshops that it will be hosting before it begins accepting applications for authorisation and variation of permission under the recast Markets in Financial Instruments Directive (Directive 2004/39/EC) (MiFID II) in early 2017. The events and workshops are aimed at firms interested in being authorised as data reporting services providers, firms operating a multilateral trading facility or an organised trading facility, and firms trading in FX forwards.
On 21 October 2016, a submission from the Competition and Markets Authority (CMA) to the Business, Innovation and Skills (BIS) Committee inquiry into the government’s industrial strategy focuses on the importance of an effective competition policy, describes the relevance of competition-based merger control and sets out the UK’s current regime for public intervention in mergers on non-competition grounds.
On 21 October 2016, the World Bank published a report on the state and trends of carbon pricing. The report sets out the benefits of establishing an international carbon market under the Paris Agreement, and provides an overview of carbon pricing instruments, including national, subnational and corporate pricing initiatives. It also highlights the importance of aligning carbon pricing with the broader policy landscape.
On 25 October 2016, the International Swaps and Derivatives Association (ISDA) released its latest Quarterly. It focuses on margin rules and requirements.
On 25 October 2016, HM Treasury announced that the chief executive of TheCityUK, Miles Celic, and the International Trade Minister, Mark Garnier, have been appointed to the Financial Services Trade and Investment Board (FSTIB). FSTIB, a partnership between government and industry, supports financial services initiatives with high growth potential.
On 26 October 2016, ESMA published a set of Questions and Answers (Q&As) regarding the implementation of the Market Abuse Regulation.
On 26 October 2016, the Financial Policy Committee (FPC) at the BoE published Financial Stability Paper 40: ‘Capital inflows—the good, the bad and the bubbly’.
On 21 December 2016, the European Parliament announced it had decided not to object to a delegated regulation that was adopted by the European Commission in July 2016 with regard to product intervention under Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs). This clears the way for the delegated regulation to be published in the EU Official Journal and to enter into force.
On 25 October 2016, the Council of the EU published a further compromise proposal on the European Commission’s proposal for a Regulation to amend Regulation (EU) No 345/2013 on European venture capital funds and Regulation (EU) No 346/2013 on European social entrepreneurship funds.
On 26 October 2016, the Alternative Investment Management Association (AIMA) published a study which found that adding leverage to an alternative investment fund does not necessarily increase the risk. The report, conducted in association with the CAIA Association, also examined the different impacts of the three forms of leverage—financial leverage, derivatives leverage and portfolio leverage—and found that adding particular types of leverage minimises or controls portfolio risk.
On 20 October 2016, Age UK published a survey which found around 40% of UK independent care home residents are now paying for their own care. The rise in self-funders, it found, is a result of the decline of the state-funded system while demand from the ageing population continues to rise.
On 25 October 2016, the FCA published a guidance consultation on revised proposed guidance on guarantor loans (GC 16/7). The proposed guidance relates to the requirement in section 87 of the Consumer Credit Act 1974 (CCA 1974) to serve a default notice before enforcing a guarantee or indemnity following breach of a regulated agreement. The consultation is open until 25 November 2016.
On 26 October 2016, the Treasury Committee published a statement from its chairman, Andrew Tyrie welcoming the government’s announcement that the sales process of Bradford and Bingley assets is underway. Mr Tyrie said the Treasury will now need to work out how to extract best value in the long term for the taxpayer.
On 19 October 2016, the Steering Committee of the EU-US Insurance Project hosted a Public Forum in Frankfurt to discuss the challenges of the increased globalisation of the insurance market with more than 120 insurance executives and professionals from both sides of the Atlantic and to define the areas of work for the coming year. The Steering Committee agreed that its focus for 2017 will be intragroup transactions and guarantees, cyber risk and the impact of consumer protection on the business models of insurance companies.
On 20 October 2016, the European Insurance and Occupational Pensions Authority (EIOPA) published the Peer Review of the Statement of Investment Policy Principles (SIPP) for Institutions for Occupational Retirement Provisions (IORPs), which was launched in July 2015. EIOPA notes that the content of the SIPP varies between Member States and is based on national measures that go beyond the requirements of the IORP Directive (Directive 2003/41/EC). EIOPA has identified eight best supervisory practices and recommends three actions to national competent authorities (NCAs), in order to ease burden on IORPs.
On 20 October 2016, the FCA published is thematic review of packaged bank accounts (TR16/8). The findings of the thematic review suggest that the rules relating to packaged bank accounts have raised standards in the market, but that firms have more work to do on sales and complaints handling.
On 21 December 2016, the European Parliament announced it had decided not to object to a delegated regulation that was adopted by the European Commission in July 2016 with regard to product intervention under Regulation (EU) No 1986/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs). This clears the way for the delegated regulation to be published in the EU Official Journal and to enter into force.
On 21 October 2016, Commission Implementing Regulation (EU) 2016/1868 of 20 October 2016 amending and correcting Commission Implementing Regulation (EU) 2015/2450 laying down ITS with regard to the templates for the submission of information to the supervisory authorities according to Directive 2009/138/EC (Solvency II) was published in the Official Journal.
