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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 8 November 2018.
SI 2018/1149: These Regulations repeal EEA passport rights under Schedule 3 to the Financial Services and Markets Act 2000 (FSMA 2000) and treaty rights under FSMA 2000, Sch 4.
SI 2018/Draft: This draft enactment is laid in exercise of legislative powers under the European Union (Withdrawal) Act 2018 (EU(W)A 2018) in preparation for Brexit. It proposes to amend UK subordinate legislation and revoke EU legislation in relation to payment accounts regulation arising from the withdrawal of the UK from the EU, ensuring the legislation continues to operate effectively at the point at which the UK leaves the EU.
SI 2018/Draft: This draft enactment is laid in exercise of legislative powers under EU(W)A 2018 in preparation for Brexit. This draft enactment proposes to amend the EU European Markets Infrastructure Regulation on over-the-counter (OTC) derivatives, central counterparties and trade repositories (EMIR) ((EU) 648/2012) in relation to the registration and supervision of trade repositories. Trade repositories are entities which collect and maintain the records of derivatives transactions to enhance the transparency of derivative markets and promote financial stability. Transitional provisions are also laid.
SI 2018/Draft: This draft enactment is laid in exercise of legislative powers under EU(W)A 2018 in preparation for Brexit. This draft enactment proposes to amend and repeal UK legislation and retained EU legislation in relation to central securities depositories (CSDs), financial market infrastructures which keep a record of who owns individual securities, such as shares or bonds, in order to ensure the UK retains an operative regulatory framework for CSDs post-exit. It comes into force partly on the day which regulations may appoint and fully on exit day.
The Prudential Regulation Authority (PRA) updated the complete version of consultation paper CP26/18, which proposes changes to the PRA Rulebook and onshored binding technical standards (BTS) following Brexit. The PRA also updated the separate Appendix 5 document. The draft BTS EU Exit Instrument for the Financial Conglomerates Technical Standards is now included at the end of the documents.
The Bank of England (BoE) published a letter from its executive director, financial market infrastructure, David Bailey, to the CEOs of EU systems designated under the Settlement Finality Directive (SFD). The letter is a follow-up to a letter sent on 24 July 2018 which outlined how the BoE envisages the process for offering UK settlement finality protection to systems designated under the SFD by an EEA state (EU systems) would take place following the UK’s withdrawal from the EU.
The European Insurance and Occupational Pensions Authority (EIOPA) announced that it is closely monitoring the Brexit-related contingency planning of insurance undertakings, in particular of the undertakings from the UK and Gibraltar with cross-border business in the European Economic Area countries (EEA30). EIOPA says that while the majority of insurers with the largest cross-border business in the EEA30 countries have taken action to ensure the continuity of cross-border insurance contracts, 124 undertakings from the UK and Gibraltar with cross-border business in EEA30 jurisdictions have no or insufficient contingency plans in place. Responding to EIOPA’s statement, the Association of British Insurers (ABI) expressed concern that the EU was continuing to place responsibility for continuity on individual insurance and pension firms rather than policymakers and regulators.
Barclays Bank plc (BB) and Barclays Bank Ireland plc (BBI) applied for directions in connection with an application under FSMA 2000 for the sanction of a banking business transfer scheme, as part of Barclays’ planning for the continuity of service provision to its clients in the European Economic Area, following Brexit. The Companies Court ruled that an order to transfer the business of Barclays Capital Securities Ltd (an English incorporated subsidiary company in the Barclays Group, which was not authorised to accept deposits), to BBI (an Irish incorporated company in the group) was capable of falling within the jurisdiction of FSMA 2000, s 112(1)(d), because the transfer was capable of being ‘necessary to secure that the scheme is fully and effectively carried out’. Accordingly, the court granted the principal direction sought, which was for the publishing of a notice in a variety of publications. For full judgment, see:  EWHC 2868 (Ch).
The applicant group of companies, which were part of the AIG Group, succeeded in their application for the approval of a scheme of arrangement. The AIG Group sought to reorder the structure of its insurance services in the UK in the wake of the Brexit decision and the uncertainty it had caused. The Companies Court held that the scheme was entirely fair regarding the different groups of policyholders and did not cause them any material prejudice. For full judgment, see:  EWHC 2818 (Ch).
