Weekly highlights—8 September 2016

Weekly highlights—8 September 2016

Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 8 September 2016.


Sub-committee to assess effect of Brexit on financial services

On 31 August 2016 the House of Lords EU Financial Affairs Sub-Committee launched an inquiry into what repercussions the EU referendum will have on financial services and future arrangements. The sub-committee will hold evidence sessions with industry experts to understand what the UK’s financial sector may look like in the post-Brexit environment.

CBI Scotland publishes financial services summit speech

The Confederation of British Business (CBI) Scotland held its first financial services summit in Glasgow on 1 September 2016 and its director-general, Carolyn Fairbairn, gave a speech on the importance of the financial sector in Scotland. Ms Fairbairn spoke in depth about Brexit and referred to five cross-sector principles when the government starts Brexit negotiations: maintaining single market access to ease UK-EU trade, striking a balance between putting in place equivalent EU regulation to gain access to the single market in some areas, while differing from EU regulations in order to obtain more flexibility at home in other areas, ensuring the UK's migration system allows companies to access the people and skills they need, while recognising public concerns, developing a strategy for international trade and economic agreements and protecting the economic and social benefits of EU funded projects.

BBA September newsletter focuses on Brexit

On 5 September 2016 the British Bankers' Association (BBA) issued its chief executive newsletter for September 2016. The newsletter is Brexit themed, with the BBA calling for an orderly transition for the banking industry, as well as asserting the sector needs to work with the government to secure the best possible deal for the UK. The newsletter comes after the summer recess for Parliament and highlights the BBA opinion that negotiations with the EU may now be accelerated.

Regulatory architecture

Financial Policy Committee—new appointment

On 1 September 2016, Philip Hammond, Chancellor of the Exchequer, announced the appointment of Professor Anil Kashyap to the Financial Policy Committee (FPC). Mr Kashyap’s term on the FPC will begin on 1 October 2016 for a period of three years. The appointment comes after the Bank of England and Financial Services Act 2016 increased the number of external members of the FPC from four to five. The Chancellor described Mr Kashyap as a ‘leading expert on financial risk’.

FSB and IMF issue second phase progress report on DGI-2

The Financial Stability Board (FSB) and International Monetary Fund (IMF) have published the first progress report on the second phase of the G20 data gaps initiative's (DGI-2). Among other things, the report updates work by participating countries and organisations to address post-financial crisis data gaps and presents the action plans for each of the recommendations agreed for further work.

European Commission launches updated website for EBA, EIOPA and ESMA regulatory Q&As

On 2 September 2016 the European Commission (EC) updated its website regarding Q&As on banking and finance legislation from the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA). The EBA, ESMA and EIOPA regularly issue guidelines and Q&As on the application of banking and finance law. The aim of the new initiative is to provide a centralised location for guidance on application of the new financial regulatory framework.

G20 leaders issue communique at summit in Hangzhou

On 5 September 2016 the Group of 20 (G20) leaders adopted a communique at their summit in Hangzhou. The communique contains a number of statements on how to achieve more effective and efficient global economic and financial governance (paragraphs 16 to 24).

EBA reports which member states will comply with guidelines relating to shadow banking entities

On 6 September 2016 the European Banking Authority (EBA) published a table showing which competent authorities comply or intend to comply with its guidelines on limits on exposures to shadow banking entities. Article 16(3) of Regulation (EU) No 1093/2010 establishing the EBA requires national competent authorities to inform the EBA whether they comply or intend to comply with each guideline or recommendation the EBA issues.

ECB supervisory board chair speaks at Eurofi Financial Forum

The European Central Bank’s (ECB) chair of its supervisory board, Danièle Nouy, has given a speech at the Eurofi Forum on 7 September 2016 focusing on matters affecting banks’ profitability. Ms Nouy also gave an interview to Eurofi newsletter, exploring the national bias that is developing in banking regulation in the euro area, ie national liquidity and capital buffers, TLACs and intra-eurozone exposures considered as cross-border. In the interview, Ms Nouy questions what the consequences could be of such fragmentation for the financing of the economy, the single market, and for financial stability.

EBA issues report on risks and vulnerabilities in the EU financial system

On 7 September 2016 the EBA published a report from the Joint Committee of European Supervisory Authorities (ESAs) on risks and vulnerabilities in the EU financial system. The report’s subtopics include the low growth and low yield environment, profitability of financial institutions and interconnectedness within the financial system.

