Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 4 January 2018.
FMLC paper looks at impact of WTO rules on financial services post-Brexit
The Financial Markets Law Committee (FMLC) published a research paper on issues of legal uncertainty arising in the context of Brexit, in particular the application and impact of World Trade Organisation (WTO) rules on financial services. In the paper, the FMLC examines the future of the UK’s cross-border trade with the EU and the potential impact of the WTO’s rules.
Prudential Regulation Authority updates
PRA regulatory digest for December 2017
The Prudential Regulation Authority (PRA) published its regulatory digest for December 2017. This issue includes the Bank of England’s (BoE) announcement on 20 December 2017 that it is consulting on an updated approach to authorising and supervising international banks and insurers, and is issuing guidance on its approach to international central counterparties. It also highlights the PRA’s second consultation on improvements to the implementation of Solvency II, which was launched on 12 December 2017.
Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018
SI 2018/Draft: The Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 is amended to clarify the circumstances in which a person who carries on the specified activity of accepting deposits does not do so ‘by way of business’ where that activity is facilitated by a person operating an electronic system in relation to lending.
Amendments to capital requirements for securitisations under CRR published in the Official Journal
Regulation (EU) 2017/2401 of the European Parliament and of the Council of 12 December 2017 amending the Capital Requirements Regulation (EU) No 575/2013 (CRR) on prudential requirements for credit institutions and investment firms was published in the Official Journal of the EU.
IFRS 9 transitional arrangements under CRR published in the Official Journal
Regulation (EU) 2017/2395 of the European Parliament and of the Council of 12 December 2017 amending the CRR as regards transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds and for the large exposures treatment of certain public sector exposures denominated in the domestic currency of any Member State was published in the Official Journal of the EU.
Revised insolvency hierarchy published in the Official Journal
Directive (EU) 2017/2399 of the European Parliament and of the Council of 12 December 2017 amending the Banking Recovery and Resolution Directive 2014/59/EU (BRRD) as regards the ranking of unsecured debt instruments in insolvency hierarchy was published in the Official Journal of the EU.
EBA advises the Commission to disallow the application of the 180–day past due exemption for material exposures
The European Banking Authority (EBA) issued its advice to the European Commission on the appropriateness of continuing to apply the 180–day past due (DPD) exemption for material exposures. Based on an analysis of data submitted by the institutions still using the 180 DPD criterion, the EBA recommends that the exemption be disallowed and all institutions should consequently rely on the 90 DPD regime for all exposures.
BCBS updates progress report on implementation of principles for effective supervisory colleges
The Basel Committee on Banking Supervision (BCBS) issued an updated ‘Progress report on the implementation of principles for effective supervisory colleges’. Since the last progress report in July 2015, which identified home-host related challenges around information-sharing, co-ordinated risk assessment, and crisis preparedness, the BCBS says implementation of the principles has improved, with ‘clear progress’ made in all three areas.
Declaration by Austria regarding MLD5
The Council of the EU published a declaration by Austria on the proposed Directive (MLD5) amending Directive (EU) 2015/849 (MLD4) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. Austria stated that it is strongly concerned that the current text does not enhance transparency on beneficial ownership necessary to avoid the abuse of trusts for the purpose of money laundering and terrorist financing.
JMLSG makes further changes to AML/CTF guidance
The Joint Money Laundering Steering Group (JMLSG) published revised versions of its June 2017 guidance on the prevention of money laundering/combating terrorist financing. The guidance has been submitted to the Treasury for its approval, whereupon it will legally replace the previous guidance.
SFO highlights ‘tell-tale signs’ of money laundering
The Serious Fraud Office (SFO) contributed to the government’s ‘flag it up’ campaign relaunch by setting out some of the key ‘tell-tale signs’ of money laundering and warns firms that ignoring suspicious activity puts them at risk ‘and fuels further crime’.
