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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 7 September 2017.
The Financial Markets Law Committee (FMLC) has responded to an MoJ request for analysis of issues of legal uncertainty arising out of clause 3 of the European Union (Withdrawal) Bill 2017. The explanatory notes to the Bill say that clause 3 ensures that EU legislation—where it comes into application section by section, in a staggered way over time—will be converted into domestic legislation only in so far as the instrument has entered into force and applies before exit day. Where the date of application of a provision falls after exit day, the provision will not be converted into domestic law. The FMLC says this introduces legal uncertainty on a number of fronts, most notably as it results in an increase in complexity for market participants attempting to establish which legal obligations apply to them.
The Association for Financial Markets in Europe (AFME) has published a paper asking for clarity on Brexit transition 'as early as possible'. Faced with no clarity on the future relationship between the EU and the UK, market participants are taking important decisions amid considerable uncertainty.
The City of London Law Society’s (CLLS) Insolvency Law Committee has written a letter to the Insolvency Service on the implications of Brexit. The background to the letter is the government‘s service of its Article 50 notice, the Brexit White Paper and the recently introduced European Union (Withdrawal) Bill (the Bill). The letter notes that whilst the Bill suggests that existing EU regulations will be incorporated into English law, a ‘hard’ Brexit would mean that the UK would lose the benefit across the EU of the mutual recognition provisions in Council Regulation (EU) 2015/848 of 20 May 2015 on insolvency proceedings (the ‘Recast Regulation’).
The Financial Conduct Authority (FCA) has issued CP17/32, its quarterly consultation on miscellaneous proposed amendments to the Handbook. Feedback is sought by 2 October 2017 for the proposals set out in chapters 4, 5 and 6 of the consultation paper, and 1 November 2017 for the proposals in chapters 2, 3, 7, 8 and 9.
The FCA has updated its policy development page, which provides information on its recent and upcoming publications. The FCA tries to update this page on the first Friday of each month.
The Prudential Regulation Authority (PRA) has published its Regulatory Digest for August 2017. The issue covers deputy governor Sam Woods’ letter to Nicky Morgan, chair of the Treasury Committee, in response to a request for the PRA to share what it had learnt about firms’ contingency plans, the information request for firms subject to reporting requirements in PS36/16 and PS18/17, and the PRA’s consultation CP16/17 on fees and levies: model transaction fees, fees and FSCS levies for insurers and fees for designated investment firms.
The PRA has announced the re-appointment to its Prudential Regulation Committee of external members Sandra Boss and Mark Yallop, for additional terms of three years. Sandra Boss’ second term will begin on 1 September 2017 and end on 31 August 2020 and Mark Yallop’s will begin on 1 December 2017, ending on 30 November 2020.
The Financial Secretary to the Treasury has confirmed in a written ministerial statement that the Finance Bill 2017 will be published on 8 September 2017. Explanatory notes on the Bill will be available in the Vote Office and the Printed Paper Office and placed in the libraries of both Houses of Parliament on 12 September 2017.
The Basel Committee on Banking Supervision (BCBS) and the International Financial Reporting Standards (IFRS) Foundation have signed a memorandum of understanding (MoU) focusing on the development of IFRS standards, the interaction between IFRS standards and the BCBS’s framework, and the manner in which they are applied in practice by financial institutions across the world. The co-operation agreement aims to foster long-term financial stability, enhance market discipline and further develop sharing of information.
The chair of the supervisory board of the European Central Bank (ECB), Danièle Nouy, has delivered a speechon the interplay of banking competition and stability, repeating her call for a European deposit insurance scheme and her warning that banks must be allowed to fail without disrupting the market.
The PRA has amended its consultation paper CP16/17—PRA fees and levies: model transaction fees, fees and Financial Services Compensation Scheme (FSCS) levies for insurers and fees for designated investment firms. The update corrects the definition of ‘best estimate liabilities’ for life insurers in appendix 2. The consultation closes on 24 October 2017.