Britain’s data watchdog said Tuesday it fined an insurance company owned by self-described ‘bad boy’ Brexit campaigner Arron Banks £60,000 ($78,000) for serious breaches of electronic marketing regulations. The Information Commissioner’s Office said that Bristol-based Eldon Insurance has been fined for illegally sharing customer data with the pro-Brexit campaign group Leave.EU, which Banks set up for the UK’s 2016 referendum on whether to leave the European Union.
The Financial Conduct Authority (FCA) published a speech by its executive director of international, Nausicaa Delfas, setting out the regulator’s work to maintain market confidence as the UK prepares to leave the EU. Ms Delfas welcomed commitments from the EU to resolve remaining issues, and stressed that EU and UK financial markets will remain heavily interconnected after Brexit. She said the FCA was committed to close co-operation with counterparts in EU and the rest of the world. Commenting on the speech, TheCityUK’s CEO Miles Celic focused on Ms Delfas’s statement that over 1,300 EU firms and funds had already expressed an interest in joining the FCA’s temporary permissions regime in the event of a no-deal Brexit: ‘Whatever the final outcome of the Brexit negotiations, the UK’s pivotal role as Europe’s financial centre and a gateway to international markets will not change’.
The Personal Investment Management and Financial Advice Association (PIMFA) held its annual summit on 31 October 2018, with Treasury Select Committee chair Nicky Morgan MP as the event’s opening keynote speaker. Ms Morgan discussed Brexit and the work of the Treasury Committee. The debate then moved on to discuss regulatory matters, with the acting director of strategy at the FCA, Richard Monks, discussing intergenerational challenges for the industry.
The FCA published the latest version of its policy development update, which provides information on its recent and upcoming publications. Future publications include a policy statement on its proposed general standards and communication rules for the payment services and e-money sectors (CP18/21), which is expected in January 2019.
The FCA commissioned 16 skilled persons reports in Q2 2018/19, half of which involved Lot E: financial crime. Details of the different skilled person report categories or Lots can be found on the FCA website. The FCA says the figures stated are correct as at 30 September 2018, but may be subject to change.
Further to the requirement that the FCA consult on the impact of its work, the FCA published its response to the annual reports of four independent statutory panels, representing the interests of consumers and practitioners. These reports detail the panels’ activities for the year and comment on the FCA’s work. The FCA responds to the panels’ comments and notes the points all of the panels highlighted: Brexit, operational resilience, regulatory burden, and culture, both in the industry and within FCA. The FCA panels are: the Financial Services Consumer Panel; the FCA Practitioner Panel; the FCA Smaller Business Practitioner Panel and the FCA Markets Practitioner Panel.
The FCA said the new body set up to deliver a template for the disclosure of costs and charges will improve institutional investors’ ability to access and assess critical information on costs. The Cost Transparency Initiative (CTI) is an independent group with the responsibility for progressing the work already undertaken by the Institutional Disclosure Working Group (IDWG).
The European Banking Authority (EBA) published the results of the 2018 EU-wide stress test, which show that the 33 largest banks directly supervised by the European Central Bank (ECB) have become more resilient to financial shocks over the past two years. Banks’ average capital buffers have increased, despite a more severe adverse scenario than in the 2016 stress test. The BoE said in a statement that the results of the EBA stress test confirm the results of earlier BoE stress tests that the four participating UK banks would be resilient to a severe economic and market stress. The severity of the downturn in the UK economy assumed in the EBA stress scenario was, for the first time, similar to that assumed since 2014 in the BoE’s own annual stress test of major UK banks.
The EBA published final Guidelines on the management of non-performing and forborne exposures. Addressed to credit institutions and supervisors, the guidelines aim to ensure that credit institutions have adequate prudential tools and frameworks in place to manage effectively their non-performing exposures (NPEs) and to achieve a sustainable reduction on their balance sheets.
The PRA published its Regulatory Digest for October 2018. The issue covers the speech by the PRA CEO, Sam Woods, ‘Good cop/bad cop’, setting out the two different roles the regulator often finds itself playing, as well as the Bank of England’s communications on EU withdrawal. The issue also covers the PRA’s consultation on its expectations for the management of financial risks from climate change, together with the usual summary of cross-cutting publications and updates.
Nine representatives of Europe’s major financial markets infrastructures and participants sent a joint letter to EU finance ministers in response to proposals for an EU digital services tax (DST). The letter seeks ‘urgent clarification’ concerning the possible unintended capture within scope of the DST of a range of financial markets activities.
