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Two industry associations, UK Finance and techUK, called on the UK government and the EU to act quickly to prepare mutual adequacy agreements to enable the continuing protection for cross-border exchange of personal data between the two regions by customers and banks and other businesses following Brexit. Unless a new arrangement is agreed, they warn that transfers of personal data across Europe will be severely limited or stop, with potentially dire consequences for both economies.
The Chancellor of the Exchequer, Philip Hammond, delivered a speech in which he said it was vital that London retained its global importance in financial services and that it was the government’s priority to achieve an outcome from the negotiations with the EU that maintains effective, mutual access to European markets. Mr Hammond said he wanted a relationship with the EU based on strong mutual respect and friendship, close collaboration on security, and the freest and most frictionless trade possible.
ESMA’s executive director, Verena Ross, delivered a speech at the ICI Global 2017 Capital Markets Conference, in which she discussed ESMA’s supervisory convergence work on Brexit, money market funds, MiFID II, and its 2018 plans on costs and charges of investment funds.
The FCA opened its quarterly consultation (CP17/39) on proposed miscellaneous amendments to its Handbook.
The FCA published the latest version of its policy development update, which provides information on its recent and upcoming publications. Future publications include policy statements on implementation of the Insurance Distribution Directive, which are expected in December 2017 and January 2018, and a policy statement and further consultation on implementation of the Financial Advice Market Review, scheduled for December 2017.
The Prudential Regulation Authority (PRA) published its regulatory digest for November 2017. This issue includes the Bank of England's (BoE) latest Financial Stability Report, the results of the 2017 stress tests of the UK banking system, and the PRA's framework for authorisation and supervision of insurance special purpose vehicles.
The European Commission published a progress report on the follow-up to its 2015 call for evidence on the EU regulatory framework for financial services. At the same time, it has launched a public consultation on supervisory reporting requirements, in response to concerns raised in the call for evidence about the burden and costs that such requirements impose on market players.
The Council of the EU published a report listing the progress made on key financial services legislative files. The report supports the any other business item on the agenda for the upcoming meeting of the Economic and Financial Affairs Council.
The Financial Policy Committee (FPC) released a record of its meetings held on 22 and 27 November 2017. At the first of the two meetings the FPC aimed to agree its view on the outlook for financial stability and, on the basis of that, its intended policy action. The second meeting was to confirm its response to the results of the 2017 annual cyclical scenario (ACS) stress test of the UK banking system, its setting of the UK countercyclical capital buffer rate, and its approach to the biennial exploratory scenario (BES) for the UK banking system, which the Bank had run for the first time in 2017.
The Joint Committee of the three European Supervisory Authorities (the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA)—ESAs) published the 2017 list of identified financial conglomerates. The list includes 80 financial conglomerates with the head of group located in the EU or European Economic Area, one in Switzerland, one in Bermuda, and two in the United States.
The director of supervision for investment, wholesale and specialists at the FCA, Megan Butler, delivered a speech setting out the FCA’s expectations on defined benefit to defined contribution (DB to DC) transfer advice, whistleblowing, and the new MiFID II requirements. Ms Butler said encouraging whistleblowing was essential in order to drive out bad practice across the sector, and that although the FCA was on course to see a 5% rise in such reports in 2017, there were fewer whistleblowers coming forward from the advice market than from other sectors, putting investors at risk of losing their savings as a result of poor or dishonest advice.
The PRA issued a consultation paper (CP26/17) which sets out its proposals to support effective practices in model risk management for stress testing. A set of principles has been developed in the context of the annual concurrent stress testing process, which tests the resilience of the banking system and some of the largest firms within it. The PRA proposes to embed these principles further for firms participating in the annual concurrent stress tests and extend the principles, in a proportionate manner, to the wider banking sector. The consultation closes on Tuesday 6 March 2018.
The PRA issued a consultation paper (CP25/17), proposing a new data item (PRA111) to capture stress testing data currently included in firms' internal capital adequacy assessment process (ICAAP) documents. The CP also proposes a reduction in the frequency of reporting of the data items in the reporting Pillar 2 Part of the PRA Rulebook ('Pillar 2 data items') for some firms, and consolidation of definitions in several reporting Parts of the PRA Rulebook into the Glossary. The consultation closes on 6 March 2018.