Wolfsberg Group updates on correspondent banking and revised due diligence questionnaire
The Wolfsberg Group published an update on its work on correspondent banking and the release, in October 2017, of the revised due diligence questionnaire (DDQ). The Group announced that, as a result of conversations and feedback from industry organisations, particularly in parts of the world where many banks have been ‘de-risked’, it had decided that it would only publish the DDQ more widely once an additional set of materials had been completed. This is in order to limit the ability of third parties to interpret what it is that the Group intended with the DDQ and who it was directed at.
MiFID II and MiFIR
MiFIR trading obligation RTS published in the Official Journal
Commission Delegated Regulation (EU) 2017/2417 of 17 November 2017 supplementing Regulation (EU) 600/2014 of the European Parliament and of the Council on Markets in Financial Instruments (MiFIR) with regard to regulatory technical standards (RTS) on the trading obligation for certain derivatives was published in the Official Journal of the EU. The derivatives set out in the annex to Commission Delegated Regulation (EU) 2017/2417 shall be subject to the trading obligation referred to in Article 28 of Regulation (EU) 600/2014.
ESMA updates key transparency calculations for MiFID II/MiFIR implementation
The European Securities and Markets Authority (ESMA) published an updated version of the MiFID II/MiFIR transitional transparency calculations (TTC) for equity and bond instruments. The updated version mainly reflects changes in the classification of the instruments and the related parameters and resubmission of data by some trading venues. This new version is the one to be used by market participants, infrastructures and authorities under the new regulatory framework from 3 January 2018.
FCA and BoE allow MiFIR transitional period applications for ICE Futures Europe and LME
The Financial Conduct Authority (FCA) and the BoE announced that, with effect from 3 January 2018, ICE Futures Europe and the London Metal Exchange (LME) would not be required to consider open access requests made under Articles 35 or 36 of MiFIR, insofar as they relate to exchange-traded derivatives, until the expiry of the transitional period on 3 July 2020. The German regulator BaFIN also approved an application from Eurex Clearing for a transitional period until 3 July 2020 to comply with MiFIR requirements that a trading venue has the right to non-discriminatory access to a central counterparty (CCP) if certain conditions are met.
FCA publishes new webpage on MiFID II trading suspensions, removals and restorations
The FCA published a new webpage on the obligations of UK trading venues and the FCA with respect to trading suspensions, removals and restorations pursuant to Articles 32 and 52 of MiFID II. The webpage includes links to the notification form that must be used by trading venues and the FCA’s record of where it has required action in relation to security statuses.
FCA publishes MiFID II change of control forms
Following the coming into effect of MiFID II on 3 January 2018, the FCA published new forms for use by persons wishing to become a controller of a firm authorised under the MiFID II.
FCA publishes MiFID II change of legal status forms
The FCA updated its webpage on change of legal status to include new application forms for MiFID firms.
PRA Rulebook: MIFID II Passporting Amendment Instrument 2017
The PRA published an instrument amending the Passporting part of the PRA Rulebook to reflect changes required by MiFID II. The instrument was made on 20 December 2017 and came into effect on 3 January 2018.
AFME CEO says MiFID II strengthens investor protection
The Association for Financial Markets in Europe (AFME) commented on the coming into force of MiFID II and MiFIR. AFME’s chief executive, Simon Lewis, said it was ‘one of the most impactful and wide-reaching’ pieces of financial regulation to affect the industry to date, and would fundamentally affect the way investment firms trade and interact with their clients, as well as how the European securities market ecosystem works.
Advocate General Bot proposes broad interpretation of ‘confidential information’ and ‘professional secrecy’ in MiFID Article 54(1)
Advocate General Yves Bot at the European Court of Justice (ECJ) delivered a preliminary ruling in the case of Bundesanstalt für Finanzdienstleistungsaufsicht v Ewald Baumeister (Case C‑15/16), in which he proposed that the concepts of ‘confidential information’ and ‘professional secrecy’ in Article 54(1) of Directive 2004/39/EC (MiFID) should be interpreted broadly to include all information relating to a supervised undertaking and received or drawn up by a national financial markets supervisory authority.
