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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 31 May 2018.
The governor of the Bank of England (BoE), Mark Carney, delivered a speech to the Society of Professional Economists in which he discussed the potential paths for monetary policy during the next phase of Brexit. He said that, as the Brexit process continues and the outcome becomes clearer, the Monetary Policy Committee (MPC) will adapt its specific guidance and monetary policy more broadly in order to meet the inflation target.
The European Payments Council (EPC) published a position paper, which sets out the EPC's current viewpoint in the face of possible post-Brexit scenarios and their impact on the Single Euro Payments Area (SEPA) schemes.
The Financial Conduct Authority (FCA) published Handbook Notice No. 55, which includes changes to the FCA Handbook made by the FCA board on 26 April and 24 May 2018, together with feedback on consultations that will not have a separate policy statement (PS). The changes include new rules to implement the Insurance Distribution Directive (Directive (EU) 2016/97) (IDD).
The European Parliament published the provisional version of a text adopted on sustainable finance, and instructed its President to forward the resolution to the Council and the Commission. The resolution stresses the need for a faster sustainable transition as an opportunity for orienting capital markets and financial intermediaries towards long-term, innovative, socially friendly, environmentally sound and efficient investments.
The UK Regulators Network (UKRN), consisting of 12 sectoral regulators, including the FCA, the Financial Reporting Council (FRC) and the Payment Systems Regulator (PSR) published its strategy and forward work programme for 2018/19, setting out its new strategy and portfolio of projects for the financial year.
The Council of the EU published a presidency compromise text on the European Commission’s proposal to amend Regulation (EU) 806/2014 (the Single Resolution Mechanism (SRM) Regulation) as regards loss-absorbing and re-capitalisation capacity for credit institutions and investment firms. The compromise text was presented to the Council for adoption on 25 May 2018.
The Council of the EU published a Presidency compromise text of the proposed Directive amending the Capital Requirements Directive 2013/36/EU (CRD IV) as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures.
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published a joint statement encouraging institutions, market and resolution authorities to properly consider retail holders of debt financial instruments subject to the Bank Recovery and Resolution Directive (BRRD) when carrying out their respective tasks.
The FCA updated its webpage on Waivers: BIPRU 12 intra-group liquidity modifications—ILAS BIPRU firms. It sets out information about such modifications and how firms should apply for them.
The European Central Bank (ECB) published its latest biannual Financial Stability Review. The ECB says financial stability conditions in the euro area remained favourable over the past six months, but risk-taking in most financial markets intensified. It also reported an improvement in bank profitability, but warned that structural vulnerabilities remain.
The EBA published 2017 data relating to two key concepts in the Deposit Guarantee Schemes Directive (DGSD): available financial means and covered deposits. The EBA publishes this data annually to enhance the transparency and public accountability of deposit guarantee schemes (DGSs) across the EU.
The European Parliament published a briefing on completing the banking union. It provides an overview of the status of various work streams, including risk sharing—the European Deposit Insurance Scheme—and risk reduction measures such as the minimum requirement for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) rules.
The European Parliament published a briefing on further harmonising EU insolvency law from a banking resolution perspective. It sets out why the completion of the banking union may need to be underpinned by further progress in harmonising Member States’ insolvency laws.
The ECB updated its guide to fit and proper assessments to reflect the joint guidelines on the assessment of the suitability of members of the management body and key function holders under CRD IV and MiFID II issued by ESMA and the EBA in September 2017.
The FCA published a summary of issues discussed at its Transforming Culture Conference, which took place on 19 March 2018. The regulator also set out the next steps in its ongoing work on culture in financial services.
The FCA published a new webpage setting out information on Chapter 19F (MiFID remuneration incentives) of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC).