Financial Conduct Authority and Prudential Regulation Authority updates

New FCA website goes live

The Financial Conduct Authority (FCA) has launched its new website, which it says has been designed in a way based on the needs of its users, and with the information presented in a clearer and more structured way. The first phase of the of the new FCA was launched in June 2016, and the redesigned News and Publications sections have now been added. The website can be found here.

FCA handbook updates come into effect

From 1 September 2016, changes to the FCA's Interim Prudential Sourcebook for Investment Businesses have come into effect, alongside numerous other updates to the FCA Handbook. The updates relate to, among several other things: financial resources for securities and futures firms which are not MiFID investment firms or which are exempt BIPRU commodities firms or exempt IFPRU commodities firms. IPRU-INV 13.13—capital resources requirement for an exempt CAD firm and a category B firm, IPRU-INV 13.1—application, general requirements and professional indemnity insurance requirements and SUP 16.12—integrated regulatory reporting.

FCA bans financial adviser for lying about qualifications

On 1 September 2016, the FCA banned former financial adviser Elizabeth Parry from performing any function relating to regulated financial activity, and fined her £109,400, after she repeatedly lied to the FCA when asked about her qualification status. Ms Parry was authorised by the FCA in May 2006, as a sole trader to conduct investment and mortgage business and, from January 2015, for consumer credit activities. Since 2013, retail investment advisers have been required to hold a statement of professional standing (SPS) and achieve the relevant professional qualifications. The final notice issued to Ms Parry can be found here.

FCA launches quarterly consultation on Handbook changes

On 2 September 2016, the FCA launched its quarterly consultation on miscellaneous changes to the FCA Handbook. The deadline for responses for chapters 2, 4 and 5 is 3 October 2016. The deadline for responses for chapters 3 and 6 is 2 November 2016.

FCA gives policy development update

On 5 September 2016 the FCA published a policy development update to provide information on recent and upcoming publications. Some of the recent and forthcoming publications are: PS16/21—increasing transparency and engagement at renewal in general insurance markets, FCA Regulated fees and levies: Insurers tariff data for 2017/18, regulatory fees and levies: policy proposals for 2017/18, MiFID II implementation—CP3 and implementation of the Recovery and Resolution Directive resulting from supervisory feedback and EBA guidelines/binding technical standards.

FCA key findings of review into financially vulnerable customers

The FCA has conducted a thematic review on financially vulnerable customers and on 6 September 2016 published its key findings. The FCA found firms are at different stages in developing strategies to mitigate the impact of an interest rate rise on financially vulnerable customers and for some it appears that more work is needed before these strategies will be ready to implement.

FCA to host Financial Crime Conference 2016 in London

On 6 September 2016 the FCA announced that it will be holding a Financial Crime Conference 2016 at the Congress Centre in London on 10 November 2016. The conference is open to Money Laundering Reporting Officers, senior management and compliance practitioners from regulated firms and other interested parties.

FCA consults on changes to standards applied to Pension Wise designated guidance providers

On 6 September 2016 the FCA launched a consultation on proposed changes to the standards that Pension Wise’s designated guidance providers must meet when providing guidance. This follows on from the government’s decision to extend access to Pension Wise to individuals considering selling their annuity income and to contingent beneficiaries with an interest in these annuities. Comments on the proposals should be submitted by 4 October 2016.

‘FCA Live and Local’—regional programme of events announced

On 7 September 2016 the FCA announced a regional programme of events, called ‘FCA Live and Local’, for investment, general insurance and mortgage firms. The events will take place across the UK from September 2016 until March 2017.

PRA issues monthly regulatory digest

On 1 September 2016, the Prudential Regulation Authority (PRA) published its regulatory digest for the month of August 2016. Two new sections have been added to the digest. One gives information about the PRA's open consultations closing in the coming month, including a link to all open consultations with the closing date and email address for responses. The second is a link to the Bank Underground blog.

Authorisation, approval and supervision

FCA update to firms' reporting obligations under SM&CR

On 1 September 2016 the FCA issued an update to its policy for Form H relating to firms’ obligations to report conduct breaches under the Senior Managers and Certification Regime (SM&CR). The reporting window is open from 1 September to 31 October 2016. It is mandatory to submit Form H even when there have been nil returns. The form should be used to report any breaches where disciplinary action has been taken or commenced during the timeframe from 7 March to 31 August 2016.

