Weekly highlights—6 September 2018

Weekly highlights—6 September 2018

Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 6 September 2018.


HM Treasury updates programme of secondary financial services legislation under the EU (Withdrawal) Act 2018

HM Treasury's programme of secondary legislation to ensure that the UK continues to have a functioning financial services regulatory regime in all scenarios, when the UK leaves the EU in March 2019, been updated with: 'Draft Payments and electronic money (Amendment) (EU Exit) Regulations' and 'The Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018'.

Dominic Raab MP questioned by House of Lords EU Committee on progress of Brexit negotiations

The Secretary of State for Exiting the European Union, Dominic Raab MP, appeared before the House of Lords EU Committee on 29 August 2018 to discuss the progress of Brexit negotiations, including negotiations relating to financial services. He considered that the financial sector reacted positively to the government's Brexit white paper, dismissed concerns that the EU is treating Brexit as an opportunity to attract key areas of financial services from London, and is confident that the UK will reach a 'sensible solution' with the EU on financial services. He noted the possibility that Brexit negotiations may 'creep beyond' the 18 October EU Summit.

TheCityUK report on UK-EU association agreement and future UK free trade agreements

​TheCityUK published a report, produced in collaboration with DLA Piper, entitled 'A UK-EU association agreement and future UK free trade agreements'. The report examines what a deal based on the government's Brexit white paper will mean for the broader interests of the financial and related professional services industry.

ECON report on relationships between the EU and third countries concerning financial services regulation and supervision

The European Parliament's Committee on Economic and Monetary Affairs (ECON) published a report with a motion for a European Parliament resolution on relationships between the EU and third countries concerning financial services regulation and supervision. The report makes recommendations relating to the EU's relationship with third countries, the EU equivalence procedures and the EU's role in global standard-setting for financial regulation.

Daniele Nouy of the ECB on Brexit relocation

The European Central Bank (ECB) published an interview with the chair of its supervisory board, Danièle Nouy, in which she says, among other things, that the ECB is keen to ensure that banks supposedly moving to the euro area actually do so. This means that their capacity for trading, hedging and risk management in the euro area has to be commensurate with the size and the risk of the relocated operations.

Financial Conduct Authority updates

FCA announces appointment of new director of competition

The Financial Conduct Authority (FCA) announced that it has appointed Sheldon Mills as its new director of competition. Mr Mills is currently senior director, mergers and state aid at the Competition and Markets Authority (CMA).

Prudential Regulation Authority updates

PRA issues regulatory digest for August 2018

The Prudential Regulation Authority (PRA) issued its regulatory digest for 1–31 August 2018. The digest is for people working in the UK financial services industry and highlights key regulatory news and publications delivered for the month.


ESMA publishes compliance table for MiFID II product governance guidelines

The European Securities and Markets Authority (ESMA) published a compliance table setting out which competent authorities comply with its guidelines on MiFID II product governance requirements (ESMA35-43-620). All Member States have indicated that they comply or intend to comply, as have Gibraltar and the EEA EFTA states of Norway, Liechtenstein and Iceland.

Commission set to limit minimum tick size requirement for systematic internaliser quotes

The European Commission published a communication to the Commission on the intention to endorse with amendments the draft amendment to Commission Delegated Regulation (EU) 2017/587 (RTS1)—an MiFID II level 2 measure submitted by ESMA in March 2018. The amendments would require systematic internalisers (SIs) to respect minimum tick-size increments only in quotes for shares and depositary receipts.

Prudential requirements

PRA annual assessment of the credit union sector—letters to Category 5 credit unions with findings of 2018 assessment

The PRA published letters to the boards of directors of Category 5 credit unions with the findings of its 2018 annual assessment. Credit unions received one of three letters, depending on which peer group they fell into.

BCBS publishes technical amendment on Pillar 3 disclosure requirements—regulatory treatment of accounting provisions

The Basel Committee on Banking Supervision (BCBS) released a technical amendment on additional Pillar 3 disclosure requirements for those jurisdictions implementing an expected credit loss (ECL) accounting model as well as for those adopting transitional arrangements for the regulatory treatment of accounting provisions.

FSB publishes responses to its call for feedback on technical implementation of the TLAC Standard

The Financial Stability Board (FSB) published responses to its call for public feedback on monitoring the technical implementation of the FSB total loss-absorbing capacity (TLAC) standard. Respondents include the Global Financial Markets Association (GFMA), the Bank Policy Institute (BPI) and the Institute of International Finance (IIF).