The chair of the supervisory board of the ECB, Danièle Nouy, has responded to a letter from MEP Miguel Urban Crespo concerning the ECB’s role in supervising auditors. Ms Nouy stated that the enforcement of accounting standards and the supervision of statutory auditors and audit firms were not within the competence of the ECB but remain a responsibility of the national authorities. However, Ms Nouy said there would be ‘significant merits to having a more harmonised approach at the European level in the future, and the ECB is ready to play a role in this together with the other EU authorities’.
The European Banking Authority (EBA) has published final draft implementing technical standards (ITS) specifying templates and procedures resolution authorities should follow when informing the EBA of the minimum requirement for own funds and eligible liabilities (MREL) that have been set for institutions in their jurisdiction under the Bank Recovery and Resolution Directive 2014/59/EU (BRRD). The standards will enable the EBA to monitor the consistency of MREL/implementation across the EU.
Commission Implementing Regulation (EU) 2017/1486 of 10 July 2017 amending Implementing Regulation (EU) 2016/2070, as regards benchmarking portfolios and reporting instructions, was published in the Official Journal of the EU.
The European Commission has published a Commission Delegated Regulation setting out regulatory technical standards (RTS) for the disclosure of encumbered and unencumbered assets. The regulation will enter into force on the 20th day following its publication in the Official Journal of the European Union, but, given the novelty of the requirement to provide information on the asset quality indicators, the application of the provisions on the disclosure of such indicators will be deferred by one year, to allow institutions to develop the necessary IT systems.
The chair of the supervisory board of the ECB, Danièle Nouy, has said the role of the European banking supervision is not to prevent each and every bank from failing. Instead, it is to create a level supervisory playing field and make the banking sector safer. It also helps to prepare the ground for a ‘truly European banking market that will trigger cross-border consolidation sooner rather than later’.
In a speech on bank restructuring, resolution and insolvency, a member of the supervisory board of the ECB, Pentti Hakkarainen, said it was important to have a special insolvency regime for the sector that was faster than standard insolvency proceedings, protected society from the potentially massive negative spill-over effects associated with bank failures, and ensured the continuation of the critical functions of financial institutions.
Serious Fraud Office (SFO) director David Green has underscored the ‘significance’ of deferred prosecution agreements (DPAs) as a means for prosecuting cases involving complex fraud and commercial bribery. He highlights that DPAs totalled around £640m in financial penalties and costs. He uses the 2013 Rolls-Royce case to illustrate the effectiveness of DPAs in engaging a company, ensuring proportionality, and in enabling cooperative companies to ‘account for conduct to a court in a transparent way without sustaining a criminal conviction, or the collateral damage’.
In a speech, the SFO’s general counsel Alun Milford, discussed the impact of deferred prosecution agreements (DPA) as a way of prosecuting cases involving complex fraud and commercial bribery. He highlights the importance of understanding that ‘only co-operative companies will ever be offered the opportunity of entering into a DPA with us’, despite criticism contrary to this. The general counsel also outlines three main learnings the SFO has taken away from recent use of the DPA’s in the Rolls-Royce case.
Solicitors are being urged to check the HM Treasury frozen assets review to ensure they are not holding monies that belong to a client subject to financial sanctions. If they discover they are holding frozen assets, they are advised to alert the Treasury. The annual review was published on 4 September 2017, and checks must be made by 13 October 2017.
Europol has published a report from its financial intelligence group (FIG) on the reporting of suspected criminal financial flows (known as suspicious transaction reports or STRs) from the private sector, acting as gatekeepers to the financial system and legal economy, to EU financial intelligence units (FIUs).
The Financial Ombudsman Service (FOS) has released data on the complaints it received over the six months from 1 Jan to 30 June 2017 about individual financial businesses. The data is set out in two tables, covering the number of new cases received by the ombudsman service in that six-month period from consumers dissatisfied with the financial business’s response to their complaint, and the percentage of resolved cases where the FOS made a change in favour of the consumer.