The European Parliament issued a press release stating that it has decided in favour of clear rules on the order in which troubled banks' creditors are liable to cover losses. The Parliament voted in plenary to adopt its position at first reading on the European Commission's proposed directive amending the Bank Recovery and Resolution Directive 2014/59/EU (BRRD) as regards the ranking of unsecured debt instruments in insolvency hierarchy.
The Council of the EU adopted a proposal for a Directive amending the BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy.
The European Parliament voted in plenary to adopt its position at first reading on the European Commission's proposed regulation regarding transitional arrangements to mitigate the impact of the introduction of IFRS 9 on own funds and for the large exposures treatment of certain public sector exposures denominated in currencies other than those of domestic Member States.
The Council of the EU adopted a proposal for a Regulation amending the Capital Requirements Regulation (Regulation (EU) 575/2013) as regards transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds and the large exposures treatment of certain public sector exposures denominated in non-domestic currencies of Member States.
The Council of the EU published a report from the Estonian Presidency addressed to the Permanent Representatives Committee/Council setting out the progress that has been made concerning the package of banking legislative proposals (the 'Banking Package') produced by the Commission pursuant to the Council's 2016 roadmap to complete the Banking Union. As regards the remaining four elements of the Package, the Presidency has prepared compromises on:
The Council of the EU published a joint progress report on three key pieces of EU work—the European Deposit Insurance Scheme, the Banking Package and non-performing loans. The aim of the progress report is to set out the objectives of the ECOFIN Council as regards the strengthening of the banking union.
The European Parliament's Committee on Economic and Monetary Affairs (ECON) published draft reports on two European Commission proposals to amend the Capital Requirements Directive 2013/36/EU (CRD IV) and Regulation (EU) No 575/2013 (CRR):
The proposals were made by the Commission in November 2016 as part of its larger package of changes to banking legislation. While ECON agreed with the overall objectives underpinning the proposed revisions, it recommends a number of amendments in some key areas.
The General Secretariat of the Council of the EU recommended that the Council confirm that it has no objection to the European Commission's delegated regulations specifying valuation methodologies under the BRRD:
The Breach of Union Law Panel of the EBA decided to close the breach of Union Law investigation (BUL) against the Dutch Central Bank (DNB) in relation to the Dutch supervisory regime governing proprietary traders. The BUL panel's conclusion followed the decision taken by the DNB on 13 November 2017 to redress the breach of Union law by terminating the current national prudential framework for traders for own account. The DNB will notify the EBA on capital conservation plans adopted by the firms concerned and the EBA will monitor the application of these transitional measures.
The Financial Stability Board (FSB) is consulting on two sets of guidance targeting ‘too-big-to-fail’. The proposed guidance concerns the implementation of particular aspects of its ‘Key attributes of effective resolution regimes’ for global systemically important banks (G-SIBs). The ‘Principles on bail-in execution’ consultation proposes a set of principles to assist authorities as they make G-SIB bail-in resolution strategies operational, while the ‘Funding strategy elements of an implementable resolution plan’ consultation builds on the FSB’s August 2016 ‘Guiding principles on the temporary funding needed to support the orderly resolution of a global systemically important bank’ and existing supervisory and resolution guidance on liquidity risk management and resolution planning. Responses are sought by 2 February 2018.
The Single Resolution Board (SRB), an independent European Union (EU) Agency established by the Single Resolution Mechanism Regulation, published its first multi-annual programming report, including its work programme 2018.
The chair of the supervisory board of the European Central Bank (ECB), Danièle Nouy, gave a speech and written an article in the Financial Times on non-performing loans (NPLs). The speech was delivered at a public hearing in Frankfurt as part of a consultation on the draft addendum to the ECB’s guidance to banks on NPLs. Ms Nouy repeated calls for national governments to speed up out-of-court settlements for NPL resolution, and ensure there are specialised courts and judges to deal with insolvencies.
Market conditions are 'extraordinarily favourable' for sales of non-performing loans (NPLs) as investors search for yield in a low interest environment, according to the chair of the EBA, Andrea Enria. Speaking at the Finest Winter Workshop in Milan, Mr Enria encouraged policy makers to address the 'opaqueness and liquidity' of the secondary market for NPLs, in order to take full advantage of this opportunity.
The ECB released the results of its annual review of the significance of credit institutions for 2017. As a result of increased size, Barclays Bank PLC Frankfurt Branch has been identified as significant and will be directly supervised by the ECB from 1 January 2018. The number of banks directly supervised by the ECB falls to 119.
