Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 9 November 2017.
Financial Conduct Authority updates
FCA discusses SME redress and other issues in Treasury Committee hearing
The House of Commons Treasury Committee published a transcript of oral evidence given to it on 31 October 2017 by the chief executive of the Financial Conduct Authority (FCA), Andrew Bailey, and the FCA chair John Griffith-Jones, on the work of the FCA. Topics discussed included Brexit, cybercrime, bank transfer scams, Saudi Aramco and the Royal Bank of Scotland Global Restructuring Group.
FCA policy development update for November 2017
The FCA published the latest version of its policy development update, which provides information on its recent and upcoming publications. Future publications include policy statements on implementation of the Insurance Distribution Directive (IDD), which are expected in December 2017 and January 2018, and a policy statement and further consultation on implementation of the Financial Advice Market Review, scheduled for December 2017.
FCA board minutes published
The FCA released the minutes of its 11 and 12 September 2017 board meeting. Andrew Bailey’s chief executive report covered the RBS Global Restructuring Group enquiry, the Which? super complaint, and the fairness of some terms in the motor finance industry. The Insurance Distribution Directive, Brexit and PPI were also among the topics discussed.
CMA—new information note issued on leniency arrangements in the regulated sectors
The Competition and Markets Authority (CMA) published an information note on arrangements regarding leniency applications from cartel informants, in the context of the concurrency regime between the CMA and those sector regulators with full membership of the UK Competition Network (UKCN), following a consultation launched in June 2017. To date, informal arrangements have been in place and have operated on a case-by-case basis, involving a ‘single queue’ system, in which applicants need only apply to one authority in order to secure their place in the queue for leniency. The new note explains that the CMA should be the first point of contact for all leniency applicants for the purpose of the ‘single queue’ system, giving certainty to businesses who might otherwise be unsure whether to apply to the relevant sector regulator or the CMA in any particular case. The CMA also published its response to the consultation.
Chancellor expresses commitment to diversity in financial services
The House of Commons Treasury Committee published a letter dated 26 October 2017 from the chancellor of the exchequer, Philip Hammond, regarding the diversity of appointments to the Bank of England’s policy committees. In the letter, Mr Hammond said that the government ‘values diversity’ and is taking steps to improve diversity in both the public and private sector.
Government responds to Lords’ report on financial exclusion
The government responded to a report by the House of Lords Select Committee on financial exclusion. The Lords’ report, ‘Tackling financial exclusion: A country that works for everyone’, was published on 25 March 2017 and made 22 recommendations, focusing on government leadership, financial services regulation, financial education and capability, access to financial services, credit and borrowing, and welfare reform. The government addresses each recommendation in its response.
ECOFIN sets out progress on key financial services legislation
The European Economic and Financial Affairs Council (ECOFIN) discussed the progress made on key financial services legislative files. ECOFIN have published a table setting out the legislative position for 20 key directives and regulations.
Elisabeth Stheeman appointed as external member of the FPC
The Chancellor of the Exchequer, Philip Hammond, appointed Elisabeth Stheeman as an external member of the Financial Policy Committee (FPC). Ms Stheeman’s three-year appointment begins in early 2018, and fills the external position on the FPC created when Dame Clara Furse stepped down in November 2016.
Martin Taylor reviews the actions and policies of the FPC
An external member of the Bank of England’s Financial Policy Committee (FPC), Martin Taylor, delivered a speech to the Institute of International Monetary Research on the actions and policies of the FPC since its establishment. He also considers criticisms that have been made of macroprudential policy, and discusses the way the FPC functions, drawing a distinction between the FPC and the Monetary Policy Committee.
Danièle Nouy discusses Brexit, NPLs and ECB policy
The chair of the supervisory board of the European Central Bank (ECB), Danièle Nouy, spoke in an interview of the ECB’s approach to Brexit, non-performing loans, Italian banks and the Banking Recovery and Resolution Directive.
ECB vice-chair looks at the challenges facing EU banks
The vice-chair of the supervisory board of the ECB, Sabine Lautenschläger, delivered a speech at the ECB Forum on Banking Supervision in Frankfurt, in which she called again for consolidation of EU banks to make them stronger. Ms Lautenschläger examined the factors that are hindering bank profitability and outlined actions they can take to prepare for the future.
