Weekly highlights—5 April 2018

Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 5 April 2018.

Brexit

House of Commons Exiting the EU Committee publishes future UK-EU relationship report

The House of Commons Exiting the European Union Committee published a report on the future UK-EU relationship. The key recommendations in the report are that Britain should consider European Free Trade Association (EFTA) or European Economic Area (EEA) membership if Theresa May's final negotiations on Brexit do not satisfy 15 key tests set out in the report.

Government responds to Lords committee’s report on financial services post-Brexit

The government responded to the House of Lords EU Financial Affairs Sub-Committee’s report, ‘Brexit: the future of financial regulation and supervision,’ which was published on 27 January 2018. The government says it is seeking an ambitious economic partnership with the EU on financial services, which will give UK firms access to the EU market, and EU investors access to the UK market. In part, this includes securing an implementation period that will enable firms to make only one set of changes and avoid any cliff-edge risks.

AFME welcomes Bank of England update on approach to Brexit preparations for banks

The Association for Financial Markets in Europe (AFME) issued a press release welcoming the Bank of England's (BoE) update on its approach to Brexit preparations for banks.

Prudential Regulation Authority updates

PRA regulatory digest for March 2018

The Prudential Regulation Authority (PRA) published its regulatory digest for March 2018. This issue includes an update on the PRA's regulatory approach to preparations for EU withdrawal. It highlights the 28 March 2018 letter from the PRA's deputy governor and CEO, Sam Woods, to firms in preparation for Brexit following the March 2018 European Council, as well as the PRA's final approach to branch authorisation and supervision for international banks (PS3/18 and SS1/18) and insurers (PS4/18 and SS2/18).

Regulatory architecture

John Glen clarifies departmental accountability of the Single Financial Guidance Body

The Treasury Committee published a letter, dated 15 March 2018, from the economic secretary to the Treasury, John Glen MP, replying to the Committee’s letter of 7 March querying the departmental accountability of the Single Financial Guidance Body (SFGB). Mr Glen said the government felt the Department for Work and Pensions (DWP) was best placed to be the lead department but that did not change departmental policy responsibilities, or mean that the Treasury would not have an important role in setting the SFGB’s direction.

RBS CEO replies to Treasury Committee question on GRG consequential loss claims

The chief executive of the Royal Bank of Scotland, Ross McEwan, replied to the chair of the Treasury Committee, Nicky Morgan MP, in relation to issues arising out of its Global Restructuring Group (GRG)’s activities. Ms Morgan had asked him to reconsider whether it would be ‘practicable or appropriate’ to build a third-party assurance and appeals process to provide oversight of the decisions reached by the bank on consequential loss. Mr McEwan said he remained convinced the complexity of such claims meant they should be dealt with via the court process.

Authorisation, approval and supervision

PSR and FCA publish regulatory fees consultation

The Payment Services Regulator (PSR) and the Financial Conduct Authority (FCA) published consultation paper CP18/8: PSR regulatory fees, which sets out their decisions on a number of matters relating to the approach to the allocation and collection of regulatory fees for the PSR. The consultation also sets out a number of proposals on related matters. Feedback is sought by 10 May 2018.

BCBS publishes frameworks for early supervisory intervention

The Basel Committee on Banking Supervision (BCBS) published a document, Frameworks for early supervisory intervention, which presents a range-of-practice study on how supervisors around the world have adopted frameworks, processes and tools to support early supervisory intervention.

FCA provides updated information on how SMR will apply to its own senior managers

The FCA published an updated document setting out how it is applying the principles of the Senior Managers Regime (SMR) to its own senior managers, including members of its board, executive committee and those carrying out senior management functions. The document provides a formal description of the core responsibilities of these individuals, as set out in the FCA's statements of responsibility and management responsibilities map.

EBA updates list of institutions for supervisory reporting

The European Banking Authority (EBA) published an updated list of institutions for supervisory reporting. The list has been updated to include six additional institutions from Finland, Iceland, Latvia and Portugal. It now includes 188 institutions from across the EU and the three European Free Trade Association (EFTA) states within the European Economic Area.