Prudential requirements

Commission Delegated Regulation on MREL published in the Official Journal

On 3 September 2016, Commission Delegated Regulation (EU) 2016/1450 of 23 May 2016 supplementing the Bank Recovery and Resolution Directive 2014/59/EU with regard to regulatory technical standards specifying the criteria relating to the methodology for setting the minimum requirement for own funds and eligible liabilities (MREL) was published in the Official Journal.

EBA holds public hearing on connected clients consultation under CRR

The EBA held a public hearing on 5 September 2016 as part of a consultation on guidelines on connected clients launched on 26 July 2016 and has published the slides for the presentation given at the hearing The focus of the consultation is exclusively on the issue of connected clients as defined in the Capital Requirements Regulation (CRR) and reflects the developments in the area of shadow banking and large exposures both at EU and international level. The consultation closes on 26 October 2016.

Bank Levy (Amendment of Schedule 19 to the Finance Act 2011) Regulations 2016 (SI2016/874)

This SI amends the definitions of ‘high quality’ and ‘high quality liquid assets’ in schedule 19 to the Finance Act 2011. This has been done further to the requirements for liquidity buffers introduced in the CRR. These changes come into effect on 1 October 2016.

Risk management and controls

Identification principle illogical and unfair, says SFO director

The ‘identification principle’ is illogical and operates unfairly, according to the Serious Fraud Office’s (SFO) director David Green. Mr Green has used his speech on 5 September 2016 at the Cambridge Symposium on Economic Crime 2016 to reinforce his support for a ‘failure to prevent economic crime’ offence and the subsequent end to the identification principle. Under UK law, a prosecutor must be able to identify the 'controlling mind' of a company before it can be prosecuted. However, in a world of increasingly complex corporate structures, Mr Green believes ‘the identification principle can hobble the prosecutor in those cases where it is right to prosecute the company’.

Attorney General speaks about threat of economic crime

The fight against economic crime and corruption is a government priority, according to the Attorney General in a speech on 5 September 2016 at the 34th Cambridge Symposium on Economic Crime. In his speech, the Attorney General spoke about the threat from economic crime and what is being done to address it, both domestically and internationally.

Government publishes response to proposed amendments to anti-money laundering directive

On 7 September 2016 the Government published HM Treasury's response to European Commission proposals to amend the Fourth Anti-Money Laundering  Directive (EU) 2015/849 (MLD4). In light of recent terrorist attacks and the leak of Panama papers, the European Commission published proposals to amend MLD4 on 5 July 2016, Th counter-terrorist financing proposals include bringing virtual currencies into the anti-money laundering/counter-terrorist financing regime, reducing the threshold at which Customer Due Diligence must be applied to non-reloadable prepaid instruments from €250 (£213) to €150 (£128), enabling FIUs and competent authorities to identify the holders and beneficial owners of bank and payment accounts—member States must set up automated centralised mechanisms in the form of a central register holding the necessary data on individuals and firms or a central data retrieval system, and harmonising the EU’s approach to third-country jurisdictions with strategic deficiencies in their AML/CTF regimes. Whilst the government welcomes the majority of the proposals, particularly for public registers of company beneficial ownership, it has concerns about other proposals.

Markets and Trading

OTC derivatives compliance calendar updated for 1 September 2016

On 1 September 2016, the International Swaps and Derivatives Association (ISDA) published the latest version of its compliance calendar for over-the-counter (OTC) derivatives. The ISDA calendar is used as the global calendar of compliance deadlines and regulatory dates for OTC derivatives and runs to December 2019.

ISDA launches standard initial margin model

On 1 September 2016, ISDA announced the live launch of the ISDA Standard Initial Margin Model (ISDA SIMM). It is an industry standard methodology which has already been adopted by market participants to calculate initial margin for non-cleared derivatives trades under rules which took effect in the US, Japan and Canada on 1 September 2016. The new margin rules will be introduced in other jurisdictions (including the EU in 2017) and form the last pillar of the derivatives reform commitments agreed by the Group-of-20 nations. The framework was developed by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO).

