Weekly highlights—3 August 2017

Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 3 August 2017.

Brexit

Government to introduce post-Brexit powers to impose global sanctions

The government announced new powers to impose sanctions against individuals, organisations and foreign governments following a public consultation. The aim of the new powers is to enable post-Brexit Britain to continue to play a central role in global sanctions to combat a number of threats including terrorism, conflict and the proliferation of nuclear weapons.

Member State cities offer to host UK-based EU agencies

The Council of the European Union has received 27 proposals by Member States, related to 23 cities, to host the EU agencies currently based in the UK. There have been eight offers to host the European Banking Authority (EBA) and 19 offers for the European Medicines Agency (EMA).

Financial Conduct Authority updates

FCA creates new head of department, Scotland role

The Financial Conduct Authority (FCA) appointed Maggie Craig as the head of department, Scotland, a newly-created role intended to further the FCA’s presence in Scotland. This will form the core of Ms Craig’s approach, as will contributing to Scottish aspects of FCA policies.

Prudential Regulation Authority updates

PRA issues July 2017 regulatory digest

The Prudential Regulation Authority (PRA) published its regulatory digest for July 2017. It highlights key regulatory news and publications for the month, including the PRA's proposals for extending the Senior Managers and Certification Regime to insurers, a speech by Sam Woods, the Deputy Governor for Prudential Regulation and CEO of the PRA, and the PRA annual report and accounts 2017.

Bank of England updates

BoE appoint COO and deputy governor for markets and banking

The Bank of England (BoE) appointed Joanna Place as its chief operating officer (COO), effective as of 27 July 2017. Ms Place has been acting as COO of the BoE since 1 May, and previously was the executive director of human resources. Sir David Ramsden has also been appointed as deputy governor for markets and banking at the BoE. The appointment is effective from 4 September 2017 and for a renewable term of five years.

MiFID II and MiFIR

LEIROC consults on improved granularity of LEI records

The Legal Entity Identifier Regulatory Oversight Committee (LEIROC) launched a consultation on corporate actions and data history in the global LEI system (GLEIS). LEIROC seeks views on possible improvements concerning the information that should be collected on corporate actions, how the information should be obtained, and how the data should be arranged for later use. The aim is to make the relationship and reference data within the GLEIS granular enough to enable analysis and visualisation of changes to an entity, both from the present looking backward and from the date of an entity’s entry into the GLEIS looking forward to the present. Views are sought by 29 September 2017.

Prudential requirements

EBA—Banks optimistic on growth, while NPLs remain a drag on new lending

The EBA published two reports, on EU banks’ funding plans and asset encumbrance respectively. The reports aim to provide EU supervisors with information to assess the sustainability of banks’ main sources of funding. The results of the assessment show that banks plan to increase their lending and to expand deposits as well as market based funding.

PRA consults on MREL buffers

The PRA set out its proposed expectations with regards to the relationship between the minimum requirement for own funds and eligible liabilities (MREL) and buffer requirements, together with the consequences of not meeting the requirements, in consultation paper 15/17 (CP15/17). The PRA proposes to update Supervisory Statement (SS) 16/16 'MREL buffers and Threshold Conditions' which was published by the PRA in November 2016. The consultation period closes on 29 September 2017.

ECB consults on guide to on-site inspections and internal model investigations

The European Central Bank (ECB) launched a public consultation on a draft guide to on-site inspections and internal model investigations. Inspections are a critical tool for banking supervision worldwide. The objective of the guide, which was drafted in close co-operation with the national competent authorities, is to explain how ECB Banking Supervision conducts inspections, and to provide a useful document for banks subject to such inspections. The consultation on the document ends on 15 September 2017.

ECON publishes report on proposed CRR transitional arrangements for IFRS 9

The European Parliament's Committee on Economic and Monetary Affairs (ECON) published a report dated 14 July 2017 on a proposal to amend the Capital Requirements Regulation (CRR) to introduce transitional arrangements to mitigate the impact of the revised international accounting standards on financial instruments (IFRS 9) on own funds and the large exposures treatment of certain public sector exposures denominated in non-domestic currencies of Member States.