On 21 October 2016, EIOPA published two new sets of questions and answers. CP-14-052 provides questions and answers on the final report on the ITS on the templates for the submission of information to the supervisory authorities. CP-14-055 provides questions and on the Final report on the ITS on procedures, formats and templates of the solvency and financial condition report.
On 24 October 2016, Insurance Europe published an insight briefing considering several examples of jurisdictions that are adopting protectionist measures to limit the involvement of foreign (re)insurers in their domestic markets.
On 25 October 2016, the Financial Reporting Council (FRC) issued a Consultation Paper on a Proposal to revise Practice Note 20—The audit of insurers in the United Kingdom and withdraw Practice Note 24—The audit of friendly societies in the United Kingdom. The Consultation closes on 16 December 2016.
On 25 October 2016, the PRA issued Consultation CP37/16 Solvency II: Reporting of National Specific Templates proposing changes to National Specific Template (NSTs) file type and reporting format and presenting a number of reporting clarifications and technical corrections relating to the accompanying NST LOG files. CP37/16 is relevant to all UK Solvency II firms required to submit NSTs and to Lloyd’s.
On 25 October 2016, the PRA issued Supervisory Statement SS15/16 Solvency II: Monitoring model drift and standard formula SCR reporting for firms with an approved internal model. SS15/16 sets out the PRA’s expectations of firms with an approved internal model, and provides further information on the PRA’s approach to monitoring model drift and the reporting of standard formula Solvency Capital Requirement (SCR) information under Solvency II.
On 26 October 2016, EIOPA updated its Question and Answer tool on regulation.
On 26 October 2016, HM Treasury published a consultation paper which seeks views on technical changes to the Companies Act 2006 (CA 2006) definition of life insurers’ distributable profits. The consultation outlines proposals to change the legal definition of life insurers’ distributable This definition affects how life insurers’ calculate the profits available for distribution to their shareholders. HMT said the changes are necessary to reflect changes to the regulation of life insurers. The consultation is open until 15 November 2016.
On 21 October 2016, the European Payments Council (EPC) published its response to the consultation launched by the European Banking Authority (EBA) on 12 August 2016 with regard to draft RTS on strong customer authentication and common and secure communication under the Payment Services Directive (Directive 2015/2366/EC) (PSD2). The consultation closed on 12 October 2016.
On 21 October 2016, the Payment Systems Regulator (PSR) announced the membership of a Payment System Operator (PSO) Delivery Group. The group was established by the PSR and the BoE to consider key issues relating to the potential consolidation of the governance of three payment system operators: Bacs, Cheque and Credit Clearing Company (C&CCC) and the Faster Payments Service (FPS).
On 25 October 2016, HM treasury published a speech by the City Minister, Simon Kirby. Mr Kirby said Britain is ‘ahead of the pack when it comes to leading the way forward in world FinTech’. In a speech at the Tech & Fintech Expo in London, Mr Kirby said the government is determined to make Brexit a success for the FinTech by ensuring the industry is listened to and that ideas on how to ensure a smooth transition are taken into account.
Tariq Carrimjee v the Financial Conduct Authority  UKUT 0447 (TCC)
On 20 October 2016, the Upper Tribunal (Tax and Chancery Chamber) upheld the decision by the FCA decision to ban Tariq Carrimjee of Somerset Asset Management LLP (Somerset) from carrying out the compliance oversight and money laundering reporting significant influence functions. The Tribunal’s decision followed a hearing in September 2016.
On 21 October 2016, the FCA issued a final notice to Excel Leasing Ltd (ELL) detailing the reasons why the FCA has cancelled ELL’s permission. The FCA stated that ELL had not managed its business affairs in a sound and prudent manner, had failed to submit its CCR007 return for the period ending 31 December 2015 and had repeatedly failed to respond to the FCA’s requests for it to submit the return.
On 21 October 2016, the FCA issued a final notice to FC Group Ltd detailing the reasons why the FCA has cancelled FC Group’s permission. The FCA stated it was not satisfied that FC Group was a fit and proper person having regard to all the circumstances, including whether FC Group managed its business to ensure that its affairs were conducted in a sound and prudent manner.
On 21 October 2016, the FCA issued a final notice to Danes Autos Ltd (DAL) detailing the reasons why the FCA has cancelled DAL’s permission. The FCA stated that DAL had not managed its business affairs in a sound and prudent manner, had failed to submit its CCR007 return for the period ending 31 December 2015 and had repeatedly failed to respond to the FCA’s requests for it to submit the return.
On 25 October 2016, the FCA issued two final notices banning Richard Aston Clay and Kathryn Joy Clark from performing any function in relation to any regulated activity in the financial services industry. Mr Clay and Ms Clark have been sentenced for offences involving investments in Arck LLP made through HD Administrators LLP or through other related companies.
Brogden and another v Investec Bank plc  EWCA Civ 1031
In Brogden and another v Investec Bank plc the Court of Appeal considered a bonus dispute arising from the activities of a structured equity derivatives (SED) trading desk. The bonuses in question were calculated on an economic value added (EVA) basis and the parties were in dispute about whether in this context EVA meant the overall EVA added to the Bank or the EVA added within the business of the SED desk.
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