Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
With over 30 practice areas, we have all bases covered. Find out how we can help
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Regulatory, business information and analytics solutions that help professionals make better decisions
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Printer Friendly Version
Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 28 June 2018.
The European Union (Withdrawal) Act 2018 (EUWA) received Royal Assent on 26 June 2018. The Act repeals the European Communities Act 1972 on the day the UK leaves the EU. It ends the supremacy of EU law in UK law, converts EU law as it stands at the moment of exit into domestic law, and preserves laws made in the UK to implement EU obligations. As a general rule, the same rules and laws will apply on the day after exit as on the day before. It will then be for Parliament and, where appropriate, the devolved legislatures to make any future changes.
HM Treasury issued a paper setting out its approach to laying financial services statutory instruments (SIs) under the EUWA, which forms part of the wider work the government is undertaking to prepare for the UK’s withdrawal from the EU. HM Treasury states that the government is confident that the implementation period, agreed between the UK and the EU earlier this year, will be in place between 29 March 2019 and 31 December 2020. Nevertheless, the government says it will ensure that a workable legal regime is in operation whatever the outcome of negotiations.
The Bank of England (BoE), the Financial Conduct Authority (FCA) and the Payment Services Regulator (PSR) have each issued statements explaining their approaches to preparing for Brexit and financial services legislation under the EUWA.
The chancellor of the exchequer, Philip Hammond, used his annual Mansion House speech to spell out his strategy for safeguarding the future of the UK financial services industry post-Brexit. In the speech, Mr Hammond reiterated his call for a free trade agreement with the EU on financial services. He also announced new initiatives to meet the skills needs of the sector, to promote green finance and to partner with other countries.
The International Underwriting Association (IUA) published a Brexit ‘contract continuity clause’ to help companies manage insurance contracts as the UK leaves the EU. The clause, which aims to clarify how firms will continue to pay claims despite any business disruption caused by a situation where adequate transitional arrangements are not agreed, has been published alongside an accompanying commentary outlining circumstances it may be used in.
The European Banking Authority (EBA) published an opinion on the risks of inadequate preparations by financial institutions for the possibility of a no-deal Brexit. The EBA says firms should not rely on political agreements or public policy interventions that may not be proposed and/or agreed in time. In particular, financial institutions should ensure they have the correct regulatory permissions and associated management capacity in place ahead of time, and are aware of their customer protection obligations in these circumstances.
In a speech on Euro 2.0: Past, present, and future of euro area integration, the managing director of the International Monetary Fund (IMF), Christine Lagarde, said it was critical to ensure that regulatory and supervisory capacities are prepared for the influx of financial firms that will relocate because of Brexit. Ms Lagarde also said that, over time, there will need to be greater harmonisation of national insolvency regimes and securities regulations.
The International Capital market Association (ICMA) wrote an open letter to European Commission president Jean-Claude Juncker and UK prime minister Theresa May, expressing ‘real and increasingly pressing concerns’ about the cliff-edge risks of Brexit. It says these risks would fragment international debt capital markets, and damage business in the real economy and financial stability.
The FCA published its June 2018 regulation round-up. The June round-up is introduced by the FCA's director of market intelligence, data and analysis, Nisha Arora. It discusses the FCA’s Financial Lives Survey, the large-scale survey of UK adults, saying the results add a substantial new source of evidence to its understanding of consumers in the retail financial markets it regulates.
HM Treasury and the BoE agreed a new financial framework for the BoE which provides it with the resources required to carry out the wider monetary and financial stability responsibilities it has been given by Parliament since the last funding agreement five years ago. This is set out in a memorandum of understanding (MoU) on the financial relationship between the Treasury and the BoE.
At his annual Mansion House speech, the governor of the BoE, Mark Carney, outlined how the BoE was changing to support the development of the UK financial system. He stressed the importance of financial services to the UK economy, and of the UK as the world's leading financial centre, and set out some of the ways the UK financial system can continue to serve the UK and the world in the face of major structural changes.
The EBA launched a Staff Papers series, which provides a platform for EBA staff to disseminate research and thematic analyses to a wider public. The series will make available selected studies on financial regulation, supervisory policy and legal issues of general interest, with the aim of stimulating discussion and public debate.
Euro area ministers agreed the work programme for the Eurogroup for the second half of 2018, with a continued focus on financial stability and the banking union. The ministers of the 27 post-Brexit EU member states also discussed banking union as they met to prepare for the Euro Summit of 29 June 2018.
The FCA published a new application form and checklist for the authorisation of money market funds (MMFs) under the EU MMF Regulation, which applies to new MMFs from 21 July 2018. The FCA also updated other application forms to account for the introduction of the MMF Regulation.