The ECB nominated European Banking Authority chair Andrea Enria as the new chair of the ECB supervisory board. If approved by the European Parliament and confirmed by the Council of the European Union, Mr Enria will succeed Danièle Nouy as chair on 1 January 2019. The chair is appointed for a non-renewable five-year term.
The FCA published a speech by its CEO, Andrew Bailey, on the role of regulation in encouraging good culture, in which he argued that an industry which enables the support of patient capital and innovation, and of ethical investment and social responsibility, will be one where the trust will be stronger and deeper, and the culture will prosper.
The FCA published a letter written to the chairs of remuneration committees of firms in proportionality level 1 (Level 1 firms) on 20 August 2018, to explain how it plans to assess remuneration policies and practices throughout 2018/19 and what this means for chairs in their role of Senior Management Function 12 (SMF12). The FCA also discusses diversity and inclusion and key remuneration elements of its ongoing work on culture in financial services.
The European Parliament's Committee on Economic and Monetary Affairs (ECON) published suggested amendments to proposals for a regulation of the European Parliament and of the Council to strengthen the role of EBA and give it the necessary tools and resources to ensure effective co-operation and convergence of supervisory standards in the area of anti-money laundering (AML).
The government formally launched the National Economic Crime Centre (NECC) on 5 November 2018. The NECC is a partnership across multiple government and private bodies which aims to fight economic crime by ensuring criminals are effectively pursued and the UK’s industries and government agencies have the correct knowledge and training to prevent economic crime.
The Financial Action Task Force (FATF) published its annual report for 2017–2018. The report summarises the outcomes of the FATF’s work during the Argentinean Presidency year, from 1 July 2017 to 30 June 2018. The FATF continues to prioritise the terrorist financing threat, including focusing on the impact that financial innovation has on measures to combat money laundering and terrorist financing.
The High Court ordered Essex and London Properties Limited (ELP) into liquidation after an investigation by the Insolvency Service found that the company was in essence operating a Ponzi scheme that had misused almost £20m of investors’ money.
The FCA issued a final notice prohibiting the ex-Barclays trader Jonathan Mathew from performing any function in relation to any regulated activity. The prohibition follows Mr Mathew’s 2016 conviction and sentencing for LIBOR manipulation.
The FCA issued a press release stating that the Upper Tribunal upheld the FCA’s decision to fine and ban Stewart Ford and Mark Owen, the former CEO and sales director respectively of Keydata Investment Services Ltd.
The PRA fined Mr Akira Kamiya and Mr Takami Onodera £22,700 and £14,945 respectively for failing to disclose information to the PRA in breach of the PRA’s Statement of Principle 4 for approved persons. These fines follow on from the PRA’s Final Notice of 9 February 2017, in which the PRA fined The Bank of Tokyo-Mitsubishi UFJ Limited (BTMU) £17.85m and MUFG Securities EMEA plc (formerly Mitsubishi UFJ Securities International plc) (MUS(EMEA)) £8.925m for failing to be open and co-operative with the PRA in relation to an enforcement action into BTMU by the New York Department of Financial Services.
The Financial Ombudsman Service (FOS) published issue 146 of its ombudsman news, with articles on pensions and pension transfers; case studies on complaints involving defined benefit to defined contribution pension transfers; and a snapshot of complaints in the second quarter of 2018/2019.
The European Securities and Markets Authority (ESMA) published data for the systematic internaliser(SI) calculations for equity, equity-like instruments and bonds under the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). Specifically, ESMA published the total number of trades and total volume over the period April-September 2018 for the purpose of the SI calculations for 17,999 equity and equity-like instruments and for 387,212 bonds.
ESMA made available new data for bonds subject to the pre- and post-trade requirements of MiFID II and MiFIR through its data register. From 31 October 2018, ESMA will make available the third quarterly liquidity assessment for bonds available for trading on EU trading venues at the end of October 2018. For this period, there are currently 470 liquid bonds subject to MiFID II transparency requirements.
ESMA issued the official translations of its guidelines on certain aspects of the MiFID II suitability requirements. By issuing the guidelines in all EU official languages, national competent authorities (NCAs) to which the guidelines apply must, under paragraph 13, notify ESMA whether they comply or intend to comply with the guidelines, within two months of the date of publication.
Ten Commission Delegated Regulations setting out regulatory technical standards (RTS) under the Benchmark Regulation (EU) 2016/1011 are now published in the Official Journal of the EU.
