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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 8 June 2017.
On 6 June 2017, the Futures Industry Association (FIA) responded to a suggestion from the European Commission that euro-clearing systems may be forced to relocate to the EU, saying it would be the most disruptive and expensive approach to overseeing third-country central counterparties. It says such a move would risk fragmenting the markets, raising costs for end users, and weakening the stability of the financial system.
On 1 June 2017, the Prudential Regulation Authority (PRA) published its regulatory digest for May 2017, which highlights key regulatory news and publications delivered for the month.
On 2 June 2017, the Payment Systems Regulator (PSR) released the minutes from its meeting of 22 March 2017.
On 31 May 2017, European Commission vice-president Valdis Dombrovskis spoke on deepening EU economic and monetary union (EMU), saying the EU is facing multiple challenges but will do so head-on. He said the financial crisis underlined the weaknesses in the way the euro was set up, but that the EU’s response to that crisis has made the EMU stronger. There is still a lack of convergence, and doubts remain regarding the full stability and safety of the system, but now is a good time to complete EMU.
On 1 June 2017, the following European Central Bank (ECB) Decisions relating to supervisory tasks, supervised entities, and fit and proper requirements were published in the Official Journal of the EU:
On 1 June 2017, the ECB published a speech by Sabine Lautenschläger, member of its executive board and vice-chair of its supervisory board, on how the ECB assesses various banking business models, given the wide variety of banks and their businesses throughout the euro area. She noted that the ECB has defined nine different categories of business model, ranging from large universal banks and domestic lenders to specialised asset managers. The ECB places each bank that it assesses in one of these categories so that it can be compared it to its European peers.
On 1 June 2017, a reflection paper was publish by the European Commission. The paper found further steps towards completing the EMU are needed. The paper recognises the achievements of the euro, but notes it is 'far from perfect and is in need of reforms'. The paper sets out recommendations for the first phase of EMU, which runs until 2019, and the second phase, from 2020 to 2025.
On 2 June 2017, the Financial Stability Board (FSB) Regional Consultative Group (RCG) for Europe met to discuss current regional macroeconomic and financial market developments, and financial stability issues, including risks and vulnerabilities in the banking sector.
On 5 June 2017, the Royal Institution of Chartered Surveyors (RICS) signed a memorandum of understanding(MoU) with the British Bankers’ Association (BBA) on maintaining high standards in commercial property valuation and ensuring a sustainable supply of valuation services.
On 31 May 2017, the Council of the EU issued a proposed Regulation to amend the Capital Requirements Regulation (Regulation (EU) 575/2013) in order to mitigate the effects of the International Financial Reporting Standard (IFRS) 9.
On 2 June 2017, the ECB launched a consultation on the review of the ECB Regulation on supervisory fees. The review will focus on the methodology and criteria for calculating the annual supervisory fee to be levied on each supervised entity and group. The consultation runs until 20 July 2017.
On 31 May 2017, the Council of the EU issued the final Presidency compromise text of a proposed Directive to amend the Bank Recovery and Resolution Directive (BRRD) (Directive 2014/59/EU) as regards the ranking of unsecured debt instruments in insolvency hierarchies. The aim is to remove significant obstacles in the functioning of the internal market, avoid distortions of competition resulting from the absence of harmonised EU rules on bank creditors’ hierarchy, and to prevent such obstacles and distortions from arising in the future.
On 1 June 2017, the European Commission announced it had reached an agreement in principle with Pier Carlo Padoan, the Italian Minister of Economy and Finance, on the restructuring plan of MPS to enable the precautionary recapitalisation of the bank in line with EU rules. The agreement in principle is conditional on the parallel confirmation by the ECB in its supervisory capacity that MPS is solvent and meets capital requirements, and on Italy obtaining a formal confirmation from private investors that they will purchase the non-performing loans portfolio. The Commission services will now engage with Italy on finalising the details of MPS's final restructuring plan. Italy will need to notify this final restructuring plan, including the commitments by the Italian authorities on how to implement the plan. On this basis, the Commission will adopt its formal decision under EU State aid rules.
On 2 June 2017, the BBA welcomed proposals in the PRA consultation paper CP 3/17, Refining the PRA’s Pillar 2A capital framework. The BBA says it supports the PRA’s objective of smoothing out the perceived un-level playing field between banks using the internal ratings based (IRB) approach to modelling credit risk capital requirements and those that calculate it using the standardised approach (SA).