Bank of England markets survey results published

On 1 September 2016 the Bank of England (BoE) published the results from its latest survey of turnover in the markets for foreign exchange and over-the-counter interest rate derivatives, which takes place every three years. The survey is coordinated globally by the Bank for International Settlements, and was carried out in April by central banks and monetary authorities in 52 countries.

BBA responds to Notice 2016-42

On 1 September 2016 the BBA made a number of comments, addressed to the Internal Revenue Service (IRS) and US Department of the Treasury, in relation to IRS Notice 2016-42, which contains the proposed qualified intermediary (QI) agreement, and also sets out the rules which will apply to qualified derivatives dealers (QDD).

Second FSB progress report on workplan for misconduct risk

On 1 September 2016, the FSB published a second progress report on its workplan to carry out measures to reduce misconduct risk. The workplan examines whether reforms to incentives, eg to governance and compensation structures, are having sufficient effect on reducing misconduct In early 2016, the FSB conducted a survey and held a roundtable with financial entities on the role of compensation tools, aiming to incentivise good conduct. By the end of 2017, the FSB will develop and consult on supplementary misconduct-related guidance for existing compensation standards. It will also give recommendations for consistent national reporting and collection of data on the use of compensation tools to address misconduct.

CLLS responds to FCA quarterly consultation no 13

On 1 September 2016 the City of London Law Society (CLLS) responded to the FCA's quarterly consultation paper no 13 (CP16/17). The CLLS provided feedback to the FCA on chapters 4, 8 and 10 of the consultation paper.

ESRB responds to ESMA consultation on clearing obligations

On 2 September 2016 the European Systemic Risk Board (ESRB) published its response to the European Securities and Markets Authority (ESMA) consultation paper (CP) on the clearing obligation for financial counterparties with a limited volume of activity. The CP proposed modifying the phase-in period applicable to Category 3 counterparties under the European Market Infrastructure Regulation (EMIR) by extending the current compliance deadlines by two years. The ESRB has acknowledged that the scope of the clearing obligation under EMIR is broad, and smaller financial counterparties might face difficulties in gaining access to a central counterparty. However, the ESRB has stated that extending the deadlines might not be an appropriate solution as it would provide ambiguous incentives.

ICMA proposes removing the need for buy-in agents ahead of CSDR

On 5 September 2016 the International Capital Market Association (ICMA) launched a consultation on whether it should update its Buy-in Rules under the Secondary Market Rules and Recommendations. ICMA has highlighted that it is aware the Central Securities Depositories Regulation (CSDR) (EU) 909/2014 introduces a harmonised buy-in regime across the EU. However, ICMA has emphasised that until then, in the event of settlement fails, the ICMA Buy-in Rules continue to serve as an ‘efficient and practical remedy’ available to participants in the cross-border bond markets. Among the proposed improvements is removing the need for buy-in agents. The consultation closes on 14 October 2016.

EACT publishes response to ESMA consultation on clearing obligations for financial counterparties

On 5 September 2016 the European Association of Corporate Treasurers (EACT) responded to the ESMA consultation on the clearing obligation for financial counterparties with a limited volume of activity. The response answers question numbers 5, 6, and 7 of the consultation.

China Collateral Memorandum published by ISDA

On 7 September 2016, ISDA published the ISDA 2016 China Collateral Memorandum which provides information on the legal issues involved in exchanging collateral with a counterparty in China. The publication follows the rollout of new margin requirements for non-cleared derivatives in the US, Canada and Japan on 1 September 2016.

Investment funds and asset management

European Parliament publishes proposed resolution which objects to PRIIPs Delegated Regulation

On 6 September 2016, the European Parliament published a motion for a resolution which objects to the proposed Commission Delegated Regulation of 30 June 2016 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (Regulation 1286/2014) (PRIIPs Regulation) with regard to regulatory technical standards (RTS) on the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide such documents.

Consumer finance

FOS technical notes on valuations, surveys and interest-only mortgages

On 5 September 2016 the Financial Ombudsman Service (FOS) published two technical notes giving advice on valuations and surveys and on interest-only mortgages. The technical note on valuations and surveys assists mortgage companies in verifying whether a property being purchased is worth what they’re being asked to lend, while the note on advising borrowers taking out mortgages on an interest-only basis says there must be an element of advice rather than simply giving information.