The EBA updated two of its guides on data, which detail how to explore supervisory data available through the EBA reporting framework.
The Financial Stability Board (FSB) published two guidance documents to assist authorities in implementing its Key attributes of effective resolution regimes for global systemically important banks (G-SIBs). The guides aim to support the policy framework to end ‘too-big-to-fail’. The FSB also published notes on how feedback from consultation on the guides was incorporated.
The BoE published its quarterly bulletin for Q2 2018, containing an article entitled ‘Banks’ internal capital markets: how do banks allocate capital internally?’. The article discusses the capital allocation practices observed in a sample of banks reviewed by the Prudential Regulation Authority (PRA). It also considers potential implications of capital allocation methods for banks and prudential regulation.
The BoE published a financial stability report for June 2018, setting out the Financial Policy Committee (FPC)'s view on the stability of the UK financial system and what it is doing to remove or reduce any risks to it. The FPC continues to judge that, apart from those related to Brexit, domestic risks remain standard overall. The report says in recent months there has been some reduction in domestic risk appetite, although it remains strong. In its comment on the report, the PRA highlighted parts of the report which are of particular interest to PRA-regulated firms.
The chief executive of the International Swaps and Derivatives Association (ISDA), Scott O'Malia, said that with many post-crisis reforms successfully implemented, what remains is to ensure global regulatory convergence and to ensure that the entire rule set is appropriate and reflects risk. Mr O’Malia warned that divergence on the core components of the capital rules would create significant hurdles for internationally active firms, reducing the efficiency of markets and increasing compliance costs—costs which would likely be passed on to end users.
Advocate General Bobek handed down an opinion on a preliminary reference submitted by the Consiglio di Stato (Council of State, Italy) relating to a request for access to documents concerning the supervision of Banca Network Investimenti SpA by the Banca d'Italia (the Bank of Italy), the Italian banking supervisor, in the case of Enzo Buccioni v Banca d'Italia.
ISDA, the Global Financial Markets Association (GFMA) and the Institute of International Finance (IIF) submitted a joint response to the BCBS consultation on proposed revisions to the market risk framework, known as the Fundamental Review of the Trading Book (FRTB). Although the industry bodies say the revised standardised approach addresses many shortcomings of the earlier standard, they believe further changes are necessary—in particular on non-modellable risk factors, which remain an area of concern as the associated capital is still excessive.
The EBA launched a consultation on its draft guidelines on outsourcing. The guidelines, which review the existing Committee of European Banking Supervisors (CEBS) guidelines on outsourcing published in 2006, aim at establishing a more harmonised framework for outsourcing arrangements of all financial institutions in the scope of the EBA's action. The consultation runs until 24 September 2018.
The Basel Committee on Banking Supervision (BCBS) published its latest progress report on banks' implementation of the Principles for effective risk data aggregation and reporting. The Principles, issued in January 2013, aim to strengthen banks' risk data aggregation and risk reporting with a view to improving their risk management, decision-making processes and resolvability.
The chair of the Treasury Committee, Nicky Morgan MP, wrote a series of letters seeking full transparency on the investigation into alleged fraud at HBOS Reading. The Committee says it is ‘overwhelmingly in the public interest to understand how such a huge criminal fraud was allowed to happen, and why it took so long for it to come to light’.
An ex-NatWest employee pleaded guilty to fraud worth a total of £122,000, by abuse of position and possession of articles used to commit fraud. The ex-employee, Mathew Borisade, has been sentenced to two years and six months in prison at Southwark Crown Court.
The Sentencing Council released an assessment of the impact of its Fraud, Bribery and Money Laundering offences guideline which came into force in October 2014. The assessment looks at its impact on sentencing trends, under its statutory duty to monitor the operation and effect of its sentencing guidelines and to draw conclusions from this information.
Insurance Europe (IE) cautioned against the adoption of the EC’s proposal on representative actions under the New Deal for Consumers, saying important safeguards such as requiring opt-in and that the loser pays would have tempered the proposal. IE say the proposal is imbalanced between claimants and defendants, fails to properly safeguard claimants’ interest to receive effective redress, risks serious chaos in litigation by encouraging forum shopping, and risks blackmail settlements and vexatious or frivolous claims being brought.
The applicant derivatives trader had not acted dishonestly or without integrity as regards his participation in certain chats with a UBS trader-submitter on which the respondent FCA had relied in deciding to make a prohibition order against the applicant pursuant to s 56 of the Financial Services and Markets Act 2000. However, the applicant had given untruthful evidence under oath to the Upper Tribunal (Tax and Chancery Chamber) which had demonstrated a lack of honesty and integrity for the purposes of the FCA's assessment of a person's fitness and propriety to perform a particular controlled function. Consequently, the tribunal dismissed the applicant's reference in relation to the prohibition order. The judgment is available at:  UKUT 186 (TCC).
