Weekly highlights—22 November 2018

22 Nov 2018 | 45 min read

Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 22 November 2018.

Brexit

Central Counterparties (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018

SI 2018/1184: This enactment is made in exercise of the legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This enactment amends EU Regulation (EU) 648/2012 on over the counter (OTC) derivatives, central counterparties and trade repositories in relation to the recognition of third country counterparties (in anticipation of it being retained in UK law after Brexit). Consequential amendments and transitional provisions are also made. It comes into force partly on 14 November 2018, and fully on exit day (updated from draft on 15 November 2018).

Building Societies Legislation (Amendment) (EU Exit) Regulations 2018

SI 2018/1187: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This enactment amends UK legislation in relation to extending reciprocal treatment to borrowers whose loans are secured on land in an European Economic Area (EEA) state, and to bodies incorporated in an EEA state which is no longer appropriate when the UK is no longer an EU Member State nor a party to the EEA Agreement. It comes into force on 29 March 2019 (updated from draft on 16 November 2018).

Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018

SI 2018/1199: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit in order to ensure that the regulation establishing technical and business requirements for credit transfers and direct debits in euro can continue to operate effectively after the UK’s withdrawal from the EU. It comes into force on exit day (updated from draft on 20 November 2018).

Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018

SI 2018/1201: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This instrument amends pieces of UK primary and subordinate legislation in order to ensure that the Payment Services Regulations 2017 and the Electronic Money Regulations 2011 can continue to operate effectively after the UK’s withdrawal from the EU. This instrument will achieve this by using the section 8 powers of the European Union (Withdrawal) Act 2018to fix deficiencies in these regulations (updated from draft on 21 November 2018).

Capital Requirements (Amendment) (EU Exit) Regulations 2018

SI 2018/Draft: This draft enactment is laid in exercise of legislative powers under the European Communities Act 1972 and European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment proposes to amend subordinate legislation and EU regulations in relation to capital requirements in order to address deficiencies in retained EU law arising from the withdrawal of the UK from the EU. This instrument will therefore act to ensure that the UK’s capital requirements regime continues to operate as intended in the UK once the UK leaves the EU.

Insolvency (Amendment) (EU Exit) Regulations 2018

SI 2018/Draft: This draft enactment is laid in exercise of legislative powers under the European Union (Withdrawal) Act 2018 and the European Communities Act 1972 in preparation for Brexit. This draft enactment amends UK legislation and retained EU legislation in relation to insolvency and the protection of employees in the event of the insolvency of their employers. It comes into force partly on exit day.

Brexit Financial Services draft SIs published—21 November 2018

HM Treasury published the draft Insurance Distribution (Amendment) (EU Exit) Regulations 2018 together with explanatory memoranda for the draft Financial Services (Distance Marketing) (Amendment) (EU Exit) Regulations 2018, the draft Money Market Funds (Amendment) (EU Exit) Regulations 2018 and the draft Market Abuse (Amendment) (EU Exit) Regulations 2018. HM Treasury also published guidance relating to proposed amendments to UK legislation relating to the financial services elements of the E-Commerce Directive and the Official listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019 to be laid under the EU (Withdrawal) Act.

Draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2018 published

HM Treasury published the draft text of the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2018, which will be laid under the EU (Withdrawal) Act. The statutory instrument will make amendments to retained EU law related to the EU Long-term investment Funds Regulation (ELTIFR) to ensure that it continues to operate effectively in a UK context once the UK leaves the EU, in a no-deal scenario. The ELTIFR provides for EU Long-term Investment Funds (ELTIFs), which are funds that direct investment into infrastructure and other long-term projects. As ELTIFs are a type of Alternative Investment Fund (AIF), their fund managers also need to comply with legislation relating to the Alternative Investment Fund Managers Directive (AIFMD), which is being onshored via the Alternative Investment Fund Management (Amendment) (EU Exit) Regulations 2018.

Draft Interchange Fee (Amendment) (EU Exit) Regulations 2018 published

The SI reduces the scope the Interchange Fee Regulation (IFR) applied in UK legislation from the EEA to the UK. The result of this is that transactions which take place solely within the UK (where both the acquirer and the card issuer are located in the UK) would continue to be covered by the IFR, but cross-border card payments between the UK and the EU or EEA will no longer be within scope of the onshored UK IFR or the EU IFR. Once the UK leaves the EU, the scope of the EU IFR will no longer include the UK, and scheme operators would be able to set higher interchange fees for cross border transactions. EEA card issuers may therefore receive more interchange fees from transactions that involve a UK acquirer, and similarly UK card issuers may receive higher interchange fees from transactions that involve EEA acquirers.

Brexit Bulletin—UK and EU announce agreement in principle on the Withdrawal Agreement

On 14 November 2018, the UK government and the European Commission announced agreement in principle on the legal terms of the UK’s withdrawal from the EU. Following ongoing talks, the legal text of the Withdrawal Agreement was agreed at negotiator level with both the UK government and European Commission urging its endorsement. A copy of the draft Withdrawal Agreement was published, along with an outline of the political declaration on the framework for the future EU-UK relationship.