The PRA published an updated Remuneration Policy Statement (RPS) reporting template for PRA Category 1 and 2 firms to use for the 2017 performance year to demonstrate compliance with the requirements.
The Association for Financial Markets in Europe (AFME) published an article which addresses the risks of cybersecurity to financial firms. The article references the October 2017 Swift attack, which showed how vulnerable financial firms across the globe are to the machinations of hackers.
The Joint Committee of the three European Supervisory Authorities (the EBA, EIOPA and ESMA—ESAs) has published its final report on draft joint regulatory technical standards (RTS) on the measures credit institutions and financial institutions shall take to mitigate the risk of money laundering and terrorist financing where a third country's law does not permit the application of group-wide policies and procedures (JC 2017 25). The RTS will supplement the Fourth Money Laundering Directive (EU) 2015/849 (MLD4).
The FCA secured guilty verdicts for Samrat Bhandari and Dr Muhammad Aleem Mirza for their role in operating an investment scheme which led to more than 300 investors losing a total of just over £1.4m. A further defendant, Albene Mendy, was found not guilty. Two brothers, Michael and Paul Moore, pleaded guilty to related offences at a hearing in May 2017.
The FCA announced that Alex Hope has been charged with perverting the course of justice, and appeared before the Camberwell Green Magistrates’ Court on 30 November 2017. The proceedings have been transferred to Inner London Crown Court where Mr Hope will appear on 22 December 2017.
The UK government confirmed that it is currently negotiating amendments to the Fourth Money Laundering Directive that will bring virtual currency exchange platforms and custodian wallet providers into anti-money laundering and counter-terrorist financing (AML/CTF) regulation, which will result in these firms’ activities being overseen by national competent authorities for these areas. The government says it supports the intention behind the amendments and expects the negotiations to conclude at EU level in late 2017/early 2018.
HM Treasury issued an update of its Money laundering and terrorist financing controls in overseas jurisdictions advisory notice. The update is in response to two Financial Action Task Force statements issued on 3 November 2017 and highlights the risks posed by unsatisfactory money laundering and terrorist financing controls in a number of jurisdictions.
The US Justice Department announced a revised Foreign Corrupt Practices Act (FCPA) corporate enforcement policy. The new policy is designed to enable the Department to identify and punish criminal conduct, and provide guidance and greater certainty for companies struggling with the question of whether to make voluntary disclosures of wrongdoing. Deputy Attorney General Rosenstein said in a speech that he expected the new policy to increase the volume of voluntary disclosures and enhance the Department’s ability to identify and punish culpable individuals.
The head of the Financial Crime Department at the FCA, Rob Gruppetta, delivered a speech at the FinTech Innovation in AML and Digital ID regional event, London, where he discussed the use of artificial intelligence (AI) to keep criminal funds out of the financial system.
The executive director of supervision for investment, wholesale and specialists at the FCA, Megan Butler, delivered a speech at the ICI Global 2017 Capital Markets Conference, in which she said cyber and financial crime in capital markets require an open and co-operative response from both firms and regulators.
The FCA fined Bluefin Insurance Services Limited (Bluefin) £4,023,800 for inadequate systems and controls, and failing to provide information to its customers about its independence in a way that was clear, fair and not misleading. Between 9 March 2011 and 31 December 2014 the firm held itself out to be ‘truly independent’ in the advice it provided and the insurers it recommended to customers, but was in fact wholly owned by the insurer AXA UK Plc during this time. Bluefin was sold by AXA UK Plc on 31 December 2016.
The FCA published a press release stating that it has commenced civil proceedings against Avacade Limited (in liquidation) (Avacade), Alexandra Associates (U.K.) Limited, trading as Avacade Future Solutions (Alexandra), and against Craig Lummis, Lee Lummis and Raymond Fox.
The Financial Reporting Council (FRC) published a report on its enquiries and investigation of the audits undertaken by KPMG Audit plc (KPMG) of the 2007 and 2008 financial statements of HBOS plc (HBOS). In the report, the FRC acknowledges that it should have taken a more proactive role and acted more quickly, rather than relying on other regulators. It also highlights other lessons learnt from its own scrutiny of its work on this matter, its enforcement procedures generally and the commentary of stakeholders.
The Office of the Complaints Commissioner (OCC) published a report concerning alleged mistakes and lack of care by the FCA’s Credit Authorisation Division (CAD) in relation to an authorisation application. As a result of a review, the OCC stated that it was not persuaded that the FCA gave sufficient consideration to the cumulative effect of the identified mistakes and lack of care by CAD and how these would have undermined the cumulative effect of the identified mistakes and lack of care by CAD the firm's trust in the authorisation process.