The Financial Reporting Council (FRC) announced sanctions against Russell McBurnie, former finance director of RSM Tenon Group plc (RSM Tenon), after he admitted extensive misconduct in relation to the preparation and approval of the financial statements of RSM Tenon for the year ended 30 June 2011. He has been excluded from the accountancy profession for five years and fined £60,000 (reduced to £57,000 for settlement). McBurnie will also pay £825,000 towards the costs of the investigation.
The European Securities and Markets Authority (ESMA) published a letter written by the vice-president of the European Commission, Valdis Dombrovskis, to ESMA chair Steven Maijoor, which clarifies the application of the ancillary activity test contained in Article 2(1)(j) of the Markets in Financial Instruments Directive (MiFID II).
ESMA published a speech given by its chair, Steven Maijoor, at the FESE convention 2018, in which Mr Maijoor focused on ESMA's assessment of the first months of MiFID II and MiFIR as well as issues identified in the area of secondary markets on which ESMA is intending to focus on in the coming months.
The FCA published a webpage summarising its research into the impact of MiFID II on the use of 'periodic auctions' as a method for share trading.
The Personal Investment Management and Financial Advice Association (PIMFA) and TISA, the investment and savings membership organisation, have published a MiFID II feedback template, alongside a guide on distributor reporting, to help distributors meet their MiFID II responsibilities. In addition to the guide, a comprehensive Q&A document seeks to help distributors make compliant returns to asset managers. Feedback on the proposed template is open until 12 July 2018.
ESMA published an opinion which sets out how central counterparties (CCPs) in the EU should consider in their internal risk models the liquidity risk posed by all entities towards which the CCP has a liquidity exposure, such as liquidity providers.
The General Secretariat of the Council of the EU (the Council) issued an information note to the Permanent Representatives Committee (COREPER) confirming the outcome of the European Parliament's proceedings concerning the European Commission's proposal for a regulation amending Regulation (EU) No 648/2012 (EMIR) as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty (CCP), the registration and supervision of trade repositories, and the requirements for trade repositories.
he Presidency of the Council of the EU published a further revised proposal for a consolidated compromise text on the recognition and supervision of third-country CCPs. The revised text includes an adjustment to the conditions for recognition of systemically important CCPs.
ICMA assessed the potential market consequences of one of the provisions of the Central Securities Depository Regulation (CSDR). The report addresses the potential risks the CSDR buy-in regime will create for bond market participants—buyers and sellers and intermediaries and lenders of securities. It also looks at the incentives which will face market participants as they try to minimise these risks and the potential to incur losses beyond their control. The CSDR contains a section on ‘settlement discipline’, which includes measures to improve settlement efficiency, such as cash penalties for fails and the provision for mandatory buy-ins.
A new report assesses the issues involved with benchmark reform and makes recommendations on steps firms can take to prepare for the transition from interbank offered rates (IBORs) to alternative risk-free rates (RFRs). The report was published by ISDA, AFME, ICMA and the Securities Industry and Financial Markets Association (SIFMA) and its asset management group (SIFMA AMG).
The FSB plenary met in Basel on 25 June 2018 to discuss risks and vulnerabilities from market developments in the global financial system and progress against its 2018 workplan for delivery to the Argentine G20 Summit in November 2018. The FSB said it continued to see a broad-based snap-back in long-term interest rates as a risk.
The FCA published a research note, 'How do participants behave during flash events? Evidence from the UK equity market'. The note uses consolidated order-book data on FTSE350 stocks traded in the major UK trading venues to identify price shocks during the 18 months between January 2014 and June 2015 and finds that hybrid firms appear to drive the extreme price movement by trading aggressively in the direction of the price change.
The working group on euro risk-free rates launched the first public consultation on the assessment of candidate euro risk-free rates. Feedback is sought by 13 July 2018.
ESMA published the responses received to its Consultation on amendments to the EMIR clearing obligation under the Securitisation Regulation. The consultation closed on 15 June 2018.
ESMA published the responses received to its Consultation on Draft Guidelines on the ‘as stringent as’ notion in the Credit Rating Agencies Regulation (Regulation (EC) No 1060/2009).
ISDA published two letters to the Financial Accounting Standards Board (FASB) asking FASB to consider agenda topics relating to the treatment under US generally accepted accounting principles (US GAAP) of transactions hedging foreign currency exposure arising in connection with cross-border business acquisitions and transactions hedging the functional-currency-equivalent proceeds to be received from a forecasted foreign-currency-denominated debt issuance.