Markets and trading
Securitisation framework published in the Official Journal
Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation was published in the Official Journal of the EU. It amends Directives 2009/65/EC (UCITS IV), 2009/138/EC (Solvency II) and 2011/61/EU (AIFMD) and Regulations (EC) 1060/2009 (CRA Regulation) and (EU) 648/2012 (EMIR).
Amendments to list of critical benchmarks published in the Official Journal
Commission Implementing Regulation (EU) 2017/2446 of 19 December 2017 amending Implementing Regulation (EU) 2016/1368 establishing a list of critical benchmarks used in financial markets pursuant to Regulation (EU) 2016/1011 of the European Parliament and of the Council (Benchmarks Regulation) was published in the Official Journal of the EU.
FCA updates webpage on authorisation and registration for benchmark administrators
The FCA updated its webpage on the authorisation and registration process for benchmark administrators to include links to draft recognition forms, which will be finalised once UK secondary legislation has been made. More information was also provided on the application process for UK and third country benchmark administrators.
FCA releases new and updated technical notes on the Listing Rules
In October 2017 the FCA published PS17/22: Review of the effectiveness of primary markets: enhancements to the listing regime, which set out a number of changes to the Listing Rules together with new and amended technical notes. These changes came into effect on 1 January 2018. The following new technical notes have been published:
Eligibility for premium listing—financial information and the track record requirements (UKLA/TN/102.1)
- The independent business requirements for companies applying for premium listing—interpretation of LR 6.4, LR 6.5 and LR 6.6 (UKLA/TN/103.1)
- Mineral companies (UKLA/TN/427.1)
Property companies (UKLA/TN426.1)
The following technical notes have been amended:
Listing Principle 2—Dealing with the FCA in an open and cooperative manner (UKLA/TN/209.3)
- Classification tests (UKLA/TN/302.2)
- Cash shells and special purpose acquisition companies (UKLA/TN/420.2)
Scientific research based companies (UKLA/TN/422.3)
FSB report sets out UTI implementation plans
The Financial Stability Board (FSB) published a report setting out its conclusions on the governance arrangements and an implementation plan for the unique transaction identifier (UTI). The UTI is a globally harmonised identifier for reporting over-the-counter (OTC) derivatives transactions, designed to facilitate effective aggregation of transaction reports. The final arrangements take account of stakeholder responses to a public consultation launched in March 2017, as well as an industry workshop.
Building Societies (Restricted Transactions) (Amendment to the Prohibition on Entering into Derivatives Transactions) Order 2018
SI 2018/Draft: Section 9A of the Building Societies Act 1986 (BSA 1986) is amended to allow building societies to trade derivatives for the purpose of clearing house membership. This change is effective from 6 April 2018.
Wholesale Markets Brokers’ Association changes name to the European Venues and Intermediaries Association
The Wholesale Markets Brokers’ Association (WMBA) changed its name to the European Venues and Intermediaries Association (EVIA). The association’s main role is to promote and enhance the value and competitiveness of wholesale market venues, platforms and arranging intermediaries by providing members with co-ordination and a common voice to foster and promote liquid, transparent and fair markets.
Investment funds and wealth management
EFSI extension published in the Official Journal
Regulation (EU) 2017/2396 of the European Parliament and of the Council of 13 December 2017 amending Regulations (EU) 1316/2013 and (EU) 2015/1017 as regards the extension of the duration of the European Fund for Strategic Investments (EFSI) as well as the introduction of technical enhancements for the EFSI and the European Investment Advisory Hub was published in the Official Journal of the EU.
IFSB working paper looks at recovery and resolution framework for Islamic finance
The Islamic Financial Services Board (IFSB) published a working paper on recovery, resolution and insolvency issues for institutions offering Islamic financial services (IIFS). The paper sets out legal, structural and operational issues, and aims to make policymakers, regulators, deposit insurance providers and individual institutions aware of the challenges. The IFSB says the paper shows the need to harmonise Sharīʻah principles of recovery and resolution plans as well as bankruptcy and insolvency frameworks that are currently embodied in existing legal systems.