Provisions are made enabling sanctions to be imposed, where appropriate, for the purposes of compliance with UN obligations or other international obligations, or for the purposes of furthering the prevention of terrorism, national security, international peace and security, or for the purposes of furthering foreign policy objectives. Specific provisions are made for the purposes of the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system, and for connected purposes. Sections 32, 50, 52–56, 60–65 came into force on 23 May 2018. The remaining provisions of this Act come into force on such day as the Secretary of State may appoint by regulations.
The General Secretariat of the Council of the EU recommended that the Council confirmed that it would not object to the regulatory technical standards (RTS) adopted by the European Commission on 7 May 2018 on the criteria for the appointment of central contact points for electronic money issuers and payment service providers under the fourth Anti-Money Laundering Directive (Directive 2015/849/EU) (MLD4) and with rules on their functions.
The European Commission published a proposal for a Regulation establishing the EU anti-fraud programme. In the context of the preparation of the next Multiannual Financial Framework (MFF), a proposal states that a programme should be established to support the protection of the EU financial interests as well as mutual administrative assistance between customs authorities.
The FCA published a speech by its executive director of strategy and competition, Christopher Woolard, entitled ‘Technology and global ties: turning the tide on financial crime’. Mr Woolard concluded that new technologies have given criminals sophisticated tools to bend the financial system to their own ends, but these same technologies, when used for good, could also be game changers in the fight against financial crime.
The Office of Financial Sanctions Implementation (OFSI) published a revised compliance reporting form.
The Financial Services Compensation Scheme (FSCS) made its first compensation payments to customers of the failed discretionary fund manager Strand Capital Limited. Payments of £5.7m have been made to 796 customers between 9 May 2018 and 23 May 2018. The payments were in respect of client cash only. As the relevant investments were held in SIPPs, the compensation payments were made direct to customers’ SIPPs.
The FCA published a webpage which provides information for customers of Beaufort Securities Limited (BSL) and Beaufort Asset Clearing Services Limited (BACSL). Three insolvency practitioners from PwC were appointed as administrators of BSL and special administrators of BACSL in March 2018.
The Financial Ombudsman Service (FOS) published its Annual Review for 2017/18. The FOS said its year was again dominated by mis-sold payment protection insurance (PPI), with complaints still in their hundreds of thousands, accounting for over half of all those received.
The European Commission proposed new rules to give small and medium enterprises (SMEs) better access to financing through public markets as part of the EU’s capital markets union (CMU) agenda. The aim is to provide EU SMEs with easier access to cheaper funding so that they can expand.
As part of the European Commission’s CMU project, the Commission published a number of proposals to confirm Europe’s commitment to be the global leader in fighting climate change and implement the Paris Agreement. The involvement of the financial sector is expected to enhance the sustainability and competitiveness of the EU economy. The proposals, if implemented, will amend MiFID II delegated acts, IDD delegated acts, the Benchmarks Regulation and the IORP Directive II.
The European Commission proposed a regulation which will allow market-led solutions to support further integration and diversification within Europe’s financial sector, leading to a stronger and more resilient economic and monetary union (EMU) by introducing the market-led development of sovereign bond-backed securities (SBBS). The proposal aims to remove regulatory obstacles to the development of SBBS.
ESMA issued final guidelines on anti-procyclicality margin measures for central counterparties (CCPs) under the European Market Infrastructure Regulation (EMIR). The guidelines seek to establish consistent, efficient and effective supervisory practices and to ensure a common, uniform and consistent application of EMIR, in order to limit procyclicality of CCP margins.
ESMA published its final report on guidelines on certain aspects of the MiFID II suitability requirements. The report follows a consultation published on 13 July 2017, containing proposed guidelines which confirmed and broadened the existing MiFID I guidelines on suitability, issued in 2012. ESMA also received advice from the Securities and Markets Stakeholder Group’s (SMSG).
ESMA updated its Q&As on data reporting under MiFIR. The Q&As clarify the requirements for the submission of transaction reports and reference data under MiFIR, and have been updated to include new guidance on complex trades and national client identifiers for natural persons.
