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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 8 December 2016.
On 30 November 2016, the UK Supreme Court released details ahead of the hearings on the government’s Article 50 appeal. Information published included logistical arrangements, case summaries and links to the parties’ cases and submissions, as well as details of the issues arising in the Northern Ireland judicial review cases referred to the Supreme Court. A full timetable for the hearings was also available.
On 5 December 2016, senior government ministers met with executives from the financial services industry to discuss opportunities and challenges presented by the UK’s decision to leave the EU. Chancellor of the Exchequer, Philip Hammond, and the Secretary of State for Exiting the EU, David Davis, co-chaired the roundtable discussion.
On 6 December 2016, the Financial Markets Law Committee (FMLC) published a paper which considers issues of legal uncertainty arising in consequence of Brexit in the areas of cross-border commercial litigation, choice of law clauses in financial markets contracts, the jurisdiction of English courts under an English choice-of-court agreement and the enforcement of English judgments.
On 6 December 2016, the chairman of the Treasury Committee, Rt Hon, Andrew Tyrie MP, responded to remarks of the EU’s chief negotiator for Brexit, Michel Barnier. In a press conference also on 6 December 2016 Mr Barnier warned that ‘time will be short’ to conduct the negotiations and that the UK could not ‘cherry pick’ on issues such as access to the single market. Mr Tyrie said Mr Barnier’s remarks would ‘raise the political temperature at a time when he should be lowering it’.
On 7 December 2016, in a speech to Insurance Ireland’s INED Seminar 2016, the Director of the Association of British Insurers (ABI) Huw Evans announced that the UK government must make a clear commitment that it will seek an early agreement with its European partners on a transitional implementation period following Brexit. The ABI has warned failure to do so could lead to UK insurers most affected by Brexit leaving the UK before a final Brexit deal is clear.
On 30 November 2016, the Financial Conduct Authority (FCA) published its service standards for November 2016. The standards apply to a range of FCA services, including how to deal with telephone enquiries, correspondence and applications.
On 2 December 2016, the FCA released its latest quarterly Consultation Paper (CP16/39) on proposed miscellaneous amendments to its Handbook. The consultation includes mostly minor changes to the Conduct of Business sourcebook (COBS), the Decision Procedure and Penalties (DEPP) manual, the Enforcement Guide (EG), the Disclosure Guidance and Transparency Rules sourcebook (DTR), the Training and Competence sourcebook (TC), the Supervision manual (SUP), the Consumer Credit sourcebook (CONC) and the Glossary.
On 2 December 2016, the FCA published its latest policy development update, which provided information on its recent and upcoming publications, including forthcoming consultations on MiFID II and consumer credit, and new proposals on FCA-regulated fees and levies.
On 1 December 2016, the Prudential Regulation Authority (PRA) published its regulatory digest for November 2016. It highlights key regulatory news and publications for November, such as the consultation on restoring the deposit protection limit to £85,000, as well as new Bank of England rules which 'bring the UK closer to ending taxpayer bailouts'.
In advance of a meeting of the Economic and Financial Affairs Council (ECOFIN) on 6 December 2016, the Council of the EU published a summary of the state of play for financial services legislative files. ECOFIN is a configuration of the Council of the EU with responsibility for economic policy, taxation issues and the regulation of financial services.
On 2 December 2016, the ECOFIN published its agenda highlights and a background brief for its meeting on 6 December 2016 in Brussels. Items included a progress report on the proposal to establish a European Deposit Insurance Scheme (EDIS), and a presentation by the European Commission on its recent proposal to amend banking sector rules.
FCA enters co-operation agreement with the Hong Kong Monetary Authority
On 7 December 2016, the FCA and the Hong Kong Monetary Authority announced they had entered into a co-operation agreement to jointly promote financial innovation. The agreement will see each authority refer on innovative firms in their home jurisdictions that wish to participate in the other, joint innovation projects, and the sharing of information and experience.