ESRB publishes annual report for 2016-17

The European Systemic Risk Board (ESRB) published its sixth annual report, covering the period between 1 April 2016 and 31 March 2017. During the review period, the ESRB continued to monitor vulnerabilities in the EU financial system, with a particular focus on risks arising from the low interest rate environment and residential real estate. The ESRB also expanded its capacity to monitor the non-banking sector.

ECB issues guidance on CRR securitisation notification requirements

The ECB issued public guidance specifying how it expects to be notified of transactions which go beyond the contractual obligations of a sponsor institution or an originator institution, as referred to in Article 248(1) of the CRR.

Financial crime

FCA publishes report to encourage technologies and anti-money laundering compliance discussion

The FCA published a report on emerging technologies with potential for enhancing financial firms' work to detect and prevent money laundering, and for helping make the UK a hostile environment for criminals' money.

Views sought on Proceeds of Crime Act 2002 draft Codes of Practice

Following the 2015 consultation on the Proceeds of Crimes Act 2002 (POCA 2002) Codes of Practice, the Attorney General’s Office and Home Office are consulting on six new and amended codes of practice. The codes give guidance on new and extended powers which widen the scope of the POCA 2002 Codes of Practice, introduced by the Criminal Finances Act 2017. Following the results of the consultation, which ends on 25 August 2017, the codes will be modified if appropriate and be subject to Parliamentary approval before coming into force.

Investigation launched into the conduct of British American Tobacco

The Serious Fraud Office launched an investigation into the potential corrupt nature of British American Tobacco plc’s conduct of business, subsidiaries and associated persons.

FCA conduct requirements

FCA consults on financial advice market review implementation part II

The FCA issued a consultation paper 'Financial Advice Market Review (FAMR): implementation Part II and insistent clients' (CP17/28) on the proposed implementation of three of the recommendations of FAMR and new guidance on insistent clients. The closing date for responses is 2 October 2017.

FCA consults on client money and 'unbreakable' deposits

The FCA issued a consultation paper 'Client money and unbreakable deposits' (CP17/29) on minor amendments to the client assets sourcebook (CASS) in the FCA Handbook. The closing date for responses is 1 November 2017.

IOSCO thematic review findings on the protection of client assets

The International Organization of Securities Commissions (IOSCO) published the findings from a thematic review of the adoption of Principles relating to the protection of client assets (FR16/17). The Principles were set forth in IOSCO’s January 2014 Report ‘Recommendations regarding the protection of client assets’. IOSCO sets out the implementation progress of 38 IOSCO members from 36 jurisdictions in adopting legislation, regulation and other policies in relation to intermediaries holding client assets.

Enforcement and redress

Lloyds Banking Group sets up redress scheme to compensate mortgage customers

Following engagement with the FCA, Lloyds Banking Group agreed to set up a redress scheme for mortgage customers who incurred fees after they fell behind with their mortgage payments. The move follows Lloyds’ acknowledgement that it did not always have sufficient knowledge of customers’ financial situations to ensure its arrears management plans were affordable and sustainable.

Third director of debt management company banned

Rahul Dev Sharma become the third director of debt management company Debt Connect (UK) Limited to be disqualified. Mr Sharma’s nine year disqualification commenced on 3 July 2017 and will end in July 2026.

Markets and trading

FCA CEO confirms that LIBOR will no longer be sustained past 2021

The chief executive of the FCA, Andrew Bailey, gave a speech at Bloomberg in London regarding the future of LIBOR, in which he looked its sustainability, and the transition to alternative reference rates that are based on the underlying transactions by 2021. Since 2013, LIBOR has been regulated by the FCA, and significant improvements have been made to it through the work of its administrator, ICE Benchmark Administration (IBA) and the work of the 20 panel banks that submit contributions to the benchmark. Mr Bailey confirmed that LIBOR is not sustainable, because of the absence of active underlying markets and a lack of transactions providing data.

ECB calls on counterparties to endorse FX Code of Conduct by May 2018

The ECB asked foreign exchange trading counterparties to publicly commit to the principles set out in the FX Global Code by the end of May 2018, and reaffirm their commitment following any substantial update. The FX Global Code is a set of global principles of good practice in foreign exchange markets which was developed by central banks and market participants from 16 jurisdictions around the globe and seeks to promote a robust, fair, liquid, open and appropriately transparent market.