ESMA added or updated nine Q&As on MiFID II/MiFIR investor protection topics. The new or updated Q&As cover the topics of best execution, client categorisation, provision of investment services and activities by third country firms, and other issues.
ESMA updated its Q&As on transparency and market structures issues under MiFID II and MiFIR.
ESMA updated its Q&As on the Benchmarks Regulation, with a new topic: ‘should prospectuses include reference to the register of administrators and benchmarks?’.
ESMA updated its Q&As on the application of the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS). The document includes one new Q&A on the application of remuneration disclosure requirements to delegates.
ESMA updated its Q&As on the implementation of the Central Securities Depository Regulation (CSDR). A new question 6f in Part II of the document concerns a CSDs’ investment policy and clarifies the requirement to have ‘access to assets’ on the same business day when a decision to liquidate those assets has been made.
ESMA updated its Q&As on the Short-Selling Regulation, revising answer 10.13 regarding locate arrangements. It further specifies the requirements for ‘easy-to-borrow and purchase’ lists.
ESMA updated its Q&As regarding the implementation of the European Market Infrastructure Regulation (EMIR). The Q&As provides clarification on reporting to trade repositories and are set out in Part III of the document.
The City of London Law Society and Law Society Company Law Committees’ Joint Working Parties on Market Abuse, Share Plans and Takeovers Code have added a new Q&A to their guidance on the Market Abuse Regulation. The new question—Q21A—discusses how Article 19 of MAR applies to issuers that have only debt financial instruments admitted to trading on an EU trading venue.
The European Commission adopted a Commission Delegated Regulation of 25 May 2018 supplementing the CSDR with regard to RTS on settlement discipline (C(2018) 3097 final). The RTS are based on the draft published by ESMA in February 2016 and will enter into force 24 months following the day of their publication in the Official Journal of the EU.
The European Parliament published a report by ECON on the European Commission's June 2017 proposal for a regulation amending the ESMA Regulation (EU) 1095/2010 and EMIR as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs. ECON's report sets out a draft legislative resolution which makes a number of amendments to the Commission's proposal.
The European Parliament updated its procedure file on the European Commission's proposal to amend EMIR with regard to the clearing obligation, reporting requirements, risk-mitigation techniques, and trade repositories, to indicate that the proposal will be considered at the plenary sitting on 11 June 2018.
The International Capital Market Association (ICMA) published a briefing note on the RTS for the CSDR settlement discipline related to the mandatory buy-in regime. The note outlines the key characteristics of the mandatory buy-in framework, and discusses the expected impacts this is likely to have with respect to bond market liquidity, repo and lending markets, increased risks to buy-sides, market stability, potential extraterritorial implications, and conflicts with the aims of the CMU.
The Global Foreign Exchange Committee (GFXC) launched the global index of public registers to serve as a central reference point for demonstrated commitment to the FX Global Code. The global index will aggregate information from participating public registers and make it available in a single location.
ESMA published an updated list of third-country CCPs recognised to offer services and activities in the EU.
ESMA updated its list of national websites where net short position in shares are disclosed under Article 9 of the Short Selling Regulation (EU) 236/2012. Where available, the list includes both the links to the national language and English versions of the relevant sections of the website.
The BoE, the FCA and HM Treasury issued a progress report on the Fair and Effective Markets Review (FEMR), setting out an initial assessment of the impact of the Review’s recommendations, and additional work done. The progress report concludes that firms and the authorities have made significant steps in implementing the FEMR recommendations.
The International Swaps and Derivatives Association (ISDA) published a research note highlighting a number of examples where notional amount outstanding is used in derivatives regulations in different jurisdictions. The paper concludes that notional amount may be the most appropriate metric to use in some instances, such as those related to trade size, but that a risk-based measure would be more appropriate in others, such as clearing and margin.