The Investigatory Powers Act 2016 was granted Royal Assent on 29 November 2016. There are a number of financial services-related aspects to the Act, such as those relating to the FCA's power to request communications data.
SI 2016/1171: The days on which amendments made by the Finance Act 2016, s 179, come into force are appointed. The changes amend the Finance Act 1994 to include the refusal of an approval, the imposition of conditions to an approval or the variation or revocation of an approval to be subject to review and appeal.
SI 2017/Draft: Amendments are made to a number of pieces of legislation in consequence of, among other things, the change in status of the Prudential Regulation Authority (PRA) as a subsidiary of the Bank of England (BoE). These changes come into effect on 1 March 2017.
On 2 December 2016, guidance providing recommendations for best practice for dealing with amendments to a loan agreement was published by the Loan Market Association (LMA).
On 2 December 2016, the Lending Standards Board (LSB) published business standards of lending practices due in 2017. The lending standards for business customers will be launched in phases, with the first phase due in early 2017, the Lending Standards Board (LSB) has confirmed. The standards will include businesses with a turnover of up to £6.5m, replacing the micro-enterprise provisions of the Lending Code.
On 5 December 2016, Sir Jon Cunliffe, the Bank of England’s (BoE) deputy governor for financial stability, published an article in the journal ‘European Economy—Banks, Regulation and the Real Sector’ on dealing with the failure of large banks.
On 7 December 2016, the Treasury Committee published a letter that the chairman of the Treasury Committee, Rt Hon. Andrew Tyrie MP, wrote to Sir Amyas Morse, the KCB comptroller and auditor general at the National Audit Office. Mr Tyrie welcomed the news that Sir Morse, the KCB comptroller and auditor general at the National Audit Office, is ‘likely’ to consider how UKFI made decisions relating to the government’s shareholdings in Royal Bank of Scotland (RBS).
On 6 December 2016, the FCA responded to questions from firms as to why it collects retail mediation activities (RMA) data and how it uses it. It says the data allows it to more effectively target its supervisory resources and spot trends in individual firms and the wider market.
On 1 December 2016, the PRA published Policy Statement PS34/16, which provides feedback on responses to Consultation Paper CP12/16, ‘Supervising building societies’ treasury and lending activities’, as well as the final Supervisory Statement (SS)20/15. In PS34/16, the PRA acknowledges the role of the building societies’ sector in tackling more complex mortgage cases, but believes this reinforces the need to ensure that the risk appetite of a society is matched by its risk expertise and risk management capacity relevant to its chosen niche(s)—which is a key objective of SS20/15. The SS therefore sets out the PRA’s expectations and indicative, rather than ‘prescriptive’, limits.
On 2 December 2016, the Official Journal of the EU published Commission Implementing Regulation (EU) 2016/2070 of 14 September 2016 laying down implementing technical standards (ITS) for templates, definitions and IT solutions to be used by institutions when reporting to the European Banking Authority (EBA) and to competent authorities in accordance with Article 78(2) of the Capital Requirements Directive (Directive 2016/36/EU) (CRD IV).
On 1 December 2016, the EBA published its fourth updated list of capital instruments that Competent Supervisory Authorities (CAs) across the EU have classified as Common Equity Tier 1 (CET1). Some new CET1 instruments have been assessed and evaluated as compliant with the Capital Requirements Regulation (CRR).
On 2 December 2016, the EBA published its ninth report on risks and vulnerabilities in the EU banking sector on 2 December 2016, together with its 2016 transparency exercise, which provides data on 131 banks across the EU. According to the EBA, the data shows that banks have further strengthened their capital position, but high levels of non-performing loans (NPLs) and sustained low profitability are presenting significant challenges. Operational risks also appear to be on the rise and volatility in funding markets remains high.
On 5 December 2016, the PRA issued a Statement of Policy setting out its approach to implementing the systemic risk buffer (SRB). The PRA has adopted, without material amendment, the Statement of Policy proposed in its consultation paper (CP 27/16) of July 2016.