Banks and mutuals
Financial Services Act 2012 (Mutual Societies) Order 2018
SI 2018/draft: Functions of the Registrar of Credit Unions for Northern Ireland are provided for in relation to co-operative and community benefit societies and credit unions, except functions which relate to the determination of disputes, to be transferred to the FCA.
Consumer credit, mortgage and home finance
Government consults on fairer debt ruling processes
The Ministry of Justice unveiled a consultation on the way that county court judgments (CCJs) are issued, due to some rogue companies deliberately issuing claims to consumers with the wrong address. Irreparable damage can be done to consumers’ credit ratings and consumers are only notified of this when they attempt to apply for a mortgage, loan or car on finance—leading to rejection. The consultation closes on 21 February 2018.
Insurance and pensions
FSB consults on methodology for assessing ‘Key Attributes’ implementation in the insurance sector
The FSB is consulting on its methodology for assessing the implementation of the ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’ in the insurance sector. The methodology is designed to promote consistent assessments across jurisdictions and to provide guidance to jurisdictions when adopting or reforming insurance resolution regimes to implement the Key Attributes. It will be used by the International Monetary Fund (IMF) and the World Bank as part of the regulatory assessments they undertake. Feedback is sought by 28 February 2017.
IAIS seeks views on trends and developments for its five-year plan
The International Association of Insurance Supervisors (IAIS) is seeking stakeholder input as it begins to develop its next five-year plan, with the current one set to conclude in 2019. The IAIS is seeking views on macro trends and developments, within or external to the financial services/insurance sector, that may affect the IAIS and the pursuit of its mission over the next five to seven years. It is also seeking views on what strategic objectives it should pursue in light of these trends and developments. Feedback is sought by 20 February 2018.
Stalling life expectancy creates opportunities for companies to pass pension schemes to insurers
Lower projected life expectancies have created the best opportunity for companies to transfer defined benefit pension schemes to an insurer since the banking crisis in 2008, according to a report published by pensions consultancy LCP. One in five FTSE100 UK defined benefit pension schemes are now estimated to be over 80% funded relative to the cost of buy-out with an insurer, up from one in eight a year ago.
Payment services and systems
ECB decisions on euro coin issuance published in the Official Journal
Three ECB decisions on the approval of euro coin issuance were published in the Official Journal of the EU:
Decision (EU) 2017/2422 of the ECB of 8 December 2017 amending Decision (EU) 2016/2164 on the approval of the volume of coin issuance in 2017
Decision (EU) 2017/2443 of the ECB of 8 December 2017 on the approval of the volume of coin issuance in 2018
Decision (EU) 2017/2444 of the ECB of 8 December 2017 amending Decision (EU) 2015/2332 on the procedural framework for the approval of the volume of euro coin issuance
For full text, click here.
EPC Credit Transfer Scheme Interbank Implementation Guidelines 2017 version 2.0
The European Payments Council (EPC) published implementation guidelines which set out the Single Euro Payments Area (SEPA) rules for implementing the interbank ISO 20022 XML message standards based on version 1.1 of the 2017 SEPA Credit Transfer (SCT) rulebook, which took effect on 19 November 2017.
Dates for your diary
|5 January 2018||Solvency II||Deadline for responses to the European Insurance and Occupational Pensions Authority’s (EIOPA) consultation on a second set of Advice for the Review of the Solvency Capital Requirements.|
|5 January 2018||Payment Services Directive 2||Deadline for responses to EBA ‘Consultation Paper: Draft RTS on cooperation between competent authorities in the home and host Member States in the supervision of payment institutions operating on a cross-border basis under Art. 29 (6) of PSD2 (EBA/CP/2017/16)’.|
|8 January 2018||Financial crime||Deadline for responses to FCA consultation ‘CP17/35: Recovering the costs of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS)—fees proposals’.|
|9 January 2018||Anti-money laundering and counter-terrorist financing||Deadline for responses to the European Commission’s consultation into speeding up financial investigations to combat organised crime more effectively.|
|9 January 2018||Prudential requirements||Deadline for responses to chapters 2–6, 9 and 10 of PRA/FCA consultation ‘CP18/17— CP17/34: Occasional Consultation Paper’.|