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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 6 September 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'.
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 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.
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.
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.
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).
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
The FCA announced that Dial-A-Cab Credit Union Limited and Harp Credit Union Limited entered administration on 4 September 2018.
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.
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.
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.
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.
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.
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.
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.
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 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 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.
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.
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.
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.
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.
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’.
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.
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’.
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.
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.
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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.
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