Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 24 August 2017.
Post-Brexit central counterparty location policy would increase costs and create ‘fragmented’ derivatives market
The International Swaps and Derivatives Association (ISDA) published the first in a series of white papers: Brexit–central counterparty (CCP) location and legal uncertainty—setting out their position on Brexit and the potential impact on the derivatives market. ISDA believes an EU CCP location policy would increase costs for market participants and create a more fragmented and less secure clearing house landscape. ISDA also urges UK and EU policy-makers to remove any legal uncertainty over cross-border English law contracts by designing transitional arrangements to be put in place after the UK leaves the EU until a proper system of mutual recognition is introduced.
UK should prioritise unilateral free trade post-Brexit, the Institute of Economic Affairs says
The Institute of Economic Affairs (IEA) said the UK should not hesitate to reject a ‘bad deal’ offered by the EU, and should continue to trade with the EU under the World Trade Organization (WTO) rules on the same tariff-free basis as it presently does. A new report seeks to debunk ‘existing assumptions’ about existing EU trade arrangements and calls for unilateral free trade (UFT) following Brexit, complemented by free trade agreements with major trading partners including the US, Canada and Australia.
Financial Conduct Authority updates
FCA publishes seven impact assessments
The Financial Conduct Authority (FCA) published seven impact assessments with regard to qualifying regulatory provisions. The assessments were produced in 2016 and 2017 and assess the impact of several UK Listing Authority (UKLA) technical notes, two thematic reviews and changes to the FCA’s supervision model.
The FCA published impact assessments with regard to the following UKLA technical notes in 2017:
Open-ended investment companies and transfer restrictions (UKLA/TN/425.1)
- Sponsors: Application of principle to deal with the FCA in an open and co-operative manner (UKLA/TN/713.1)
- Sponsors: Record Keeping Requirements (UKLA/TN/717.1), and
Substitution of issuer of debt securities (UKLA/TN/911.1)
The FCA published impact assessments with regard to the following thematic reviews from 2015 and 2016:
FCA publishes August 2017 Regulation Roundup
The FCA published the August version of its monthly email to regulated firms, with updated news on regulation in the financial sector. In the roundup, the FCA highlights its recently published consultation papers, which outline proposals to change how the FCA regulate people working in financial services. The proposals will extend the Senior Managers and Certification Regime (SM&CR) to all financial services firms that are regulated by the FCA, replacing the approved persons regime.
BoE second annual review of payment systems MoU
The Bank of England (BoE) updated its financial markets infrastructure (FMI) webpage with details of the second review of the memorandum of understanding (MoU) between the FCA, the Prudential Regulation Authority (PRA), the BoE and the Payment Systems Regulator (PSR). The MoU exists to set out a high-level framework as to how the authorities co-operate on payment systems in the UK. The annual review is required pursuant to the Financial Services (Banking Reform) Act 2013.
ECON publishes minutes of 11 July 2017 meeting
The European Parliament’s Committee on Economic and Monetary Affairs (ECON) published minutes of a meeting held on 11 July 2017 in Brussels, at which decisions were taken with regard to a number of financial services files.
Enterprise Act 2016 (Commencement No 5) Regulations 2017
SI 2017/842: Certain provisions of the Enterprise Act 2016 (EA 2017), relating to government control over the corporate policy of the UK Green Investment Bank (GIB), are brought into force on 18 August 2017. These are the fifth commencement regulations made under EA 2016.
Financial Guidance and Claims Bill to continue through committee stage
The Financial Guidance and Claims Bill is to continue its journey through the House of Lords committee stage, where it will be scrutinised line by line, on Wednesday 6 September.
Authorisation, approval and supervision
FCA opens consultation on 2017/18 fees for market infrastructure providers
The FCA published a consultation paper on its annual fee consultation in the case of recognised investment exchanges, and benchmark administrators (part of the B fee-block). It sets the 2017/18 periodic fee rate for data reporting service providers (fee-block G25), effective from 3 January 2018, when the data reporting services regulations come fully into effect in the UK. Responses to the consultation are sought by 16 October 2017.
BoE consults on valuation capabilities to support resolvability
The BoE is consulting on its proposed policy on valuation capabilities to support resolvability. The proposed policy in the consultation paper applies to UK-based firms whose preferred resolution strategy involves the use of stabilisation powers, and to material UK subsidiaries of overseas-based banking groups. Responses to the consultation paper are sought by 17 November 2017.