Prudential requirements

Rules v discretion—BIS paper analyses early intervention regimes for weak banks

The Bank for International Settlements (BIS) published a paper on early intervention regimes for weak banks. It discusses how to reach an appropriate balance between rules and supervisory discretion to address bank weaknesses, arguing that rules need to be accompanied by effective risk-based supervision. The paper analyses formal early intervention regimes in a number of jurisdictions, and concludes that effective policy measures require supervisors to have significant discretionary powers so that they can tailor their actions to the specificities of vulnerable institutions.

Risk management and controls

GFMA publishes cybersecurity penetration testing framework

The Global Financial Markets Association (GFMA) published a framework for the regulatory use of penetration testing in the financial services industry. It aims to create an agreed upon approach for regulators and financial services firms to conduct effective cybersecurity testing that will satisfy both supervisory and firm-originated requirements. Penetration testing allows firms to evaluate their systems and the controls that protect them in order to identify and fix vulnerabilities.

Financial crime

Treasury Committee launches economic crime inquiry

The Treasury Committee launched a new inquiry into economic crime. The inquiry will have two strands, namely the UK’s anti-money laundering and sanctions regime, as well as consumers and economic crime.

Enforcement and redress

PRA publish final rules for FSCS management expenses levy limit for 2018/19

The PRA published policy statement PS5/18 Financial Services Compensation Scheme—management expenses levy limit 2018/19, which follows consultation paper CP3/18 and sets out the final rules for the Financial Services Compensation Scheme (FSCS) management expenses levy limit (MELL) for 2018/19. The PRA received no responses to the CP.

Complaints Commissioner decision questions FCA's supervisory approach to small firms

The Complaints Commissioner upheld a complaint against the FCA regarding the FCA's supervision of a regulated firm. In its final report, the Complaints Commissioner criticises the FCA's handling of the matter and recommends that the FCA take steps to improve its supervisory approach to small firms.

FOS sets out plans and predictions for 2018/19

The Financial Ombudsman Service (FOS) published its plans for the financial year 2018/19, following formal consultation with stakeholders. It is freezing the levy at £24.5m and freezing the case fee, for the sixth year, at £550, with no fee chargeable for each business’s first 25 complaints.

FCA launches further PPI claims ad campaign

The FCA is launching a further advertising campaign to raise awareness of the 29 August 2019 deadline to make payment protection insurance (PPI) claims. The new adverts, featuring the animatronic head of Arnold Schwarzenegger, will run on radio, social media, video on demand and outdoor advertising, including bus stops. They will run alongside some of the existing adverts which first appeared in August 2017.

Markets and trading

ESMA submits first part of technical advice under the Prospectus Regulation

The European Securities and Markets Authority (ESMA) published the first part of its technical advice under the Prospectus Regulation. The technical advice covers the areas of format and content of prospectuses, the EU Growth Prospectus, and the scrutiny and approval of prospectuses. In developing the advice, ESMA has taken into account responses to three consultation papers published on 6 July 2017.

EMMI consults on Euribor hybrid methodology

The European Money Markets Institute (EMMI) is consulting on a hybrid methodology for Euribor which leverages on market transactions whenever available, in line with regulatory requirements such as the EU Benchmarks Regulation (Regulation (EU) 2016/1011). The methodology is composed of a three-level waterfall, and provides further details on the determination of each level respectively. Feedback is sought by 15 May 2018.

ESMA publishes official translations of guidelines under CSDR

ESMA published the official EU language versions of three sets of guidelines under the Central Securities Depository Regulation (CSDR). National competent authorities to which the guidelines apply must now notify ESMA whether they comply or intend to comply with the guidelines, within two weeks.

ESMA reports on convergence in enforcement of IFRS

ESMA published its 2017 Annual Report on the enforcement and regulatory activities of accounting enforcers within the EU. According to ESMA, the annual report demonstrates the commitment of ESMA and the European enforcers to the harmonisation of the application and enforcement of financial information in Europe.

IOSCO country review of Pakistan finds legislative and regulatory improvements

The board of the International Organization of Securities Commissions (IOSCO) published a follow-up country review of Pakistan, which recognises its efforts to adopt legislative and regulatory reforms aimed at aligning its regulations with international standards in accordance with the IOSCO objectives and principles of securities regulation. The report is a follow-up to a 2015 country review which identified areas in which improvements were needed.