Committee publishes letters on overdrafts from major UK retail banks

On 6 September 2016 the Treasury Committee’s Chairman, Rt Hon Andrew Tyrie, published a series of letters from the major UK retail banks detailing their overdraft charges. Mr Tyrie referred to concerns from the Competition and Markets Authority (CMA) in its report over the frequency and severity of such charges for planned and unplanned overdrafts. It was also stated by Mr Tyrie that many customers do not know what they are being charged for using overdrafts.


EIOPA published new regulatory Q&As

On 1 September 2016, EIOPA published four new sets of regulatory questions and answers (Q&As).The topics covered are: guidelines on recognition and valuation of assets and liabilities other than technical provisions, final report on the ITS on the templates for the submission of information to the supervisory authorities (CP-14-052), final report on the ITS on procedures, formats and templates of the solvency and financial condition report (CP-14-055) and guidelines on reporting for financial stability purposes.

Digital innovations in motor insurance

On 1 September 2016, a guest blog on the Association of British Insurers (ABI) website by Mark Bates, CEO of RDT Ltd, looked at how innovations in insurance technology ( insurtech) are allowing insurers to make better use of increasingly large and sophisticated levels of data and services.

Insurance Europe responds to OECD consultation on PE rules

On 1 September 2016, Insurance Europe published its response to a consultation by the Organisation for Economic Co-operation and Development (OECD) on proposed rules for the attribution of profits to permanent establishments (PEs). The response raises a number of concerns over the proposed PE rules—primarily that, for some insurance business models, PEs would be recognised for tax but not for regulatory purposes, with nil or minimal additional profit being attributed to them.

EIOPA launches online survey on the empowerment to develop Guidelines under IDD

The Insurance Distribution Directive (IDD) was created to strengthen the protection of customers and to harmonise national provisions concerning the distribution of insurance products. Insurance distributors must follow these rules by 23 February 2018. In order to ease into effect the IDD, the European Commission and EIOPA may draft technical rules to supplement it in several areas. These include a requirement for EIOPA to create guidelines on assessing insurance-based investment products (IBIPs) which incorporate a structure making it difficult for customers to understand involved risks. The deadline for publication of these guidelines is 23 August 2017. As a first step, on 5 September 2016 EIOPA launched an online survey to seek the views and input of stakeholders on the scope of the Guidelines and the types of IBIPs that may be relevant for this scope.

Insurance Europe response to ESMA regarding clearing obligations for financial counterparties

On 5 September 2016, Insurance Europe gave a response to ESMA on the clearing obligation for financial counterparties with a limited volume of activity. The document identifies several challenges that small counterparties and/or counterparties with limited derivatives activity face in practice and the need for a more proportional approach on the application of EMIR. Insurance Europe supports the proposal to maintain the definitions of the categories of counterparties as they currently are and to postpone the date of application of the clearing obligation for category 3 by two years.

FCA videos of general insurance sector event

On 7 September 2016 the FCA released a video of an event with principal firms within the general insurance sector to set out its findings and expectations following a thematic review (TR16/6). The five presentations can be viewed online and each presentation’s slides can be viewed alongside the speech.

FRC delivers formal complaints to KPMG

On 7 September 2016 the Financial Reporting Council (FRC) announced that its executive counsel has delivered formal complaints under the accountancy scheme and the actuarial scheme in connection with the conduct of KPMG LLP, Mark Taylor and Anthony Hulse (members and a member firm of the Institute of Chartered Accountants in England and Wales), Douglas Morgan (member of the Chartered Institute of Management Accountants) and James Rakow (member of the Institute and Faculty of Actuaries).The complaints result from the FRC’s investigations into the preparation and audit of Lloyds Syndicate 218 (Equity Red Star) report and accounts for the years ended 31 December 2007, 2008, and 2009, and the provision of actuarial advice to Equity Syndicate Management Ltd (ESML) in relation to ESML’s reserving for Lloyds Syndicate 218 between 2007 and 2009.

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About the author:
Prior to joining LexisNexis in 2016 as a paralegal, Lauren was an adjudicator at the Financial Ombudsman Service. There she resolved consumers’ complaints, and gained knowledge about a wide variety of financial products. Before this she studied Law at Nottingham Trent University.