Risk management and controls

Christine Lagarde: lessons learned from Lehman

The managing director of the International Monetary Fund (IMF), Christine Lagarde, wrote an article on the 2008 financial crisis and its aftermath, calling the events leading up to the crisis ‘a sobering lesson in groupthink’. Ms Lagarde said banking culture, ethos and values still need reform, and called for more female leadership in finance, saying greater diversity sharpens thinking, reducing the potential for groupthink.

FSB publishes cyber lexicon consultation responses

The FSB published the consultation responses to its proposed cyber lexicon document. The draft lexicon, which was published in July 2018, lists 50 core terms related to cyber security and cyber resilience in the financial sector. The FSB received 28 responses from firms and associations.

OECD publishes annual report on business and finance

The Organisation for Economic Co-operation and Development (OECD) published the 2018 Business and Finance Outlook, highlighting a number of major risks having the potential to disrupt global economic growth. It notes that the gradual normalisation of monetary policy in an environment of growing debt will be a major test of whether the Basel III regulatory reforms have achieved their goal of ensuring safety and soundness in the financial system.

Financial crime

Five sentenced in FCA prosecution of £2.8m investment fraud

In a case brought by the FCA (Operation Tidworth, which was the FCA's second largest ever criminal prosecution), five individuals have been sentenced to a total of 17.5 years' imprisonment for their roles in a share fraud carried out through a series of boiler room companies which led to the loss of more than £2.8m of investors' money. The sixth defendant, Michael Nascimento (who was the instigator and main beneficiary of the fraud), will be sentenced separately on 14 September 2018.

SFO Director outlines priorities to increase cooperation and technological advancement

The recently elected Director of the Serious Fraud Office (SFO), Lisa Osofsky, delivered a speech at Jesus College in Cambridge, in which she set out her priorities and plans for the SFO in upcoming years. Osofsky intends to increase the SFO’s success in prosecutions and crime-detection, by ‘using an active and engaged approach’ to areas such as international cooperation with public and private sector law enforcement, and technological advancement.

SFO counsel speaks out on reclaiming criminal opulence

Alun Milford, General Counsel at the SFO, delivered a speech about how best to identify and render accountable the prosperity of criminals and organised crime. Speaking at Jesus College in Cambridge, Milford touches upon the importance of effective skills, protection against dissipation, and powers of enforcement and investigation to tackle the issue of criminal wealth.

2018 frozen assets reporting guidance published

HM Treasury posted updated guidance on frozen assets review for 2018, calling on persons who discover they are holding frozen assets to provide a report with details. Those with this information are requested to complete the report and submit it to the Office of Financial Sanctions Implementation by 12 October 2018.

Enforcement and redress

Complaints Commissioner issues final report number FCA00474

The Complaints Commissioner issued final report FCA00474, which relates to correspondence with the FCA on the actions of FCA staff following the publication in March 2017 of the FCA's policy statement PS17/3 'Payment protection insurance complaints: feedback on CP16/20 and final rules and guidance', and specifically the potential effect of distributing pin badges to FCA staff bearing the motto ‘Bring it on!’ The Commissioner considered that the FCA's responses to the complaint did not address the complainant's key concern—that the FCA had acted unprofessionally and recommended that the FCA write to the complainant again with an explanation addressing this and other concerns of the complainant.

FCA issues final notices in respect of One Call and CEO for client money failings

The FCA issued final notices and imposed sanctions on One Call Insurance Services Limited (One Call) and its chief executive and majority shareholder, John Lawrence Radford, after finding that they had breached client money rules. The FCA has confirmed that it will impose a restriction on One Call, a prohibition on Mr Radford and financial penalties on both parties.

Dial-A-Cab Credit Union Limited and Harp Credit Union Limited enter administration

The FCA announced that Dial-A-Cab Credit Union Limited and Harp Credit Union Limited entered administration on 4 September 2018.

Nicky Morgan says TSB CEO resignation is the right decision

The chair of the Treasury Select Committee, Nicky Morgan MP, has said it is right that the CEO of TSB, Paul Pester, has stood down following further problems for the bank’s online customers.

Markets and trading

ESMA declines Commission amendments to technical standards on SFTR reporting

ESMA published an opinion in response to the European Commission’s proposed amendments of the technical standards on reporting under the Securities Financing Transactions Regulation (SFTR), which were notified to ESMA on 24 July 2018. ESMA declined to amend the draft technical standards as proposed by the Commission, which relate to provisions on the use of legal entity identifiers for branches and unique transaction identifiers for reporting to trade repositories.