Authorisation, approval and supervision
FCA consults on industry codes of conduct and unregulated activities
The FCA launched a consultation on its approach to supervising and enforcing its Senior Managers & Certification Regime (SM&CR) rules for authorised firms’ unregulated activities, including those covered by industry-written codes of conduct. The FCA is also seeking views on extending the application of its Principle for Businesses 5—A firm must observe proper standards of market conduct—to unregulated activities. The deadline for comments is 5 February 2018.
Regulated fees and levies—adjustment to rates for 2017/18—PS27/17
The Prudential Regulation Authority (PRA) published policy statement ‘PS17/17: Regulated Fees and Levies—Rates for 2017/18’ setting out final rules and correcting the fee rates for the PRA’s annual funding requirement (AFR) for 2017/18. The appendix to the PS contains an update to Table III of the Periodic Fees Schedule in the Fees Part of the PRA Rulebook. Table III sets out the final periodic fee rates applicable to PRA fee blocks other than the minimum and transition costs fee blocks for the fee year 2017/18.
European banking supervision making progress but NPLs still a concern
The President of the ECB, Mario Draghi gave a speech on the accomplishments of three years of European banking supervision. Mr Draghi said there is now a more uniform approach to how banks are supervised, leading to a more resilient banking sector overall. The key catalyst for this change—alongside the new EU regulations—has been the harmonisation of the Supervisory Review and Evaluation Process (SREP).
PRA Rulebook—Administration Instrument (No. 3) 2017
Following a consultation on the Administration Instrument (No. 3) 2017, the PRA announced it intends to make corrections to the PRA Rulebook. The Instrument makes amendments, set out in Annex’s A to E, to the conduct rules, insurance—senior insurance management functions, regulatory reporting and fees.
IOSCO updates securitisation and MMF implementation reports
The International Organization of Securities Commissions (IOSCO) updated its reports on the peer review of the regulation of money market funds (MMFs), and on the peer review of the implementation of incentive alignment recommendations for securitisation. The reports summarise IOSCO’s ongoing efforts in monitoring implementation of reforms for MMFs and securitisation since the two peer reviews were published in September 2015.
Risk management and controls
Principals need adequate oversight of appointed representatives, FCA warns
The FCA issued an alert highlighting the risks faced by principals if they do not have adequate oversight of their appointed representatives or introducer appointed representatives (ARs). It also expands on an earlier alert warning that business carried out by a principal and its ARs can be inappropriately influenced by an introducer. The FCA expects principals to consider the content of this alert and take appropriate action.
2018 principles of remuneration call for disclosure of pay ratios
The Investment Association (IA) published its 2018 principles of remuneration in an open letter to the chairs of the remuneration committees of FTSE 350 companies. The principles, which have existed for over 40 years, are revised annually to reflect current best practice for listed companies when setting the pay of their top executives. The recommendations include reducing future variable pay awards (such as bonus and long-term incentive plans), to help limit overall pay.
Chancellor says economic crime reforms to be announced by end of 2017
The chancellor of the exchequer, Philip Hammond MP, said proposals will soon be announced on improving the governance and operational response of the UK’s economic crime agencies. Writing to the Treasury Select Committee following his evidence session on 11 October 2017, Mr Hammond said officials had provided advice to ministers on the effectiveness of the UK’s response to economic crime along with a series of recommendations to further enhance the UK’s capabilities.
FATF guidance on private sector information sharing
The Financial Action Task Force (FATF) published updated guidance on private sector information sharing. The FATF recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard and the guide sets out the challenges to information sharing and provides guidance both in the context of group wide and between financial institutions not part of the same group.
Outcomes from the joint FATF/GAFILAT Plenary, 1-3 November 2017
The FATF and El Grupo de Acción Financiera de Latinoamérica (GAFILAT) published the outcomes from the joint FATF/GAFILAT plenary in Buenos Aires, which was chaired by President Santiago Otamendi and GAFILAT President Eugenio Curia.
Enforcement and redress
Upper Tribunal decisions
The decisions in:
- Tom Alexander William Hayes v Financial Conduct Authority:  UKUT 0423 (TCC)
- Larksway Investments Limited v The Financial Conduct Authority:  UKUT 0422 (TCC), and
- Stephen John Cooper v Financial Conduct Authority:  UKUT 0428 (TCC)
have been handed down.