On 2 June 2017, the BBA published its response to the European Banking Authority (EBA) consultation on which entities should be included in a group recovery plan. In its response, the BBA warns that the proposed criteria could be interpreted inconsistently by different regulators, and recommends changing the definition of 'group-relevant' to reflect whether an entity provides critical services that support a critical function.
On 7 June 2017, Commission Implementing Regulation (EU) 2017/954 of 6 June 2017 on the extension of the transitional periods related to own funds requirements for exposures to central counterparties, as set out in Regulation (EU) No 575/2013 (Capital Requirements Regulation, CRR) and Regulation (EU) 648/2012 (European Market Infrastructure Regulation, EMIR) was published in the Official Journal of the EU.
On 7 June 2017, the EBA published its final report on it guidelines in order to allow EU institutions to implement the revised version of the Pillar 3 framework (RPF) in a way that is compliant with the requirements of Part Eight of the Capital Requirements Regulation (CRR).
On 1 June 2017, the Council of the EU published the consolidated compromise text of a proposed Directive on countering money laundering by criminal law. The text will constitute the basis for future negotiations with the European Parliament. The Directive says that money laundering and the related financing of terrorism and organised crime remain significant problems at the EU level, damaging the integrity, stability and reputation of the financial sector and threatening the internal security and the internal market. In order to tackle those problems and also reinforce the application of Directive 2015/849/EU, the Directive seeks to use criminal law, allowing for better cross-border co-operation between competent authorities.
On 7 June 2017, the Basel Committee on Banking Supervision (BCBS) finalised its revisions to the annex on correspondent banking in a new release of the guidelines on the sound management of risks related to money laundering and the financing of terrorism, first published in January 2014 with a revised version issued in February 2016. The revisions guide banks in the application of the risk-based approach for correspondent banking relationships, recognising that not all correspondent banking relationships bear the same level of risk and including an updated list of risk indicators that correspondent banks should consider in their risk assessment.
On 31 May 2017, the PRA provided an update on the Financial Services Compensation Scheme (FSCS). Compensation costs levies were previously based solely on the proportion of covered deposits held by a firm. As required by the recast Deposit Guarantee Schemes Directive, these levies will now also be adjusted for the degree of risk the firm incurs.
On 31 May 2017, the International Organization of Securities Commissions (IOSCO) updated the methodology for assessing the implementation of its Objectives and Principles of Securities Regulation, and giving guidance on the conduct of a self-assessment or third-party assessment of the level of principles implementation.
On 1 June 2017, ESMA issued two sets of guidelines providing further details on the implementation of the Central Securities Depositories Regulation (CSDR). Both are accompanied by reporting templates in order to facilitate the reporting of data by CSDs to the competent authorities, and subsequently by the competent authorities to ESMA.
On 1 June 2017, the European Committee on Economic and Monetary Affairs stated that its ECON scrutiny slot on 8 June 2017 will focus on the Level-2 measures under the Benchmarks Regulation (Regulation (EU) 2016/1011). Representatives of the Commission and the European Securities and Markets Authority (ESMA) will participate in the meeting.
On 1 June 2017, ESMA published a consultation on guidelines on Central Counterparties' (CCPs') conflict of interest management. The purpose of these guidelines is to set out the criteria CCPs should apply to avoid or mitigate the risks of conflicts of interest and to ensure a consistent implementation across CCPs. The guidelines are intended to build on generic provisions in relation to the management by CCPs of conflicts of interest prescribed in EMIR.
On 1 June 2017, ESMA fined Moody’s Deutschland GmbH (Moody's Germany) €750,000 and Moody’s Investors Service Limited (Moody's UK) €490,000, and issued a public notice, for two negligent breaches of the Credit Rating Agencies Regulation (CRAR). The failings relate to ratings presentation and methodology disclosure infringements.
On 1 June 2017, Implementing Technical Standards (ITS) issued by ESMA clarified how national competent authorities (NCAs) should co-operate with each other under the Market Abuse Regulation. Increasing market integration requires smooth co-operation between NCAs in order to track down abusive behaviour. Therefore, ESMA’s ITS set out procedures and forms for NCAs on how to exchange information and assist each other where necessary.
On 2 June 2017, the FCA released the June 2017 edition of its Market Watch newsletter on market conduct and transaction reporting issues. The issue contains an article explaining the FCA’s requirements for firms on dividend arbitrage.