On 6 December 2016, the BoE’s Financial Policy Committee (FPC) agreed to maintain the UK countercyclical capital buffer (CCyB) rate at 0%, at least until June 2017, absent any material change in the outlook. The Committee also reviewed and agreed to maintain without change the recommendations it had made in June 2014 to insure against the risk of a marked loosening in underwriting standards in the owner-occupier mortgage market and a further significant rise in the number of highly indebted households.
On 6 December 2016, the PRA published clarification on how firms should incorporate International Financial Reporting Standard 9 (IFRS 9) into stress testing and capital planning carried out as part of their Internal Capital Adequacy Assessment Process (ICAAP) obligations in 2017.
On 7 December 2016, the PRA disclosed the 2016 list of UK headquartered Global Systemically Important Institutions (G-SIIs) in accordance with Article 131, CRD IV. The PRA has also disclosed their respective sub-categories, applicable scores and G-SII buffers.
On 7 December 2016, the BoE announced an update on 2017 data collections including IFRS 9. The BoE said it has begun work on the data templates for the 2017 stress test through the development of the core dataset. The core templates were published on the BoE website in September 2016.
On 1 December 2016, MEPs adopted an agreement on data protection, designed to restore trust in the United States. The deal is known as the ‘Umbrella Agreement’ and covers the transfer of all personal data exchanged across the Atlantic when dealing with criminal offences, including terrorism.
On 1 December 2016, the Metropolitan Police announced that five men had been sentenced after police uncovered a fake bank and credit card factory in Holloway, north London. The men had pleaded guilty to offences ranging from making and supplying articles for use in fraud to possession of an identity document with improper intention.
On 30 November 2016, the FCA announced that the Central Criminal Court had found two men guilty of insider trading offences in a case brought by the FCA. Manjeet Mohal and Reshim Birk pleaded guilty on the third day of their trial. Mr Mohal worked in the finance team of Logica Plc, where he was party to information about a proposed takeover by CGI Holdings (Europe) Ltd in May 2012. He pleaded guilty to two counts of illegal disclosure, while his neighbour, Reshim Birk, admitted insider trading.
On 2 December 2016, the General Secretariat of the Council of the EU recommended that the Council confirm that it has no objection to the delegated act adopted by the European Commission on 24 November 2016, which would remove Guyana from the list of high-risk third countries for purposes of the Fourth Anti-Money Laundering Directive (Directive (EU) 2015/849) (MLD4).
On 6 December 2016, the Home Office published its anti-money laundering survey 2016. As part of its Flag It Up campaign, the Home Office designed the survey to collect feedback from solicitors on their attitudes to anti-money laundering regulations and information.
On 6 December 2016, the FCA issued a consultation paper (CP16/40) on enhancing conduct of business rules for firms providing contract for difference products to retail clients. The FCA has proposed stricter rules for firms selling contract for difference (CFD) products to retail customers, following a sample analysis of client accounts which found 82% lost money. The FCA aims to improve standards across the sector and ensure consumers are appropriately protected, as it believes more retail customers are opening and trading CFD products that they do not adequately understand.
On 1 December 2016, the Financial Services Compensation Scheme (FSCS) published its December 2016 Outlook, which gives a half-year update and sets out the latest position in relation to Enterprise Insurance Company plc, as well as SIPP-related claims.
On 5 December 2016, the Complaints Commissioner published two final reports on complaints against the FCA and the FSA in relation to the failure of the Connaught Series 1 Fund. The complainants were Adam Nettleship (report FCA00084) and Patellis (report FCA00114). The fund held £118m at the time of its collapse, of which £8m was recovered and £110m was lost.
On 5 December 2016, RBS announced it had agreed an £800m pay out deal with shareholders who claim the bank misled them before a £12bn rescue package in 2008. RBS has said it has reached a ‘full and final settlement’ with three of the five groups seeking compensation. It is also looking to finalise a settlement with the two remaining groups.