Trade associations respond to IOSCO report on commodity storage and delivery

Four leading trade associations submitted a joint response to the consultation report on commodity storage and delivery: good or sound practices, which was published by the International Organization of Securities Commissions (IOSCO) in July 2018. The associations say that they welcome the report and support IOSCO's efforts to harmonise good practices in the commodity space, but they feel that further clarity is required regarding some aspects of the consultation report.

FIA and ISDA respond to ESMA consultation paper on clearing obligation (No. 6) under EMIR

The Futures Industry Association (FIA) and the International Swaps and Derivatives Association (ISDA) submitted a joint response to ESMA's sixth consultation paper on the clearing obligation under the European Market Infrastructure Regulation (EMIR), in particular relating to the treatment of intragroup transactions. FIA and ISDA members strongly support ESMA's move to extend the derogation from the clearing obligation for intragroup transactions concerning third-country entities based in jurisdictions which do not benefit from an equivalence determination under Article 13(2) of EMIR. They consider that, if the derogation is not extended, particularly in the time available before the expiry of the current exemption, the impact on the ability of European derivative market participants to operate on a cross-border basis would be severe.

Banks and mutuals

BoE and PRA update supervisory statement on resolution planning

The Bank of England (BoE) and the PRA issued an update on resolution planning information and expectations under supervisory statement (SS) 19/13: Resolution planning, which sets out the information that firms are expected to provide to the PRA in accordance with the PRA’s Resolution Pack rule. The update clarifies the regulators’ approach in light of EU technical standards.

SMEs have accessed £15m under bank referral scheme, new data shows

HM Treasury published official statistics from the government's bank referral scheme from 1 November 2016 to 30 June 2018. The scheme is designed to help improve SME access to finance and competition in the SME lending market. The data shows that, since its inception, nearly 19,000 small businesses who were rejected for finance from one of the big banks have been referred under the scheme.

ECB executive on challenges facing the banking union

The Bank for International Settlements (BIS) published a speech by a member of the executive board of the ECB, Peter Praet, on creating an enabling environment for pan-European banks in the banking union. Mr Praet said that while the EU had made good progress in financial integration, regulatory fragmentation and ring-fencing of national markets remained. He called for further harmonisation to address these issues, with appropriate prudential safeguards put in place to address possible financial stability concerns by national authorities.

Nicky Morgan comments on Mark Carney's term as governor of the Bank of England

Following the Treasury Committee's evidence session with the Bank of England on 4 September 2018, in which Mark Carney's term as governor was discussed, Nicky Morgan MP, chair of the committee, published a statement on the subject. Mr Carney has indicated he would be willing to stay on as governor of the Bank of England beyond June 2019 if it would assist the government.

Insurance and pensions

InsurTech: IE calls for activity-based regulation and supervision

Insurance Europe (IE) responded to EIOPA’s stakeholder survey on InsurTech. IE said regulation and supervision should be activity-based to ensure that customers have the same level of protection, regardless of whether they purchase insurance products from established insurers or from new market entrants.

MEPs vote in favour of a pan-European personal pension product

MEPs voted in favour of portable personal pensions, which aim to increase investment choices for retail clients and provide a safe way to boost retirement savings. The pan-European personal pension product (PEPP) would be portable across borders in the EU, which the MEPs believe is better adjusted to a globalised economy with open borders and labour mobility.

FCA and PRA launch new insurer start-up unit

The PRA and the FCA launched a new insurer start-up unit (NISU), providing information and support for those thinking of setting up a new insurer in the UK. The NISU is part of the regulators’ ongoing work to improve the authorisation process for prospective new insurers in the UK.

Insurance Europe responds to FSB consultation on regulatory barriers to infrastructure finance

​IE published a position paper in response to the FSB's consultation on the effects of financial regulatory reforms on infrastructure finance. Key issues include capital requirements in Solvency II, the barriers prudential regulation can pose, consistent accounting treatment for both assets and liabilities, and the limited supply of suitable infrastructure assets.

ABI expresses continuing support for the pensions dashboard

The Association of British Insurers (ABI) said it is ready to continue collaboration to deliver the pensions dashboard, following the government’s confirmation of commitment to the project. It was reported in July that the secretary of state for work and pensions might be considering withdrawing support for the dashboard, which is intended to drive transparency and engagement.