On 2 June 2017, ESMA published a Methodological framework: Selection of supervised entities for mandatory contribution under Article 23(7) BMR. The framework is designed to promote the convergence of the supervision of specific types of critical benchmarks under Article 23 of the Benchmarks Regulation (Regulation (EU) 2016/1011), which provides that under certain circumstances a competent authority can require supervised entities to contribute to a critical benchmark.
On 2 June 2017, ESMA updated its Q&As on practical questions regarding the implementation of the CSDR.
On 2 June 2017, ESMA published its Final report: Guidelines on MiFID II product governance requirements.
On 2 June 2017, ESMA published a final report with draft Regulatory Technical Standards (RTS) on the minimum content of co-operation arrangements with third countries under the Benchmarks Regulation. The Regulation requires co-operation arrangements to be in place before a third country benchmark may be used in the EU.
On 6 June 2017, ESMA added 14 new Q&As on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/MiFIR). The new Q&As cover information on costs and charges, post-sale reporting, and appropriateness.
On 6 June 2017, the European Commission published a staff working document describing initiatives that have been taken at national and regional levels to help small and medium enterprises (SMEs) identify a wider range of sources of finance, as well as to provide investors and lenders with reliable information about companies in the context of the Capital Markets Union (CMU).
On 7 June 2017, Commission Implementing Regulation (EU) 2017/953 of 6 June 2017 laying down Implementing Technical Standards (ITS) with regard to the format and the timing of position reports by investment firms and market operators of trading venues, pursuant to Directive 2014/65/EU of the European Parliament and of the European Council on markets in financial instruments (MiFID II) was published in the Official Journal of the EU.
On 7 June 2017, the chair of ESMA, Steven Maijoor, delivered the keynote address at the FIA IDX Conference in London. Mr Maijoor discussed ESMA’s response to the European Commission’s review of the operation of the European Supervisory Authorities (ESAs), the publication of ESMA’s opinion on relocations from the UK to the EU27, and the progress being made on the implementation and preparation for MiFID II/MiFIR.
On 31 May 2017, the Wealth Management Association (WMA) and the Association of Professional Financial Advisors (APFA), two leading UK trade associations in the personal investment management and financial advice sector, united to form a larger representative body for organisations that support individuals and families to plan and invest for their financial life journey.
On 5 June 2017, the Law Society and City of London Law Society published their response to the Financial Conduct Authority's (FCA) consultation paper ‘Reforming the availability of information in the UK equity IPO process’ (CP 17/5). Both bodies agree that connected research should keep playing a part in the UK initial public offering (IPO) process, and that the definition of ‘unconnected analyst’ as set out in Appendix 1 of CP 17/5 should be redrafted.
On 31 May 2017, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report on the Action Plan on Retail Financial Services, saying the sector remains underdeveloped and highly fragmented, and action is therefore needed to facilitate innovation beneficial to end users, while unlocking the full potential of the single market.
On 2 June 2017, the BBA announced that major UK high street banks and building societies had committed to a new set of BBA principles intended to help customers in vulnerable circumstances access banking services. The principles also apply to approved third parties, such as friends and family, that might be helping them manage their finances. The scheme involves improvements to registration, changes, and the way firms deal with power of attorney, Court of Protection orders, appointees and guardianship orders.
On 1 June 2017, the International Association of Insurance Supervisors (IAIS) published a public consultationcovering revisions to the current (2011) version of Insurance Core Principles (ICP) 13: reinsurance and other forms of risk transfer. It follows on from a peer review assessment of the principle undertaken in 2016. Feedback is sought by 31 July 2017.
On 1 June 2017, the President of the European Insurance and Reinsurance Federation’s, Sergio Balbinot, addressing Insurance Europe’s 9th International Conference in Zurich, stressed that the constantly evolving demands of consumers mean rules governing insurers must allow them to provide innovative products to meet those needs.
On 2 June 2017, the chair of the Basel Committee and governor of Sveriges Riksbank, Stefan Ingves, gave a speech on the challenges related to developing optimal deposit insurance schemes. Mr Ingves examined the interaction between the deposit insurance scheme and the resolution framework, the relationship between deposit insurance schemes and public guarantees, and issues relating to cross-border banking.
On 7 June 2017, the European Insurance and Occupational Pensions Authority (EIOPA) published the 2.2.0 draft version of the Solvency II XBRL Taxonomy to be applied by insurance companies for reporting with the reference date of 31 December 2017.
On 7 June 2017, ESMA responded to the European Commission’s March 2017 consultation paper ‘FinTech: a more competitive and innovative financial sector’, welcoming the initiative to take a stock-take of the EU’s FinTech industry.
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