On 6 December 2016, the Treasury Committee published a letter the chairman of the Treasury Committee, Rt Hon, Andrew Tyrie MP, wrote to the FCA and RBS seeking reassurances over the new complaints review process for SME customers in RBS’s Global Restructuring Group (GRG) between 2008 and 2013. Mr Tyrie sought to clarify details around timing, access to documents, and whether compensation would reach bankrupted firms or be absorbed by liquidators.
On 1 December 2016, the European Commission adopted Commission Delegated Regulation C(2016) 4362supplementing the Markets in Financial Instruments Directive 2014/65/EU (MiFID II) on regulatory technical standards (RTS) for the application of position limits to commodity derivatives.
On 1 December 2016, the European Commission adopted Commission Delegated Regulation C(2016) 7643 supplementing MiFID II with regard to RTS for the criteria to establish when an activity is considered to be ancillary to the main business.
On 1 December 2016, the European Securities and Markets Authority (ESMA) updated its Risk Dashboard for the third quarter of 2016. Credit and market risks remain at 'very high', but the risk outlook is stable across all risk categories.
On 1 December 2016, ESMA launched a new database, the European Ratings Platform (ERP), to provide access to free, up-to-date information on credit ratings and rating outlooks on its website. The ERP is aimed at increasing transparency around credit ratings and helping investors make informed decisions.
On 1 December 2016, the executive director of ESMA, Verena Ross, spoke at ICI Global’s 2016 Global Capital Markets Conference in London, providing an overview of what ESMA is doing to strengthen Europe’s capital markets.
ON 2 December 2016, the FCA added an update on Legal Entity Identifiers (LEIs) to the MiFID II pages of its website. From 3 January 2018 firms subject to the transaction reporting obligations of the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014) (MiFIR) will not be able to execute a trade on behalf of a client who is eligible for a LEI and does not have one.
On 5 December 2016, the International Swaps and Derivatives Association (ISDA) published a market guidance note from its Board of Directors on the standardisation of the ISDA Variation Margin Credit Support Annex (CSA). The note is intended to provide guidance and strategic perspectives on the possible benefits of further standardising elements of the current ISDA Variation Margin CSA.
On 5 December 2016, the FMLC published its response to the consultation paper published by ESMA setting out draft technical standards under the Benchmarks Regulation (Regulation (EU) 2016/1011). In its response, the FMLC focuses on the oversight function, verifiability of input data and third-country benchmarks.
On 6 December 2016, a trio of videos looking at the implementation of margin rules for non-cleared derivatives were published by ISDA.
On 6 December 2016, the European Association of Corporate Treasurers (EACT) published the response that it submitted to ESMA in relation to ESMA’s consultation on the draft RTS for the Securities Financing Transactions Regulation (SFTR), that mandates double-sided reporting for non-financial corporates entering into repo transactions.
On 7 December 2016, ESMA published the responses it has received to its consultation on technical standards under the Benchmark Regulation.
On 7 December 2016, the Commission issued an infringement decision against Crédit Agricole, HSBC and JPMorgan Chase for their involvement in a cartel that distorted prices for Euro interest rate derivatives (Case number COMP/39.914). The collusion involved the exchange of sensitive information and intended submissions with the aim of distorting pricing for Euro interest rate derivatives. The Commission imposed fines totalling €485m on the three banks. This decision follows an earlier decision to impose fines totalling €824m (as amended) on four other banks following a settlement announced in December 2013.
On 1 December 2016, the FCA introduced new rules which will force firms to provide more information up front to customers, and aim to help long-standing account-holders, who often face lower interest rates. The FCA also released a ‘sunlight remedy’ data set showing the 32 lowest interest rates available on savings accounts and cash ISAs.