MiFID II and MiFIR
FCA releases forms and guidance for MiFID II notifications
The FCA updated its webpage on MiFID II notifications obligations for firms, adding a section on trading venue notifications. The webpage links to a table setting out what the FCA needs the venues to notify, why it need the information specified and how it expects to receive it, and when it should be notified.
FMLC seeks clarification on aggregation of positions and the meaning of ‘control’ under MiFID II
The Financial Markets Law Committee (FMLC) wrote to the European Securities and Markets Authority (ESMA) seeking clarification of the meaning of ‘control’ within the context of regulatory technical standards 21. The FMLC say it is unclear whether a parent undertaking is required to aggregate the positions of subsidiary undertaking where it cannot control the use of such positions, where the subsidiary is not a collective investment vehicle or the manager of a collective investment vehicle.
EFET and FIA release schema for position reporting under MiFID II
The European Federation of Energy Traders (EFET) and the Futures Industry Association (FIA) released the common EFET-FIA ITS4 schema for position reporting under MiFID II. It builds upon the schema developed by the UK’s FCA on the basis of Implementing Technical Standard 4 (ITS4) drafted by the European Securities and Markets Authority and adopted by the European Commission earlier in 2017. The FCA schema is designed for the reporting of positions by trading venues to the national competent authority (NCA).
Markets and trading
ISDA to produce analysis and roadmap on the transition to alternative risk-free rates
The International Swaps and Derivatives Association (ISDA) began a comprehensive analysis of the issues and potential solutions related to transitioning financial market contracts and practices to new alternative risk-free rates (RFRs). It will include a targeted global survey of buy- and sell-side firms and infrastructure providers to identify the means by which market participants can effectively implement regional benchmark transitions, as well as highlight possible challenges.
ISDA calls for further changes on EMIR
The ISDA published a white paper on the European Commission’s review of the European Market Infrastructure Regulation (EMIR). While the ISDA says the changes recommended by the Commission in May 2017 go some way towards easing the compliance costs and burdens of the regulation, it believes that additional changes are needed to simplify and strengthen the framework.
IOSCO reports on implementation of G20/FSB recommendations to strengthen securities markets
The board of the International Organization of Securities Commissions (IOSCO) published an Implementation Report: G20/FSB Recommendations related to Securities Markets, providing further clarity on the implementation of the G20/FSB post-crisis recommendations aimed at strengthening securities markets. For the report, IOSCO co-ordinated with the Financial Stability Board (FSB) to analyse the responses to the FSB’s 2017 Implementation Monitoring Network (IMN) survey.
Guidance—ESMA updates Benchmarks Regulation Q&As on third-country issues
ESMA published updated Questions and Answers (Q&As) regarding the implementation of the Benchmarks Regulation (BMR). The new guidance concerns the scope of the BMR’s application outside the EU, and transitional provisions applicable to third-country benchmarks.
CLLS updates its MAR Q&As
The City of London Law Society updated its set of Q&As on Regulation (EU) 596/2014—the Market Abuse Regulation. The update takes into account ESMA’s revision of its MAR Q&As published on 6 July 2017, and expands, at question 7, on the definitions in practice of a ‘person closely associated’ and a ‘person discharging managerial responsibilities’.
Over-the-counter market outperforms exchanges in trading of true repo
Frontclear Technical Assistance Programme (FATP) published a study assessing whether an exchange is likely to be more effective than an over-the-counter (OTC) market in fostering the domestic repo trading in emerging financial markets, particularly frontier markets. FATP concludes that the available theoretical and empirical evidence supports the argument that the OTC market tends to outperform exchanges in the trading of true repo.
Investment funds and wealth management
Paradise papers—leaked documents shine light on offshore financing
The International Consortium of Investigative Journalists (ICIJ) analysed a new cache of leaked files from offshore law firms and other sources containing information on the offshore activities and structures of prominent individuals and companies from all over the world. Like the Panama papers before it, the Paradise papers were first obtained by the German newspaper Süddeutsche Zeitung and shared with ICIJ. The BBC has reported that more than 100 media organisations, including the Guardian, are working on the 13.4 million records. Lawyers from Simmons & Simmons and Lewis Nedas Law argue that, while nothing illegal has taken place, reputational damage might lead some organisations to reconsider their tax structures.