PRA sets out findings from 2017 credit unions assessment
The Prudential Regulation Authority (PRA) sent letters to directors of category 4 and 5 credit unions setting out the findings from its 2017 annual assessment. The letters follow a template in relation to governance, succession planning, single customer view and orderly resolution:
Financial reporting amendments published in the Official Journal
Commission Implementing Regulation (EU) 2017/1443 of 29 June 2017 amending Implementing Regulation (EU) No 680/2014 laying down implementing technical standards with regards to supervisory reporting of institutions, according to Regulation (EU) No 575/2013 of the European Parliament and of the Council (Capital Requirements Regulation), was published in the Official Journal of the EU.
European Commission adopts delegated regulation amending the CRR
The European Commission adopted a Delegated Regulation amending the CRR as regards the waiver on own funds requirements for certain covered bonds.
ECB decision on supervisory data published in the Official Journal
Decision (EU) 2017/1493 of the European Central Bank (ECB) of 3 August 2017 amending Decision ECB/2014/29 on the provision of supervisory data reported to the national competent authorities by the supervised entities, pursuant to Commission Implementing Regulation (EU) No 680/2014, was published in the Official Journal of the EU.
Enforcement and redress
MoJ issues PPI guidance for claims management companies after Plevin
The Ministry of Justice (MoJ) issued guidance on the FCA rules for how authorised claims management companies must handle payment protection insurance (PPI) claims. The guidance follows the Supreme Court decision in Plevin v Paragon Personal Finance Ltd  UKSC 61, where it was decided that a failure to disclose to a client a large commission payment on a single premium PPI policy made the relationship between a lender and the borrower unfair under section 140A of the Consumer Credit Act 1974. The FCA’s final rules and guidance are set out in policy statement 17/3 and come into effect on 29 August 2017.
Markets and trading
European Commission consults on removing barriers to post-trade services
As part of the Capital Markets Union (CMU) action plan, the European Commission is currently reviewing progress made in removing barriers to post-trade market infrastructure. The consultation seeks to gather views on a range of issues, including the current state of post-trade markets, the main trends and challenges faced by post-trade services providers and users, and the best ways to remove barriers, including through financial technology. The consultation will remain open until 15 November 2017.
European Commission adopts delegated regulation amending MiFIR
The European Commission adopted a Delegated Regulation supplementing Regulation 600/2014 on markets in financial instruments (MiFIR) and amending Regulation (EU) 648/2012 with regard to package orders.
FSB seeks academic experts to work on OTC derivatives clearing study
The Financial Stability Board (FSB) is seeking to appoint two academic subject matter experts to work with the Derivatives Assessment Team (DAT) on a review of the incentives for central clearing arising from the interaction of a number of post-crisis regulatory reforms. The study began in July 2017, with a final report expected in late 2018.
Investment funds and wealth management
ESAs publish further guidance on Key Information Documents for PRIIPs
The European Supervisory Authorities (ESAs) published further guidance on the Key Information Document (KID) requirements for Packaged Retail and Insurance-based Investment Products (PRIIPs) laid down in the European Commission’s Delegated Regulation (EU) 2017/653.
Insurance and pensions
Private pensions cold calling ban to include emails and text messages
New measures to protect private pension savers from the threat of unscrupulous pension scammers, which will include a ban on cold calling in relation to pensions, including emails and text message, have been confirmed by the government in its response to a consultation on a package of measures aimed at tackling pension scams.
Lloyd’s Market Association working group to examine banking regulation
Lloyd’s Market Association set up a political risk working group, to examine regulatory issues affecting banking clients (and potentially insurers). The group will be co-led by the head of global financial risks at Liberty Specialty Markets, Peter Sprent, and the global practice leader for political lines at Talbot Underwriting, James Bamford. Mr Sprent said the group’s work would ‘hopefully prove highly beneficial to financial lines and political risk underwriters at Lloyd’s’.
EIOPA updates Q&As on Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) updated two new sets of questions and answers (Q&As) with regard to the Solvency II (Directive 2009/138/EC) framework. The latest versions include new guidance on calculation of the consolidated group Solvency Capital Requirement, and the information to be provided in the look-through report with regard to collective investment undertakings.