On 1 December 2016, the Competition and Markets Authority (CMA) gave notice of its intention to accept proposed undertakings to address adverse effects on competition (AECs) identified by the CMA in its investigation into the retail banking market. In the CMA's final report of 9 August 2016, the CMA decided on a package of remedies, which included requiring banks to implement Open Banking by early 2018, to accelerate technological change in the UK retail banking sector. The CMA envisages implementing the package of remedies by the Retail Banking Market Investigation Order 2017; the proposed undertakings to be entered into by Bacs Payment Schemes Limited; and recommendations to HM Treasury, the Department for Business, Energy and Industrial Strategy, and the FCA. Responses on the proposed undertakings are requested by 16 December 2016.
On 5 December 2016, the FCA issued a press release urging over 55s to take their time to check that investment ‘opportunities’ are legitimate before they hand over their money. The advice follows findings that a fifth of over-55s and a third of over-75s believe they have been targeted by an investment scam in the last three years.
On 5 December 2016, the House of Lords Select Committee on Financial Exclusion announced it would take evidence from the chief executive of the FCA, Andrew Bailey, alongside executive director Chris Woolard, on 6 December 2016 regarding the matter of financial exclusion. M&S Bank and Nationwide Building Society would also give evidence in a second session which will consider access to banking and financial services.
On 6 December 2016, the Financial Ombudsman Service (FOS) published issue 138 of Ombudsman News, focusing on the link between mental health and debt. According to the FOS, research suggests half of people who have a debt problem also have a mental health problem.
On 1 December 2016, the European Parliament voted, by 561 votes to nine with 75 abstentions, to approve the European Commission's proposal to delay the date of application of the Packaged Retail and Insurance-based Investment Products Regulation (Regulation (EU) 1286/2014) ( PRIIPs Regulation) until 1 January 2018. The delaying amendment to the PRIIPs Regulation had already been approved by the Council of the EU, and will now be published in the Official Journal of the EU.
On 30 November 2016, the Council of the EU published a final compromise text on the proposed regulation concerning money market funds (MMFs).
On 6 December 2016, the Council of the EU published a proposal to amend the European Venture Capital Funds Regulation (Regulation (EU) 345/2013) and the European Social Entrepreneurship Funds Regulation (Regulation (EU) 346/2013).
On 7 December 2016, the Alternative Investment Management Association (AIMA) published a guide for fund managers wishing to establish a managed account, a popular form of investing in hedge funds that gives investors a bigger say over a range of issues from the investment strategy to the fund’s choice of service providers. Managed accounts can also insulate investors from liquidity fluctuations that can arise in traditional commingled funds when new investors subscribe to the fund or existing investors leave.
On 7 December 2016, the Council of the EU announced that the Permanent Representatives Committee had approved, on behalf of the Council, an agreement with the European Parliament on MMFs. The draft Regulation is aimed at making MMFs more robust, ensuring the smooth operation of the short-term funding market. It is also designed to maintain the essential role that MMFs play in financing the real economy.
On 2 December 2016, the Pensions Regulator (TPR) published a new quick guide to integrated risk management (IRM) aimed at trustees of smaller defined benefit (DB) schemes. According to TPR, IRM enables trustees to better assess, prioritise and manage their employer covenant, investment and funding risks.
On 2 December 2016, the European Insurance and Occupational Pensions Authority (EIOPA) published a discussion paper (CP-16-009) on harmonising national recovery and resolution frameworks for insurers across Europe. EIOPA says the existing fragmented landscape could cause significant barriers to resolution, and argues that an orderly resolution of cross-border insurance groups is required. It recommends applying a minimum degree of harmonisation in a proportionate manner, giving Member States the flexibility to address local specificities. It seeks feedback from stakeholders by 28 February 2017.
On 2 December 2016, the European Commission published details of 586 responses that it has received to its July 2016 consultation paper on a potential EU personal pension framework. The consultation closed on 31 October 2016.
On 5 December 2016, the Transfers and Re-registration Industry Group (TRIG), which is comprised of eight leading UK investment and pension trade associations, launched a consultation to investigate ways to improve the process of transferring and re-registering pension and investment assets. Following a review process, the consultation paper was issued and is seeking input from stakeholders by 31 January 2017. A final set of recommendations is due to be published in Spring 2017.