ESMA published an overview of the compliance status declared by NCAs as regards the application of ESMA guidelines in their respective jurisdictions. The overview brings together individual guidelines compliance tables that are already available on ESMA’s website.
ESMA updated its Q&As on the Benchmarks Regulation (BMR). The updated Q&As provide new clarifications regarding the use of benchmarks in bilateral agreement on exchanged collateral. The purpose of the Q&As is to promote common supervisory approaches and practices in the application of the BMR. ESMA will periodically review the Q&As and update them where required.
ESMA published the responses received to its consultation paper, Guidelines on the submission of periodic information to ESMA by Credit Rating Agencies (CRAs). The consultation opened on 19 July 2018 and closed on 26 September 2018. There were three respondents to the consultation.
The International Swaps and Derivatives Association (ISDA) announced that, effective from 26 November 2018, it will update the 2006 ISDA definitions settlement matrix for early termination and swaptions to show collateralised cash price as the default cash settlement method for EUR swaptions from that date onwards. The move follows ISDA’s 2017 survey on changing the market convention for the cash settlement of EUR swaptions from ‘par yield curve—unadjusted’.
The Investment Association (IA) says its monthly statistics of UK investor behaviour in September 2018 show savers diversifying, with continued inflows into mixed asset & global equity funds. IA’s chief executive, Chris Cummings, said uncertainty was continuing to be a driving factor for investors, with savers look to diversify and manage their risk with global and mixed asset funds. Mr Cummings said September saw net retail sales ‘bounce back into positive figures’. However, UK equities continue to remain ‘firmly out of favour’, with European equities experiencing a fifth consecutive month of outflows.
The IA is calling for increased transparency in the fixed- income market by proposing measures to increase the availability of data on bond trades. IA says the lack of data is increasingly coming under the spotlight as, under MiFID II, asset managers are now required to demonstrate how they are achieving the best possible results for investors when executing bond orders.
Invest Europe, the trade association for the European private capital sector, issued a press release stating that innovation boosts Europe’s lead as a global investment destination. According to Invest Europe, 78% of investors expect increased investment in Europe over next five years, even though Europe’s perceived stability and commitment to sustainability declined.
The Competition and Markets Authority (CMA) launched a consultation on draft definitions of ‘investment consultancy services’ and ‘fiduciary management services’ for the purposes of potential remedies in connection with its investment consultants market investigation. The deadline for responses is 9 November 2018. The CMA also published a summary of points raised in a roundtable discussion with pension trustees on 3 October 2018.
Commission Implementing Regulation (EU) 2018/1624 of 23 October 2018 laying down implementing technical standards with regard to procedures and standard forms and templates for the provision of information for the purposes of resolution plans for credit institutions and investment firms pursuant to the Bank Recovery and Resolution Directive (BRRD) (2014/59/EU) repealing Commission Implementing Regulation (EU) 2016/1066 was published in the Official Journal.
CMA updated its guidance to say that the directions issued by the CMA to TSB Bank on 2 March 2018 to ensure compliance with Part 6 of the Retail Banking Market Investigation Order 2017 have been revoked on confirmation by TSB that it met the requirements of the directions to the satisfaction of the CMA.
The FCA issued final guidance that clarifies its expectations about the handling of certain regular premium payment protection insurance (PPI) complaints. The FCA is also consulting on new rules requiring firms to write to around 150,000 consumers who had previously complained unsuccessfully to tell them they can make a new complaint and remind them of the deadline. The consultation on mailing requirements closes on 7 December 2018.
The FCA’s director of supervision—retail and authorisations, Jonathan Davidson, gave a speech at the Consumer Credit Trade Association Conference 2018. The speech, ‘Realising the benefits of purposeful leadership’, aimed to provide a sense of how cultural change is positive for the consumer credit sector. Mr Davidson addressed progress made in ensuring better outcomes for consumers, and considered the Senior Managers and Certification Regime (SM&CR) and the importance of purpose, leadership, accountability, capabilities and incentives in driving a healthy culture.
The FCA published details of a speech given by its executive director of strategy and competition at the FCA, Christopher Woolard, at the UK Finance annual mortgage conference in London. The speech sets out the FCA’s vision for the mortgage market through the long-term, consistent, fair treatment of customers.
ECON MEPs voted to put an end to the existence of two categories of payment service users in the EU: those who benefit from the single euro payments area (SEPA) and the users paying high costs for their cross-border payments in euro. The MEPs decided banks should charge equally for cross-border and domestic payments in national currencies and cut charges for euro payments from non-euro areas.