Financial Services Trade and Investment Board releases annual report
The Financial Services Trade and Investment Board released its annual report for 2016-17, detailing the work done by the government and industry over the past year to drive the UK’s financial services trade and investment priorities. It also provides an insight into future work to ‘maintain and strengthen the UK’s position as the world’s leading financial centre’.
Council of the EU moves to extend duration of the European Fund for Strategic Investments
The Council of the European Union published an ‘I Item’ note confirming the final compromise text, with a view to agreement, on a regulation of the European Parliament and of the Council amending Regulations (EU) No 1316/2013 and (EU) 2015/1017 as regards the extension of the duration of the European Fund for Strategic Investments as well as the introduction of technical enhancements for that Fund and the European Investment Advisory Hub.
Consumer credit, mortgage and home finance
FCA consults on its approach to consumer regulation
The FCA published ‘FCA Mission—Our future approach to consumers’, the first in a series of supplements to its ‘Mission’ paper, setting out its approach to regulation. The FCA is consulting on the document, aiming to ensure that the proposed approach will truly help meet the needs of consumers. The consultation will close on 5 February 2018.
BSB consultation seeks consumer views on good practice in UK banking
The Banking Standards Board (BSB) launched a consultation on ‘What do good banking outcomes look like to consumers?’. The purpose of this consultation is to seek views, in particular from consumer and civil society organisations, about what the outcomes of a good banking culture look like to consumers, which will inform the BSB’s work to identify good practice. Feedback is sought by 26 January 2018.
Treasury Committee to investigate adequacy of UK household savings
The Treasury Committee launched an inquiry into the state of UK household balance sheets, including whether households are saving adequately in the current economic environment. The Committee’s main focus will be to scrutinise problematic indebtedness and inter-generational issues. Committee chair Nicky Morgan says the inquiry is timely as ‘the UK’s household saving rate has fallen in the last year, with 15% of adults over-indebted. There is also £200bn worth of consumer credit in the UK.’ The first evidence session of this inquiry will be held on 14 November 2017.
Insurance and pensions
FCA launches wholesale insurance brokers market study
The FCA launched a market study and terms of reference (MS17/2.1) into the wholesale insurance broker sector to assess how competition is working. The FCA wants to ensure that the sector is working well, and fosters innovation and competition in the interests of its diverse range of clients. There have been significant changes in the wholesale insurance sector in recent years, which have seen brokers developing new services and business practices.
EIOPA consults on its second SCR advice
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on its second set of advice for the review of the solvency capital requirement (SCR) of Solvency II. EIOPA is seeking to ensure a proportionate and technically robust, risk-sensitive and consistent supervisory regime for the insurance sector, with possible simplifications. The consultation focuses on the remaining elements in the review of the SCR standard formula not covered by the advice submitted to the European Commission on 30 October 2017. Feedback is sought by 5 January 2018.
IAIS sets out unified path to convergence on ICS version 2.0
The International Association of Insurance Supervisors (IAIS) announced a unified path to convergence of group capital standards as it moves towards its ultimate goal of creating one insurance capital standard that achieves comparable outcomes across jurisdictions. The agreement responds to a call from members and stakeholders for more clarity on what the implementation of Insurance Capital Standard (ICS) Version 2.0 will mean in practice.
PRA consults on volatility adjustment risks
The PRA is consulting on proposals to clarify its expectations in respect of firms seeking approval to apply a volatility adjustment (VA) to insurance and reinsurance business. The proposals set out the risks that may arise from use of the VA and how firms are expected to consider those risks. Feedback is sought by 9 February 2018. F
Legal expenses insurance under Solvency II (Pascal Nobile v DAS Rechtsschutz-Versicherungs AG)
The EFTA court has ruled that Article 201(1)(a) of the Solvency II Directive 2009/138/EC precludes terms and conditions in a legal expenses insurance contract that release the insurance company from its obligations under the contract if the insured person mandates an attorney to represent their interests, without the consent of the company, at a point in time when the insured person would be entitled to make a claim under the contract. The court’s judgment was given on 27 October 2017 in Pascal Nobile v DAS Rechtsschutz-Versicherungs AG, a case referred by the Princely Court of Appeal of Liechtenstein.