ISDA publishes SONIA reform FAQs and supplement to the ISDA Definitions

The International Swaps and Derivatives Association (ISDA) published FAQs concerning the reforms to the sterling overnight index average (SONIA) interest rate benchmark. ISDA also published a draft of supplement [55] to the 2006 ISDA Definitions to reflect the SONIA reforms.

BoE publishes RFR and SONIA meeting minutes

The BoE published the minutes of a meeting of the working group on sterling risk free reference rates, which took place on 19 February 2018. The working group is made up of experts from major sterling swap dealers and discusses the development of sterling risk-free reference rates. The BoE also published the minutes of a SONIA advisory committee meeting, which took place on 7 March 2018. The SONIA advisory committee consists of external members and supports the BoE's work in its administration of the SONIA interest rate benchmark.

ESMA confirms Canada and South Africa will meet CRA endorsement requirements

ESMA issued an update stating that the legal and supervisory frameworks of Canada and South Africa will continue to meet the requirements for endorsement under the Credit Ratings Agencies Regulation (CRAR) from June 2018.

Investment funds and wealth management

ESMA trends report—AIF findings

The EU alternative investment fund (AIF) industry is highly concentrated around a few large participants and asset classes, a recent report by ESMA shows.​

CMA updates investment consultants market investigation with working paper and survey results

The Competition and Markets Authority (CMA) published a report on how pension scheme trustee boards use investment consultancy (IC) and fiduciary management (FM) services, as part of its investment consultants market investigation. The CMA also published a consultative working paper on the supply of FM services by IC firms. Comments are sought by 12 April 2018.

Insurance and pensions

FCA warns general insurance firms on renewal rules

The FCA said firms are still failing to meet its general insurance renewal rules, and warned that it will take action against firms if the rules are not properly implemented. The FCA expects firms and senior management to take immediate action to ensure they are compliant. The rules were introduced in April 2017 to increase transparency and encourage shopping around at renewal time.

Treasury Committee publishes PRA letter on Solvency II

The Treasury Committee published a letter from the CEO of the PRA, Sam Woods, addressed to the Committee's chair, Nicky Morgan MP. The PRA promised to provide an update on outstanding issues following the PRA's response of 20 February to the Committee's report on the Solvency II Directive. The letter provides an update on risk margin, the dynamic volatility adjustment (DVA) and audit requirements.

Payment services and systems

Commission publishes proposal to amend the Cross-Border Payments Regulation

The European Commission published a proposal for a Regulation to amend the Cross-Border Payments Regulation (Regulation (EU) 924/209) (CBPR) by extending it to non-euro area EU Member States.

EU: Commission issues tender for study on application of the Interchange Fee Regulation

The Commission published a tender issued on 27 March 2018 to carry out a comprehensive study regarding the application of the Interchange Fee Regulation, specifically the effects of the regulation on the evolution of the EU card payments sector. The deadline to submit tenders is 18 May 2018.

Fintech and virtual currencies

UK Finance report examines DLT and digital identity in financial services

UK Finance and the Whitechapel Think Tank have published a report—Un-Blocking identity in a digital world: Using distributed ledger technology for customer due diligence. The paper analyses what is meant by digital identity, its characteristics and its potential uses. It considers the common components of three use cases, suggesting some fundamental characteristics which form the basis of any technology application, including distributed ledger technologies (DLT), to validate identity.

FMLC publishes paper on DLT and governing law

The Financial Markets Law Committee (FMLC) published a paper—Distributed ledger technology and governing law: Issues of legal uncertainty—which examines governing law and related conflicts of law issues in the context of DLT systems.

Dates for your diary

Date Subject Event
9 April 2018 Recovery and resolution Deadline for responses to PRA consultation paper ‘CP1/18: Resolution planning—MREL reporting’.
12 April 2018 Investment funds and wealth management Deadline for responses to CMA consultative working paper on the supply of fiduciary management services by investment consultancy firms.
12 April 2018 Prudential requirements Deadline for responses to European Commission consultation on the impact of recent amendments to the Basel III framework.
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