The European Parliament published the final adopted text on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 345/2013 on European venture capital funds and Regulation (EU) No 346/2013 on European social entrepreneurship funds.
The European Commission welcomed the agreement reached by the Council of the EU on 19 June 2018 on the cross-border distribution of investment funds package and the pan-European personal pension product (PEPP). This provides the Council Presidency with the mandate to start trilogues negotiations with the European Parliament.
The FCA published a progress report on its strategic review of retail banking business models. The review was launched in April 2017 to look at the sources of competitive advantage that have helped the major banks to retain their market shares in the recent past and to evaluate the potential for change and the impact of that change on business models. The FCA's early analysis indicates that a key component of competitive advantage to date has been the combination of personal current accounts (PCAs) and large branch networks.
The European Commission issued a formal request to the European Insurance and Occupational Pensions Authority (EIOPA), asking it to report on group supervision and capital management, as well as on freedom to provide services and freedom of establishment under Directive 2009/138/EC (Solvency II Directive).
The chair of ESMA, Steven Maijoor, discussed implementation of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation in his welcome speech at the sixth annual Consumer Protection Day held by the Joint Committee of the European Supervisory Authorities (ESAs) on 22 June 2018. Mr Maijoor also spoke on transparency of costs, ESMA’s preliminary study of the performance of UCITS, and the European Commission’s project on long term performance.
EIOPA published a new set of statistical information on the European insurance sector based on Solvency II regulatory reporting for the fourth quarter of 2017. The data now includes new exposure statistics on the sector, which will become a regular part of the releases.
EIOPA is seeking views on InsurTech—technology-enabled innovation in insurance that could result in new business models, applications, processes or products with an associated material effect on the provision of insurance products and services. The survey is open until 11 August 2018.
EIOPA published its June 2018 financial stability report for the (re)insurance and occupational pensions sectors in the European Economic Area. EIOPA says the persistent low yield environment remains the main risk for both sectors, but new types of risks are emerging with the onset of climate change and rapid technological developments.
The FCA published feedback on its call for input (CfI) on access to insurance, challenging industry to improve access to insurance for people with pre-existing medical conditions. The findings of the CfI will also be used to inform the FCA's wider work on insurance pricing practices, as announced in the business plan for 2018/19.
In an opening address at a public hearing on Solvency II, the vice-president of the European Commission, Valdis Dombrovskis, discussed the EU’s work to build a capital markets union (CMU), the ongoing review of Solvency II, and sustainable finance.
The FCA launched a consultation on authorised push payment (APP) fraud, and whether to require firms to handle related complaints in line with the complaints handling rules in the FCA Handbook. The FCA also proposes providing victims with access to the Financial Ombudsman Service (FOS) if they are unhappy with the outcome reached by the receiving payment services provider (PSP), or if they have not received a response to the complaint at all. Feedback is sought by 26 September 2018.
The FCA said it supports the opinion and draft guidelines published by the EBA on 13 June 2018 on the regulatory technical standards (RTS) on Strong Customer Authentication and Common and Secure Communication under the Payment Services Directive (PSD2). It encourages firms and API initiatives to consider the views contained in the opinion, and says that if the final version of the guidelines is the same as the published draft, and subject to its own consultation process, it would expect to comply with the guidelines.
The PSR published a document setting out its work on APP scams. The document summarises the range of measures the PSR is working on to protect people from this type of fraud.
The EBA updated its online Interactive Single Rulebook and Q&A tool with the inclusion of PSD2.
The General Secretariat of the Council of the EU issued an 'I' item note to COREPER, in which the Presidency of the Council asks COREPER to agree on the mandate for negotiations with the European Parliament on the proposed Regulation amending Regulation (EC) No 924/2009 (the Cross-border Payments Regulation). The General Secretariat invited the Presidency to start negotiations with the European Parliament on the basis of that mandate with a view to reaching an agreement at first reading.
Advocate General Tanchev handed down an opinion on a preliminary reference submitted by the Austrian Supreme Court concerning the interpretation of ‘payment account’ under the Payment Services Directive (2007/64/EC) (PSD) in the case of Bundeskammer für Arbeiter und Angestellte v ING-DiBa Direktbank Austria Niederlassung der ING-DiBa AG (Case C 191/17) (19 January 2018).
Regulating cryptocurrencies has been the main topic under discussion at Europol’s 5th Virtual Currencies Conference, held between 19 and 21 June 2018. The participants, a variety of experts from across the industry, reflected on ways to foster legitimate use of cryptocurrencies—which are often abused by hackers, international drug dealers and the money movers of organised crime—and legal ways of using blockchain technologies.
0330 161 1234