SRA issues warning notices on PPI compensation claims

The Solicitors Regulation Authority (SRA) has issued a reminder to firms on the risks involved in payment protection insurance (PPI) claims, one year ahead of the 29 August 2019 claims deadline.

Marketing agency fined £60,000 for nuisance emails

The Information Commissioner’s Office (ICO) fined marketing agency, Everything DM Ltd (EDML), £60,000 for sending 1.42 million emails without consent regarding pension release schemes. The ICO’s investigation discovered that, from May 2016 to May 2017, EDML charged it clients a fee to send emails on their behalf using its direct marketing system called ‘Touchpoint’.

Payment services and systems

ECB opinion on proposed amendments to Cross-Border Payments Regulation

The ECB issued an opinion on a European Commission proposal to amend the Cross-Border Payments Regulation (EC) 924/2009. The proposed regulation intends to provide all citizens and companies in the EU transferring euro cross-border with the low levels of fees which are currently available in respect of domestic payments made in the official currency of a Member State. The ECB supports the proposal and makes a number of technical comments.

Yves Mersch on the future of European payment systems

The ECB published a speech delivered by Yves Mersch, a member of the bank’s executive board, at the European Institute of Financial Regulation. Mr Mersch looked at the state of European payment systems and how to strengthen the European financial industry amid disruptive global challenges. He argued that the way to protect the integrity of European payment services is ‘not by closing them off to the world, but by making them global players’.

FCA publishes information for customers of Premier FX Limited

The FCA published a press release stating that on 13 August 2018, on the FCA’s application, the High Court appointed administrators in respect of Premier FX Limited. Dina Devalia and Peter Hart of PFK Geoffrey Martin & Co have been appointed as joint administrators. Premier FX Limited is authorised by the FCA under the Payment Services Regulations (PSRs) 2017 to provide money remittance services.

Fintech and virtual currencies

ESAs find limited growth in automated financial advice

The European Supervisory Authorities (ESAs)—the EBA, EIOPA, and ESMA published the results of their monitoring exercise on automation in financial advice. The report shows that while automation in financial advice is slowly growing, the overall number of firms and customers involved is still quite limited. As the identified risks have not materialised and considering the limited growth of the phenomenon, the ESAs believe that no immediate action is necessary.

Dates for your diary

Date Subject Event
6 September 2018 Pensions Deadline for responses to FCA consultation paper ‘CP18/17: Retirement Outcomes Review: Proposed changes to rules and guidance’.
7 September 2018 Markets and Trading Deadline for responses to the FSB, the BCBS, the CPMI and IOSCO consultative document on the effects of the reforms on incentives to centrally clear over-the-counter (OTC) derivatives.
7 September 2018 MiFID II Deadline for responses to ESMA Consultation Paper Amendment to Commission Delegated Regulation (EU) 2017/588 (RTS 11) (ESMA70-156-357).
7 September 2018 Banks and mutuals Deadline for responses to the FCA’s update on its ‘Strategic review of retail banking business models’. See ‘Regulation round-up July 2018’.
7 September 2018 Regulatory architecture Deadline for responses to the FSB’s call for nominations on the appointment of academic advisors for the FSB evaluation on the effects of financial reforms on small and medium-sized enterprise (SME) financing.
10 September 2018 Markets and trading Deadline for responses to draft ECB Regulation on money market statistics.
18 September 2018 Consumer credit, mortgage and home finance The FCA is hosting an event to explore how to make financial services work well for consumers in vulnerable circumstances. For further information, email ApproachtoConsumers@fca.org.uk.

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About the author:

Chris is a member of the New York Bar with more than two decades of experience as a financial services and capital markets lawyer in London. Before joining LexisNexis in 2016, Chris worked as a Senior Professional Support Lawyer at Linklaters LLP, supporting the firm’s market-leading Financial Regulation Group, with a particular focus on MiFID II. Chris also worked as Legal Analyst at Bloomberg, where he drafted analytical articles on EU, UK and US financial services law and regulation for Bloomberg journals and developed practical guidance content for the award-winning Bloomberg LAW legal research platform. Prior to that, Chris was a partner in the U.S. law group at Allen & Overy, advising issuers and underwriters on a wide range of capital markets and corporate finance transactions including SEC-registered and Rule 144A debt and equity offerings and mergers and acquisitions, as well as providing general U.S. securities law advice. He also co-founded the firm’s Microfinance Working Group and advised on a variety of matters including two landmark securitisations of loans to microfinance institutions.

Chris has written extensively on legal and regulatory issues for numerous publications and lectured on financial regulation, microfinance and capital markets.