Weekly highlights—8 June 2017

Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 8 June 2017.

Brexit

Forced relocation of euro-clearing systems would have huge costs and risks, says FIA

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.

Prudential Regulation Authority updates

PRA Regulatory Digest May 2017

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.

Payment Systems Regulator updates

PSR Board minutes available

On 2 June 2017, the Payment Systems Regulator (PSR) released the minutes from its meeting of 22 March 2017.

Regulatory architecture

Commission VP calls for economic, fiscal and financial convergence

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.

ECB decisions on supervisory tasks and supervised entities published in the Official Journal

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:

  • Decision (EU) 2017/933 of 16 November 2016 on a general framework for delegating decision-making powers for legal instruments related to supervisory tasks
  • Decision (EU) 2017/934 of 16 November 2016 on the delegation of decisions on the significance of supervised entities. For full text of the Decision click here
  • Decision (EU) 2017/935 of 16 November 2016 on delegation of the power to adopt fit and proper decisions and the assessment of fit and proper requirements
  • Decision (EU) 2017/936 of 23 May 2017 nominating heads of work units to adopt delegated fit and proper decisions, and
  • Decision (EU) 2017/937 of 23 May 2017 nominating heads of work units to adopt delegated decisions on the significance of supervised entities
ECB vice-chair on banks’ business models

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.

'More work needed' to achieve Economic and Monetary Union

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.

FSB Europe group discusses key risk issues

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.

RICS signs memorandum on standards in commercial valuation

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.

Authorisation, approval and supervision

Council of the EU looks to mitigate effects of IFRS 9

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.

Consultation opens on ECB Regulation on supervisory fees

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.

Prudential requirements

Council of the EU aims to harmonise ranking of unsecured debt instruments on insolvency

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.

State aid—Agreement in principle between Commissioner Vestager and Italian Minister authorities on restructuring plan of Monte dei Paschi di Siena (MPS)

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.

BBA responds to PRA consultation on the Pillar 2A capital framework

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).

BBA responds to EBA​​ consultation on entity coverage in group recovery plans

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.

Regulation on transitional periods under CRR and EMIR published in the Official Journal

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.

EBA issues guidelines on CRR disclosure requirements

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).

Financial crime

Proposed Directive seeks better cross-border co-operation on ML/TF

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.

BCBS amends correspondent banking guidelines

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.

Enforcement and redress

PRA issues update on risk-based levies for FSCS deposits class

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.

Markets and trading

IOSCO updates implementation methodology for Objectives and Principles of Securities Regulation

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.

ESMA issues CSDR guidelines

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.

Scrutiny of delegated acts and implementing measures

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.

ESMA consults on guidelines on CCPs' conflict of interest management

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.

ESMA fines Moody’s for failures related to quality and disclosure of ratings

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.

ESMA issues NCA co-operation ITS further to the Market Abuse Regulation

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.

FCA warns firms to monitor for dividend arbitrage

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.

ESMA publishes critical benchmarks methodology

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.

Updated ESMA Q&As on the CSDR

On 2 June 2017, ESMA updated its Q&As on practical questions regarding the implementation of the CSDR.

ESMA issues final report on MiFID II product governance requirements

On 2 June 2017, ESMA published its Final report: Guidelines on MiFID II product governance requirements.

ESMA publishes final draft rules on third country co-operation under Benchmarks Regulation

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.

ESMA adds Q&As on investor protection topics under MiFID/MiFIR

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.

CMU—European Commission to address information barriers in SME funding market

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).

Regulation laying down MiFID II ITS published in the Official Journal

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.

ESMA chair discusses key issues including MiFID II/MiFIR

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.

Investment funds and wealth management

WMA & APFA members vote to create Personal Investment Management & Financial Advice Association

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.

Law Society opinions on information availability in equity IPO process

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.

Consumer credit, mortgage and home finance

ECON draft report on retail financial services

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.

UK firms sign up to BBA principles on vulnerable customers

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.

Insurance and pensions

IAIS consults on Revised Insurance Core Principles 13

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.

EU insurance rules must be digital-friendly to reflect consumers’ needs, says EIRF president

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.

Basel chair discusses the scope and design of deposit insurance schemes

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.

EIOPA invites comments on Solvency II Taxonomy

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.

Payments and fintech

ESMA responds to Commission FinTech consultation

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.

Dates for your diary

Key Date Subject Event
9 June 2017 Authorisation, approval and supervision Deadline for responses to FCA consultation 'CP17/12: FCA Regulated fees and levies: rates proposals 2017/18'.
10 June 2017 Pensions Deadline for responses to FCA guidance consultation 'GC17/1: Changes to the way firms calculate redress for unsuitable defined benefit pension transfers'.
15 June 2017 Payments and fintech Deadline for responses to the European Commission's 'Consultation: FinTech: a more competitive and innovative European financial sector'.
15 June 2017 Solvency II ​Deadline for insurance and reinsurance undertakings to submit results to their National Supervisory Authorities following the EIOPA information request on the review of long-term guarantee measures and measures on equity risk.
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