GFXC publishes guidance on public registers of FX Global Code participants

The Global Foreign Exchange Committee (GFXC) said it has received expressions of interest in the creation of public registers where market participants can make their statements of commitment to the FX Global Codepublic, assisting interested parties in identifying those that have done so. In order to support the development of public registers, the GFXC has provided some initial guidance to potential public register hosts.

ISDA OTC derivatives compliance calendar updated—August 2017

The latest version of the compliance calendar for over-the-counter (OTC) derivatives was published by the International Swaps and Derivatives Association (ISDA). The ISDA calendar is used as the global calendar of compliance deadlines and regulatory dates for OTC derivatives, and now runs to December 2020.

Amended EBA decision on ECAIs published in the Official Journal

decision of the EBA amending an earlier EBA decision confirming that the unsolicited credit assessments of certain external credit assessment institutions (ECAI) do not differ in quality from their solicited credit assessments has been published in the Official Journal.

Amended TARGET2-Securities guideline published in the Official Journal

Guideline (EU) 2017/1404 of the ECB of 23 June 2017 amending Guideline ECB/2012/13 on TARGET2-Securities (TS2) was published in the Official Journal on 29 July 2017.

ECB decision on the TARGET2-Securities Board published in the Official Journal

Decision (EU) 2017/1403 of the ECB of 23 June 2017 amending Decision ECB/2012/6 on the establishment of the TARGET2-Securities Board was published in the Official Journal on 29 July 2017.

International Swaps and Derivatives Association launches 2017 OTC derivatives protocol

The ISDA issued the 2017 over-the-counter OTC equity derivatives T+2 settlement cycle protocol which is designed to assist market participants in amending the terms of certain trading confirmations to address the change for certain equity derivative transactions from a T+3 to a T+2 settlement cycle. The transition to a two-day settlement cycle is scheduled to take place on 5 September 2017.

Investment funds and wealth management

New investment fund to address gap in funding for UK start-ups

The government launched a national investment fund to ensure innovative British start-ups have access to the funding which aims to help them grow into world-leading firms. The government intends for the new fund to help ensure businesses can still access funds should the UK’s relationship with the European Investment Fund (EIF) end when it leaves the EU, although it is exploring the potential for a mutually beneficial post-Brexit relationship with the EIF.

Banks and mutuals

CMA blog post—Banking measures to help PCAs and SMEs now in force

On 2 August 2017, measures introduced by the CMA to make it easier for personal current account (PCA) customers and small and medium enterprises (SMEs) to know what banking charges they might face came into force. Banks must now be more transparent about the cost of overdrafts and unarranged overdrafts, which will help to bring bank charges down and help customers avoid unnecessary charges. Banks must also now be clearer about the cost of borrowing for SMEs. From 2 August 2017, all providers of unsecured loans and overdrafts to SMEs, for values up to £25,000, will have to publish and clearly display the rates they will charge for doing so. The changes are all part of a package of measures announced by the CMA in August 2016 in its final report into the supply of PCAs and of banking services to SMEs. The remainder of these measures will be introduced during 2018. The CMA blog can be found here.

Consumer credit, mortgage and home finance

FCA consults on assessing creditworthiness in consumer credit

The FCA launched a consultation on proposed changes to its rules and guidance on assessing creditworthiness in consumer credit. The deadline for comments is 31 October 2017.

FCA examines motor finance market

The FCA announced that it is reviewing the motor finance market to ensure that it works well and to assess whether consumers are at risk of harm. Among other things, it wants to find out whether firms are lending responsibly and consumers are getting the information they need.

FCA outlines next steps on payday lending

The FCA published the outcome of its review into high-cost credit, which includes its assessment of the effectiveness of the payday loan price cap. According to the FCA, the review provides 'clear evidence' that the FCA's regulation of payday lending has delivered 'substantial benefits' to consumers. It has therefore decided to leave the existing price cap in place, and to review it again in 2020. However, the FCA says the review raises concerns about other forms of high-cost credit.

FCA issues letter on unsolicited credit limit increases

The FCA published a letter to UK Finance on the proposed voluntary industry agreement to give greater control to credit card customers and restrict the offer of unsolicited credit limit increases (UCLIs). The voluntary agreement was outlined in the FCA's consultation paper 'Credit card market study: consultation on persistent debt and earlier intervention remedies' (CP17/10).