EIOPA publishes technical information for Solvency II relevant RFR term structures
EIOPA published technical information for Solvency II relevant risk free interest rate (RFR) term structures with reference to the end of October 2017.
EIOPA monthly update on the equity capital charge for Solvency II
EIOPA published the technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of October 2017.
Cost and trust still main barriers for people considering financial advice about retirement
42% of over 50s plan to speak to a professional financial adviser about their retirement finance options, up from 38% last year, according to research from Retirement Advantage. Trust and cost are still the main barriers for people who said they didn’t plan to consult a financial adviser about their retirement options.
Insurance Europe publishes online resource to ‘make insurance rules benefit consumers’
Insurance Europe published an online consumer resource that sets out how policymakers and supervisors can ensure that rules governing insurers are in the best interest of consumers. It also highlights how the insurance industry contributes to meet consumers’ expectations and needs.
Notice confirms provision application of EU/US bilateral agreement on insurance and reinsurance
A notice concerning the provisional application of the bilateral agreement between the EU and US on prudential measures regarding insurance and reinsurance was published in the Official Journal of the EU.
PPI report looks at the impact of DC asset pooling
International evidence suggests that there may be scope for pooling assets for investment to improve member outcomes within a traditional defined contribution pension arrangement, according to a report from the Pensions Policy Institute.
Work and Pensions Committee questions former pensions minister on pension freedoms
The Work and Pensions Committee announced that it has questioned a number of pensions experts and the architect of pensions freedoms, former pensions minister Steve Webb, on pension freedoms, advice and guidance services, and the pensions market.
Payment services and systems
PSR leads industry-wide clamp down on authorised push payment fraud
The Payment Systems Regulator (PSR) released a report and opened a consultation on authorised push payment (APP) scams, following joint work on the subject with the FCA and industry. The consultation asks whether UK Finance’s best practice standards will be effective in addressing the issues identified in the PSR’s super-complaint response, and whether and how a contingent reimbursement model might work. Views are sought by 12 January 2018.
Deutsche Bahn AG given SC permission to appeal Mastercard fees decision
The Supreme Court granted permission to appeal in the case of Mastercard Incorporated and others (respondents) v Deutsche Bahn AG and others (appellants) (UKSC 2017/0095). The appellants are retailers, and the respondents own and/or operate the MasterCard credit card scheme. Under certain rules of the scheme, the cardholder’s bank charges the retailer’s bank a transactional fee known as a ‘multilateral interchange fee’ (MIF). The retailer’s bank passes on the cost of that indirectly, by charging its own fees to the retailer. The appellants brought claims alleging, amongst other things, that the respondents violated EU and domestic competition law by setting inflated MIFs and by causing banks to set inflated MIFs. They allege that this in turn inflated the charges payable by retailers to their own banks.
Government seeks views on legislative proposals for image clearing for cheques
The government is consulting on legislation for two measures to support the introduction of the image clearing system (ICS) for cheques. The proposed legislation concerns compensation and the use of cheques as evidence of payment. Feedback is sought by 1 December 2017.
Fintech and virtual currencies
FCA publishes webpage on model driven, machine executable regulatory reporting
The FCA published a new webpage which announces that the FCA, together with the Bank of England (BoE), is exploring how technology can provide solutions to the challenges firms face in implementing their regulatory reporting obligations.
NZ regulator comments on ICOs and cryptocurrencies
New Zealand’s Financial Markets Authority (FMA) published commentary on the legal status and regulatory requirements concerning initial coin offerings (ICOs) and cryptocurrency service providers, saying NZ cryptocurrency services providers must be a member of a dispute resolution scheme, must be on the Financial Services Providers Register, and must comply with fair dealing provisions in the Financial Markets Conduct Act.
Dates for your diary
|14 November 2017||Authorisation, approval and supervision||Deadline for responses to European Commission evaluation roadmap for its fitness check of EU reporting requirements in the financial sector.|
|16 November 2017||Fourth Money Laundering Directive||ESA ‘Joint Guidelines (ESAs 2016 72): on the characteristics of a risk‐based approach to anti‐money laundering and terrorist financing supervision, and the steps to be taken when conducting supervision on a risk‐sensitive basis’ apply from this date.|