The Competition and Markets Authority (CMA) has written to Paymentshield Ltd setting out the action agreed to remedy Paymentshield Ltd’s breach of the Payment Protection Insurance Market Investigation Order 2011. The firm had failed to send some of its customers an annual review statement including the cost of payment protection insurance (PPI) and a reminder of their right to cancel. Paymentshield will send apology letters to affected customers and, in some cases, provide refunds of premiums.
The FCA has published the 18th edition of its Primary Market Bulletin, containing general news, information and proposals for change to the UK Listing Authority (UKLA) knowledge base. This edition focuses on the UKLA’s proposed new guidance for sponsors on their obligations to ensure directors understand their responsibilities and obligations under the listing rules (LR), disclosure requirements and transparency rules (DTR), and that directors have established procedures to enable an issuer to comply with its obligations on an ongoing basis and that these are not adversely impacted when an issuer undertakes certain transactions. Comments on proposals are sought by 11 October 2017.
The European Securities and Markets Authority (ESMA) has updated its Q&A document regarding the implementation of the Market Abuse Regulation. The update clarifies the scope of firms subject to the Market Abuse Regulation provision to detect and report suspicious orders and transactions, providing detailed answers on the scope of the financial instruments subject to the market sounding regime under the Market Abuse Regulation, and the persons subject to the insider list requirements.
AFME has published a briefing note setting out its view on the scope of the share trading obligation contained in Article 23 of the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014)(MiFIR).
The General Secretariat of the Council of the EU has asked the Permanent Representatives Committee to extend by one month the period for raising objections to Commission Delegated Regulation (EU) No …/.. of 14.8.2017 supplementing MiFIR with regard to package orders.
The Futures Industry Association (FIA) and the International Securities and Markets Authority (ISDA) have issued a response to ESMA consultation paper ‘ESMA’s guidelines on CCP conflicts of interest management’.
The International Association of Insurance Supervisors (IAIS) has published the results of a survey conducted in 2016 to assess capacity building and development needs for supervisors. The survey was conducted in partnership with the Access to Insurance Initiative (A2ii), and collected information about the supervisory institutions, their staffing and professional development policies, and the promotion of capacity-building resources.
The PRA has updated its April 2017 public disclosure with templates A and B, as required under Article 31(2)(c) of the EU Solvency II Directive. The public disclosure is designed to foster a uniform level of transparency and accountability between supervisory authorities and will be updated on a regular basis.
The European Insurance and Occupational Pensions Authority (EIOPA) has published technical information for Solvency II relevant risk free interest rate (RFR) term structures with reference to the end of August 2017.
EIOPA has published its monthly update of the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of August 2017.
Insurance Europe (IE) has published its 21 August 2017 response to a public consultation on the draft delegated acts (DAs) on product oversight and governance (POG) and insurance-based investment products (IBIPs). IE sets out suggested amendments to the Commission’s proposed DAs with specific observations concerning POG in relation to sales outside of the target market, negative target market, retroactive application and monitoring of distribution channels. IE comments on the proposals for IBIPs, including inducements and non-complex insurance-based investment products.
IE has published its response to a European Commission consultation on the first batch of advice that it received from EIOPA on the upcoming review of Solvency II. IE says that while good progress has been made, there are still areas of concern, for example the analysis carried out by EIOPA on the drivers of the loss-absorbing capacity of deferred taxes (LAC DT) does not provide a complete picture of the issues and caution should be used when drawing conclusions from it.
The EBA has published a presentation given at a public hearing on draft regulatory technical standards (RTS) and implementing technical standards (ITS) on the electronic central register containing information notified by national competent authorities (NCAs) that the EBA is required to develop and maintain under the Payment Services Directive (EU) 2015/2366 (PSD2). The EBA has issued a consultation paper on the draft RTS and ITS (EBA/CP/2017/12) in July 2017. The consultation closes on 18 September 2017.
The Basel Committee on Banking Supervision (BCBS) published a consultation, ‘Sound practices: Implications of fintech developments for banks and bank supervisors’, looking at how fintech may affect the banking industry and the activities of supervisors in the near to medium term. The report sets out a number of scenarios for fintech implications on the sector and studies the risks and opportunities they present. Feedback is sought by 31 October 2017.
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