ESMA published its latest set of semi-annual statistical data on the performance of credit ratings, including transition matrices and default rates. This latest dataset covers the period from 1 January 2016 to 31 December 2017 and is available in the central rating repository (CEREP).
The Governor of the BoE, Mark Carney, gave a speech entitled ‘Staying Connected’, in which he discussed the FEMR, the Senior Managers & Certification Regime (SMCR), and the transition from the LIBOR benchmark to SONIA.
The Association for Financial Markets in Europe (AFME) published a white paper setting out its vision for a future post-trade system in Europe. The paper, A roadmap for integrated, safe and efficient post trade services in Europe, explores the issues currently impeding progress in European post trade reform and outlines some key objectives for public authorities and the industry.
ISDA and the Global FX Division (GFXD) of the Global Financial Markets Association (GFMA) responded to the Financial Stability Board (FSB)’s second consultation on governance arrangements for the unique product identifier (UPI).
As part of its wider review into retail banking, and following an in-depth review into the high-cost credit market, the FCA is consulting on new proposals to benefit overdraft and high-cost credit users. The FCA's proposals center on overdrafts, rent-to-own, home-collected credit and catalogue credit and store cards's.
The European Commission is seeking feedback on a draft Delegated Regulation that would amend Delegated Regulation (EU) No 231/2013, which supplements Directive 2011/61/EU (AIFMD) and further specifies depositaries' duties with regard to the safe-keeping of the assets of alternative investment fund (AIF) clients. Responses are due by 26 June 2018.
The European Commission published a draft Delegated Regulation amending Delegated Regulation (EU) No 2016/438 on the safekeeping duties of depositaries with regard to Undertakings for Collective Investment in Transferable Securities (UCITS) clients’ assets. Feedback is sought on the draft by 26 June 2018.
The Competition and Markets Authority (CMA) published summaries of roundtables that it has held with pension trustees and pension scheme inhouse investment staff as part of its work on the market investigation into the supply and acquisition of investment consultancy services and fiduciary management services to and by institutional investors and employers in the sector.
The Investment Association (IA) published an updated version of its model discretionary investment management agreement.
Following implementation of undertakings from Bacs to raise customer awareness of and confidence in CASS (the Bacs undertakings), the CMA gave notice of its decision to revoke Article 8.7 of the Northern Ireland Personal Current Account (PCA) Banking Market Investigation Order 2008 with immediate effect.
The Scottish Affairs Committee published a report saying that the Royal Bank of Scotland (RBS) has singularly failed to appreciate the damage its closure programme will inflict on many communities across Scotland. The report highlights the vital role that bank branches play in sustaining rural and urban communities, calls into question the assumptions made by RBS that led to the planned closures and urges greater openness in future decisions.
The FCA published finalised guidance ‘FG18/4: The FCA's approach to the review of Part VII insurance business transfers’. It sets out the FCA's approach to reviewing insurance business transfers schemes under Part VII of the Financial Services and Markets Act 2000 (FSMA 2000). The Prudential Regulation Authority (PRA) leads the Part VII process, and is responsible for specific regulatory functions such as providing certificates. The FCA also has an active role in the process.
The newly elected president of Insurance Europe, Andreas Brandstetter, urged policymakers to act decisively to stimulate individuals to save more for their retirement, encourage the uptake of cyber risk insurance, and mitigate the impacts of natural catastrophes and cyber risk. Mr Brandstetter was speaking at Insurance Europe’s annual conference, which this year focused on ways to overcome under-insurance and reduce the harm caused to economies and individuals by gaps in protection.
The Work and Pensions Committee published a letter from its chair, Frank Field MP, to Megan Butler, the FCA's executive director of supervision—investment, wholesale and specialist, on the subject of self-invested personal pensions (SIPPs).
A working group established by the Committee on the Global Financial System (CGFS) and the FSB published a report which considers the implications for financial stability should FinTech credit grow to account for a significant share of overall credit.
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