Minor amendment to Commission Delegated Regulation (EU) 2015/35
The Council of the EU published a corrigendum concerning minor amendments to the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates).
Payment services and systems
PSR on regulatory fees for the funding of its FSBRA, IFR and PSD2 functions
The Payment Systems Regulator (PSR) published a consultation on its regulatory fees for 2018/19. Since it became operational in 2015, a number of legislative measures have been introduced including the Interchange Fee Regulation (IFR) and the updated Payment Services Directive (PSD2). There are also anticipated structural changes to the industry through the consolidation of three interbank schemes—Faster Payments, Bacs and Credit & Cheque Clearing Company. The PSR has set out options to create what it describes as a simple, sustainable and proportionate approach to allocating its fees to fee payers. Included in the proposals is a suggestion to collect its annual fees directly from fee payers, rather than indirectly via operators of payment systems. Responses are sought by 28 September 2017.
CMA finalises rules and guidance on regulated payment systems appeals
The Competition and Markets Authority (CMA) published its response to the consultation launched in June 2017 on draft rules of procedure and guidance for appeals made to the CMA in respect of certain decisions made by the Payment Systems Regulator (PSR) under the Financial Services (Banking Reform) Act 2013 (FS(BR)A 2013). The CMA has also published final rules of procedure and guidance (CMA65 and CMA66).
PSR publishes PSODG meeting summaries
The PSR published summaries from two Payment System Operator Delivery Group (PSODG) meetings held on 17 May 2017 and 11 July 2017. The PSODG was set up by the PSR and the Bank of England to consider key issues relating to the potential consolidation of the governance of three payment system operators (PSOs): Bacs Payment Schemes Ltd (BPSL), Cheque and Credit Clearing Company Limited (C&CCCL) and Faster Payments Scheme Ltd (FPSL). The meeting summaries provide updates on the PSO project.
Fintech and virtual currencies
World Economic Forum report examines fintech’s impact and future
A report on fintech by the World Economic Forum says the accelerating tempo of the innovation cycle in financial services means that a financial institution’s success is predicated on business model agility and the ability to rapidly deploy partnerships, ‘neither of which are traditional core competencies of these institutions’. The proliferation of fintechs provides financial institutions with a ‘supermarket’ for capabilities, allowing them to use acquisitions and partnerships to rapidly deploy new offerings, but that ability is not limited to incumbent institutions—new entrants also face significantly lower technological barriers to entering financial services, with potential long-term implications for the competitive landscape. The report concludes that fintechs have materially changed the basis of competition in financial services, but have not yet materially changed the competitive landscape.
Dates for your diary
|25 August 2017||Financial crime||Deadline for responses to the Attorney General’s Office and Home Office consultation ‘Proceeds of Crime Act 2002 and Anti-Terrorism, Crime and Security Act 2001: codes of practice’|
|28 August 2017||Prudential Requirements||Deadline for responses to European Banking Authority’s (EBA) consultation ‘Consultation Paper: Draft EBA Report on the implementation of the EBA Guidelines on methods for calculating contributions to deposit guarantee schemes’.|
|29 August 2017||Insurance||Deadline for responses to the International Association of Insurance Supervisors’ (IAIS) consultation on revisions to four of its insurance core principles: ICP 1 (Objectives, powers and responsibilities of the supervisor), ICP 2 (Supervisor), ICP 18 (Intermediaries) and ICP 19 (Conduct of business).|
|29 August 2017||Insurance||Deadline for responses to the IAIS consultation on its draft application paper on product oversight in inclusive insurance.|
|29 August 2017||Enforcement and redress||The new DISP Rules on how firms should handle complaints about undisclosed high commission following the FCA’s policy statement ‘PS17/3: Payment protection insurance (PPI) complaints: feedback on CP16/20 and final rules and guidance‘, come into effect on this date.|
|30 August 2017||Risk management and controls||Deadline for responses to the FSB consultation ‘Supplementary Guidance to the FSB Principles and Standards on Sound Compensation Practices‘.|
|30 August 2017||Markets and trading—Derivatives and derivatives regulation||Deadline for responses to the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions’ (IOSCO) consultative report on harmonisation of critical OTC derivatives data elements (other than UTI and UPI), third batch.|
|31 August 2017||Solvency II||Deadline for responses to EIOPA consultation its first set of advice to the European Commission on the Solvency II review.|