On 5 December 2016, the UK government set out the next steps in its plan to combat pension scams in a consultation issued jointly by the Department for Work and Pensions and HM Treasury. Proposed measures include a ban on cold calling in relation to pensions and limiting the statutory right to transfer to some occupational pension schemes. The consultation is open until 13 February 2017.
On 5 December 2016, the FCA published the findings of its thematic review into general insurance intermediaries’ professional indemnity insurance (PII). The review was performed to evaluate the individual policies purchased by a sample of 200 firms to assess whether they complied with the requirements in the FCA Handbook. Although the report found sufficient breadth within the market to provide choice, it raised concerns about inaccuracies in policies, a small number of firms with insufficient indemnity cover, and the use of exclusion clauses that could reduce the scope of cover.
On 5 December 2016, a report published by the Organisation for Economic Co-operation and Development (OECD) found that funded pension arrangements, in particular defined contribution ones, are playing a growing role in complementing retirement income from public sources, but their design needs to be improved.
On 6 December 2016, EIOPA published its 2017 Taxonomy Roadmap. The Roadmap is intended to enable undertakings to plan in advance their IT implementation of changes in EIOPA’s XBRL Taxonomy.
On 7 December 2016, EIOPA published technical information for Solvency II (Directive 2009/138/EC) relevant risk free interest rate (RFR) term structures with reference to the end of November 2016.
On 7 December 2016, EIOPA published the technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of November 2016.
On 7 December 2016, insurance industry group ClimateWise published two reports, warning of the growing climate risk ‘protection gap’. Investing for Resilience and the ClimateWise Principles Independent Review 2016 examined what insurers can do to support greater investment in resilience and examines the progress of current ClimateWise members when it comes to responding to climate risks.
On 6 December 2016, the BoE published a speech delivered at the launch of the Payment Strategy Forum (PSF) ‘Launch of the Final Strategy’, by the BoE's executive director for banking, payments and financial resilience, Andrew Hauser. Mr Hauser spoke about how payments systems must combine safety with innovation. He also updated the delegates on the BoE’s strategic review of its own settlement platform, RTGS.
On 6 December 2016, following the implementation of the new Standards of Lending Practice (SLP) in 2016, the LSB issued a 'call for input' seeking direct and insightful discussion with firms and other stakeholders on digital capabilities. Responses are sought by 11 January 2017.
On 7 December 2016, the Payment Systems Regulator (PSR) proposed changes to the way payment systems infrastructure is procured and provided. The proposals arise from the PSR’s July 2016 market review final report, which found that there is no effective competition for the infrastructure that supports the three interbank payment systems—Bacs, Faster Payments Service (FPS) and LINK. The PSR aims to lower barriers to entry to the market and create competitive procurement processes.
On 1 December 2016, the FCA published a decision notice against Alistair Burns, deciding to fine him £233,600 and prohibiting him from performing any senior management or significant influence function in relation to regulated activity in financial services. Mr Burns has referred the Decision Notice to the Upper Tribunal, which can uphold, vary or cancel the FCA’s decision.
 EWCA Civ 1142
The Court of Appeal, Civil Division, granted the claimant permission to appeal only in respect of the judge's refusal to permit certain amendments to its claim against the defendant bank for consequential losses in respect of interest rate hedging contracts, which included three collars and one swap. The proposed amendments included an allegation that the bank had assumed a duty of care to carry out an interest rate hedging product review (IRHPR) diligently. The claimant's claim had earlier been struck out in circumstances where the judge had found that, in respect of the collars, it had been compromised by a binding settlement agreement. The court held that there was a reasonable prospect of establishing that the bank had owed the claimant a duty of care of the type relied on in respect of the IRHPR claim and, on the facts, the claimant had a reasonable chance of persuading the full court that the judge had wrongly refused to permit him to amend the points of claim in the way outlined.
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