The FCA published data on the response to its payment protection insurance (PPI) campaign for 29 August—5 November 2017. The data shows the numbers visiting the FCA’s website, calling its helpline and contacting it on social media during months when it has had live advertising. It also shows how satisfied they were with the services the FCA provided.
ESMA published the MiFID II/MiFIR transitional transparency calculations (TTC) for equity and bond instruments. TTC for all asset classes, applicable from 3 January 2018, are therefore now available to market participants, infrastructures and authorities as required under the new regulatory framework. The execution of the TTC has been delegated to ESMA by national competent authorities (NCAs), which have also approved the final calculations published by ESMA.
The FCA made changes to its Connect system which impact on how firms can submit MiFID passport notifications (see webpage: Passporting under MiFID II). All MiFID passport notifications will have to be submitted under the MiFID II legal framework. The changes are necessary in preparation for the implementation of the recast Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II) and the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014) on 3 January 2018.
The General Secretariat of the Council of the EU recommended that the Council confirm that it has no objection to the European Commission's delegated regulation specifying the derivatives that will be subject to the trading obligation under the Markets in Financial Instruments Regulation (MiFIR).
Verena Ross, executive director of ESMA, gave a speech in which she calls for ESMA to play a central role regarding third country entities active across the EU. In her keynote address at the Asia Securities Industry & Financial Markets Association (ASIFMA) annual conference in Hong Kong, Ms Ross also highlights some of the implications of MiFID II and MiFIR for third country firms.
The Global Legal Entity Identifier Foundation (GLEIF) released the first iteration of ISO 20275: Entity Legal Forms (ELF) Code List, which contains more than 1,600 entity legal forms across more than 50 jurisdictions, each assigned a unique alpha-numeric code of four characters from the basic Latin character set. The ELF Code List is based on the ISO standard 20275 ‘Financial Services—Entity Legal Forms’.
The Bank of International Settlements (BIS) published statistics concerning exchange-traded derivatives. The BIS compiles and publishes one set of statistics on exchange-traded derivatives and two sets on over-the-counter derivatives markets every year.
The Association for Financial Markets in Europe (AFME) published a report, ‘The links between the risk reduction package and the development of Europe's capital markets’, which highlights the significant impact that key elements of the Commission's risk reduction measures (RRM) legislative package can have on Europe's capital markets and the real economy.
The Commodity Futures Trading Commission (CFTC) issued a no-action letter extending swap data reporting relief for EU, Australian, Canadian, Japanese and Swiss swap dealers (SDs) and major swap participants (MSPs) which do not have an ultimate US parent. The relief has been extended to 1 December 2020, or if earlier, 30 days following the issuance of a comparability determination by the CFTC with respect to the SDR Reporting Rules for the jurisdiction in which the non-US SD or non-US MSP is established.
ESMA issued its Risk Dashboard No. 4 2017, covering risks in the EU's securities markets for Q3 2017. ESMA's overall risk assessment remains unchanged from Q2 at high levels.
SI 2017/1127: Specified articles of the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs Regulation) are implemented in part. These changes are effective from 1 January 2018.
The European Commission adopted a regulation with regard to regulatory technical standards (RTS) on financial derivative instruments solely serving hedging purposes, sufficient length of the life of the European long-term investment funds, assessment criteria for the market for potential buyers and valuation of the assets to be divested, and the types and characteristics of the facilities available to retail investors.
HM Treasury published its Investment Management Strategy II, setting out the government’s long-term approach to enhancing the UK’s position as a centre for asset management. The government plans to introduce Asset Management Centres of Excellence to train Britain’s ‘next generation of investment management talent’, and aims to advance the development of FinTech asset management solutions. It will also continue a co-ordinated programme of international engagement to attract overseas firms to locate in the UK and promote UK firms overseas.
The FCA published a paper summarising feedback raised by participants in its roundtables discussing the high-cost credit sector. On 31 July 2017 the FCA published a feedback statement (FS17/2) which set out its priorities for the next stage of its review of businesses that offer high-cost credit. The FCA hosted three roundtables in September and October 2017 to discuss the alternatives to high-cost credit and the provision of essential goods.
The FCA published a report on its research into consumers’ experience of borrowing money from unauthorised lenders, otherwise known as loan sharks. The report summarises what the FCA was told by its consumer network partners, and includes some insights from individuals directly affected by what is commonly known as illegal money lending.