CAT private action—Application to delay handing down of judgment dismissed in Merricks v MasterCard

On 1 August 2017, the CAT published its ruling of 21 July 2017 dismissing an urgent application made at short notice on behalf of the applicant, Mr Merricks, requesting that the CAT delay handing down its judgment in this matter disposing of the substantive application for a collective proceedings order (CPO). The CAT dismissed the application on the basis that it was both extremely late and misconceived. The judgment in relation to the CPO application was subsequently handed down on the same day, in which the CAT dismissed the application after concluding it did not meet the relevant criteria.

Insurance

Latest EIOPA risk dashboard shows stable risk exposure for EU insurance sector

The European Insurance and Occupational Pensions Authority (EIOPA) published its latest quarterly Risk Dashboard, which shows that the risk exposure of the European Union insurance industry remained stable, though concerns about low yields and market fundamentals persist.

Lloyd's Market Association issues GDPR guidance for underwriters

The Lloyd's Market Association (LMA) published guidance for underwriters on the General Data Protection Regulation (GDPR), which becomes effective on 25 May 2018. The GDPR is relevant to those dealing with policies relating to individuals, either singly or as part of a group scheme.

ESAs advise on PRIIPS with environmental or social objectives

The European Supervisory Authorities (ESAs) submitted technical advice to the European Commission to help it set minimum requirements for manufacturers of packaged retail and insurance-based investment products with environmental or social objectives (EOS PRIIPs).

IAIS consults on revised ICP 24

The International Association of Insurance Supervisors (IAIS) issued a public consultation on the revision of insurance core principal (ICP) 24—macroprudential surveillance and insurance supervision. ICPs provide a globally accepted framework for the supervision of the insurance sector and prescribe the essential elements that must be present in the supervisory regime in order to promote a financially sound insurance sector and provide an adequate level of policyholder protection. ICP 24 covers the identification, monitoring and analysis of market and financial developments and other environmental factors that may impact insurers and insurance markets and the use of this information in the supervision of individual insurers. The closing date for responses to the consultation is 1 October 2017.

Payment services and systems

Payments Strategy Forum unveils blueprint for UK payments system

The Payments Strategy Forum launched a consultation on a blueprint setting out the design and implementation approach for a new payments system for the UK, in the most radical change to the payments industry since the 1960s. The New Payments Architecture (NPA) is designed to provide simpler access, greater innovation, increased adaptability, improved competition and better security. The consultation runs until 22 September 2017.

EBA publishes final guidelines on PSD2 major incident reporting

The EBA published the final guidelines on major incident reporting under the revised Payment Services Directive (PSD2). The guidelines were developed in close co-operation with the ECB, are addressed to all payment services providers and competent authorities in the 28 EU Member States, and contribute to the objective of the PSD2 of minimising disruption to users, payment service providers and payment systems.

EBA consults on PSD2 fraud reporting requirement guidelines

The EBA is consulting on draft guidelines on reporting requirements on statistical data on fraud under PSD2. The guidelines, which are addressed to payment service providers and competent authorities, are aimed at contributing to the objective of PSD2 to increase the security of retail payments in the EU. The consultation runs until 03 November 2017. The guidelines are expected to apply from 13 January 2018.

Fintech and virtual currencies

Financial institutions and fintechs partner to address financial inclusion

The Institute of International Finance and the Center for Financial Inclusion at Accion published a joint report examining how partnerships between mainstream financial institutions (eg banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets. According to the report, partnerships between financial institutions and fintechs represent a slow but pervasive industry shift toward customer-centricity.

Dates for your diary

Date Subject Event
4 August 2017 Regulatory architecture Deadline for responses to the EBA’s call for research papers in view of its sixth policy research workshop taking place on 28-29 November 2017.
6 August 2017 Benchmarks Regulation Deadline for responses to the drafts of the forms that firms will need to use when applying to be a UK benchmark administrator in accordance with the Benchmarks Regulation.
7 August 2017 Solvency II Deadline for responses to PRA consultation CP7/17: Solvency II—Data collection of market risk sensitivities
7 August 2017 Payment Services Directive 2 Deadline for responses to the EBA's Consultation Paper Draft: Guidelines on the security measures for operational and security risks of payment services under PSD2 (EBA/CP/2017/04)
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