The Bank for International Settlements (BIS) published a speech by its general manager, Agustín Carstens, on money and payment systems in the digital age. Mr Carstens said central banks are using the latest technologies to make payment systems more robust, more resilient and more timely, and will continue to play a critical role in pushing the boundaries of how technology can enhance the payments landscape.
The FCA announced a modification to COBS 13 Annex 2R 1.9 which will be of interest to providers of annual statutory money purchase illustrations (SMPIs). This follows industry formulation of a simplified annual pension statement intended to enable defined contribution schemes to meet their requirements to provide SMPIs in a way which is clearer and easier for consumers to understand. This modification by consent extends the FCA’s exemption rules to projections which are based on an individual saver increasing the level of contributions they make as long as the projection is consistent with the underlying SMPI requirements and included within the SMPI.
EIOPA published four papers arising from the work of the EU–US Insurance Dialogue Project. The Project papers focus on the cyber insurance market, cybersecurity risk, the use of big data and the supervision of intra-group transactions.
EIOPA published the XBRL taxonomy applicable for reporting of information on institutions for occupational retirement provision (IORPs) as of Q3/2019. The taxonomy provides NCAs with the technical means for the submission to EIOPA of harmonised information of all pension funds in the European Economic Area.
EIOPA issued new sets of Q&As on:
other general questions
Insurance Europe (IE), the European (re)insurance federation, issued a press release stating that Europe’s insurers have welcomed changes made by the International Association of Insurance Supervisors (IAIS) to its proposals for a common framework (ComFrame) for the supervision of internationally-active insurance groups (IAIGs). IE also published its response to the IAIS ComFrame consultation.
On 2 November 2018, the CMA issued a statement of objections (SO) to BGL (Holdings) Limited, BGL Group Limited, BISL Limited (BISL), and Compare The Market Limited (together BGL), with a preliminary finding of a breach of Chapter I of the Competition Act 1998/Article 101 TFEU in relation to the use of use of retail-wide most favoured nation (MFN) clauses in certain contracts with home insurance providers. The CMA provisionally found that these MFN clauses could prevent rival price comparison websites (PCWs) and other channels from trying to win home insurance customers by offering cheaper prices than ComparetheMarket.
The IAIS published its October 2018 newsletter, containing an article on recovery planning as an enterprise risk management tool, alongside news of upcoming events. The issue also contains details of ongoing consultations, committee activities and IAIS publications.
In upholding the first interested party’s complaint against the claimant self-invested personal pension provider, relating to the first interested party’s investment in a scam investment scheme, the defendant ombudsman had acted in accordance with its statutory jurisdiction under section 228(2) of the Financial Services and Markets Act 2000. Accordingly, the Administrative Court dismissed the claimant’s application for judicial review of the ombudsman’s decision. For the full judgment, see:  EWHC 2878 (Admin).
ECON issued a press release stating that it voted on its position on common rules on the creation and functioning of European crowdfunding service providers for business. The adopted text aims to help crowdfunding services to function smoothly in the internal market and to foster cross-border business funding in the EU, by providing for a single set of rules on the provision of crowdfunding services.
TheCityUK, along with Deloitte, Santander UK and Clifford Chance published a report: Splitting the Bill: The role for shared platforms in financial services regulation, commissioned by the Financial Services Trade and Investment Board (FSTIB). The report presents the strategic benefits, increased efficiencies and cost savings that could result from government, regulators and financial firms working together to develop shared digital platforms. In particular, the report considers a shared platform approach for know your customer (KYC) and regulatory requirements.
The government rejected the proposal to introduce mandatory climate risk reporting in the recent Environmental Audit Committee (EAC) report on pensions reform. The report, Greening Finance: Embedding sustainability in financial decision making, made several recommendations on ways to improve pension fund governance.
ECON adopted a draft report on a proposed Regulation on disclosures relating to sustainable investments and sustainability risks. The proposed regulation would amend Directive (EU) 2016/2341 on the activities and supervision of the IORPs Directive. The decision will open interinstitutional negotiations.
The economic secretary to the Treasury, John Glen MP, wrote to the chair of the House of Lords EU Committee, Lord Boswell of Aynho, updating the Committee on the EU proposal for a regulation to amend the BMR on low carbon benchmarks and positive carbon impact benchmarks. Mr Glen said most Member States are generally supportive of the proposals and do not oppose a legislative amendment, but significant data challenges remain.
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