SI 2017/1212: A new regulatory and supervisory framework for Insurance Linked Securities (ILS) is implemented in the UK from 8 December 2017. The framework is designed to attract ILS business to the UK. The Regulations create a new form of regulated activity under the Financial Services and Markets Act 2000 for ILS. They also enable the creation of a new form of body corporate called a 'protected cell company' to act as a special purpose vehicle in ILS transactions.
The International Association of Insurance Supervisors (IAIS) is consulting on a draft issues paper on index-based insurances, which are increasingly being seen as a way to manage weather and catastrophic events, support food security and enhance access to insurance. The paper provides background on the product, describes practices and actual examples, and identifies related regulatory and supervisory issues and challenges. Responses are sought by 29 January 2018.
The FCA reported that actions it has taken in collaboration with the Department for Work and Pensions, pension providers, the independent governance committees (IGCs) and trustees, have resulted in lower costs and charges to consumers on about £24.9bn in workplace pension schemes. The FCA says it has written to all providers that participated in its progress review, setting out its clear expectation that they will continue to ensure that customers are not exposed to high costs and charges that are poor value for money, and that they engage on an ongoing basis with their IGCs, trustees and members as appropriate to achieve this.
The FCA published advice for consumers on protecting pension pots from scams and risky investments, based on its previous consumer alert from August 2014. It sets out questions consumers should consider before transferring funds to a new scheme, and warns against taking action based on cold calls or free pension reviews. It recommends that consumers seek impartial advice from a financial adviser unconnected to the firm that contacted them before investing in unregulated investments.
The House of Commons European Scrutiny Committee considered the European Commission’s proposal for a Regulation on a pan-European Personal Pension Product (PEPP), and says it is not satisfied that the proposal offers much added value for UK consumers.
The Department for Business, Energy & Industrial Strategy published guidance on the Consumer Rights (Payment Surcharges) Regulations 2012 2012/3110 in the amended form which will take effect on 13 January 2018. The amendments were made by the Payment Services Regulations 2017 and implement provisions of the second Payment Services Directive 2015/2366/EC (PSD2).
SI 2017/1173: Amendments are made to exercise a power inserted into the Financial Services and Markets Act 2000 by the Digital Economy Act 2017 (DEA 2017), which enables the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 to cover non-bank payment institutions. The regulations come into force on 22 December 2017 and on 13 January 2018.
SI 2017/1167: The Bank of England (BoE) is enabled to supervise service providers to systemically important payment systems.
SI 2017/1175: These Regulations amend the Data-gathering Powers (Relevant Data) Regulations 2012 to specify the relevant data which money service businesses may be required to provide to HMRC on receipt of a data-holder notice under Schedule 23 to Finance Act 2011. These regulations come into force on 21 December 2017.
A judgment been handed down in proceedings brought by Sainsbury’s against Visa. Sainsbury’s had sought a declaration that the Multilateral Interchange Fees (ie the interchange fees paid by the acquirers and passed on to the merchants such as VISA) set by Visa for transactions in the UK were unlawful as being contrary to Article 101 of the Treaty on the Functioning of the European Union 2012/C 326/01, which is of direct effect, and its domestic equivalent, section 2 of the Competition Act 1998. Sainsbury's Supermarkets Ltd v Visa Europe Services LLC and others  EWHC 3047 (Comm).
The ECB published details of a speech given by Yves Mersch, a member of the executive board of the ECB, at the Joint ECB and Banca d'Italia conference in Rome. Mr Mersch focused on instant payments and briefly discussed the private cryptocurrency schemes which do not have an identifiable issuer.
The Chicago Mercantile Exchange Inc (CME), the CBOE Futures Exchange (CFE) and the Cantor Exchange (Cantor) agreed with the US Commodity Futures Trading Commission (CFTC) to significant enhancements to its proposed self-certified new contracts for bitcoin futures products and bitcoin binary options to protect customers and maintain orderly markets.
The FCA announced that 18 firms have been successful in their applications to begin testing in the third cohort of the sandbox, which allows firms to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place. The FCA is now accepting applications from firms for the fourth sandbox phase. Firms have until 31 January 2018 to submit their applications.
A report which explores the early regulatory implications of the growing role of technology in pension provision, and looks at what governments are doing more generally to support its development for the benefit of consumers, has been published by the OECD.
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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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