Brexit Bulletin—examining the key announcements, documents and next steps for the draft Withdrawal Agreement

On 14 November 2018, the UK government and the European Commission announced a deal in principle on the legal terms of the UK’s withdrawal from the EU. A copy of the draft Withdrawal Agreement agreed at negotiator level (to be ratified) was published, along with an outline of the political declaration on the framework for the future EU-UK relationship (to be finalised). The UK Prime Minister confirmed the cabinet’s decision to back the deal and the European Commission recommended to the EU27 that decisive progress was made and steps should be taken to initiate the process of formalising the deal. A special summit of the EU27 is expected to take place on 25 November 2018.

Bank of England Governor backs UK's Brexit deal

The Governor of the Bank of England gave his support on Tuesday to Prime Minister Theresa May's European Union withdrawal plans as he warned that a Brexit with no agreement in place would be the ‘worst outcome'. Mark Carney said as he appeared before the House of Commons Treasury Committee that he backed the Brexit deal unveiled by May last week and gave his approval to a proposed 20-month transition period that would kick in immediately after the UK leaves the EU in March next year. But Carney said the chances of Britain leaving the bloc without a deal remain ‘uncomfortably high’—which he said would be the ‘worst outcome’ for the Bank of England.

Regulation on EBA relocation published in Official Journal

Regulation (EU) 2018/1717 of 14 November 2018 amending Regulation (EU) No 1093/2010 as regards the location of the seat of the European Banking Authority (EBA) was published in the Official Journal. Pursuant to the Regulation, the seat of the EBA will relocate from London to Paris following the UK’s withdrawal from the EU.

SRB sets out expectations to ensure resolvability of EU banks post-Brexit

The Single Resolution Board (SRB) published a paper setting out its expectations to ensure the resolvability of banks in the context of Brexit. The requirements apply to Banking Union banks, including banks with significant activities in third countries and Banking Union subsidiaries of third-country banking groups. The SRB is mandated to ensure resolvability of all the banks under its remit. The SRB expects all banks active in the Banking Union to meet a specific set of resolvability conditions.

Brexit deal leaves insurance brokers exposed, industry warns

Britain’s insurance broker associations warned that there is a ‘gaping’ regulatory hole in Prime Minister Theresa May’s draft Brexit Withdrawal Agreement and urged the government to guarantee insurance brokers’ access to European Union markets. The regulatory equivalence arrangements provisionally set out in the deal, which the Cabinet agreed on 14 November 2018, do not extend to the broking industry and will not offer protection to members of the British Insurance Brokers' Association, it said.

Insurers short of time on Brexit plans, ratings agency says

On 19 November 2018, ratings agency A.M. Best warned that London insurers may not be able to move their cross-border contracts into the EU in time for Brexit and will need a transition deal to help them avoid breaking the law if they pay out on policies. Catherine Thomas, senior director of analytics at A.M. Best, said many companies had formed new EU subsidiaries to help them cope with the disruption that the UK's imminent departure from the EU will bring. UK businesses will lose their passporting rights, which allow them to offer services to EU states, if the country leaves the EU without a deal in March 2019.

Financial Conduct Authority updates

FCA publishes Handbook Notice No. 60

The Financial Conduct Authority (FCA) published Handbook Notice No. 60, which includes changes to the FCA Handbook made by the FCA board on 25 October and 15 November 2018, together with feedback on consultation papers that will not have a separate policy statement. The changes include guidance on whether firms should consider the non-disclosure of commission when assessing regular premium PPI complaints.

FCA publishes regulatory fees consultation paper 18/ 34 (CP18/34)

The FCA published consultation paper 18/ 34: Regulatory fees and levies: policy proposals for 2019/20. The consultation paper sets out the FCA's proposed policy changes to the way that the regulator will raise FCA fees from 2019/20. It is part of the FCA's annual cycle of consultation on fees.

FCA’s regulation round up for November 2018

The FCA published its regulation round up for November 2018. Hot topics include the Treasury-led Crypto-assets Taskforce report and fairer treatment of regular premium PPI complaints and proposals for new rules requiring firms to write to consumers who had previously complained unsuccessfully to tell them they can make a new complaint and remind them of the deadline.

FCA chair promises action to ensure accuracy of the Financial Services Register

The House of Commons Treasury Select Committee published a letter to Nicky Morgan MP, the committee chair, from Andrew Bailey, chief executive of the FCA, regarding the FCA's plans to ensure the accuracy and integrity of the data in the Financial Services Register. Mr Bailey was responding to an article published in the Daily Telegraph on 29 September 2018, which detailed how scammers had managed to defraud investors using the name of a defunct company that was still on the Register. According to the article, the Treasury Committee intended to raise the matter with the FCA later in 2018.

Prudential requirements

Council publishes final compromise text on NPL regulation

The Council of the European Union published the final Presidency compromise text on the European Commission's proposal for a regulation amending Regulation (EU) 575/2013 (the Capital Requirements Regulation) as regards minimum loss coverage for non-performing exposures. The position was adopted by the Council on 31 October 2018, enabling the Presidency to start negotiations with the European Parliament as soon as the Parliament is ready to negotiate.

ECB opinion on the proposed directive on credit servicers, credit purchasers and the recovery of collateral

The European Central Bank (ECB) issued an opinion on the Commission's March 2018 proposal for a directive on credit servicers, credit purchasers and the recovery of collateral. The proposal forms part of the EU's Capital Markets Union and the Banking Union’s focus to reduce the number of non-performing loans (NPLs).

ECB promotes a common understanding of the rules on internal models

The ECB published the first chapter of its guide to internal models (the ‘guide’), following a public consultation which ended on 28 May 2018. The aim of the guide is to provide transparency regarding the ECB's understanding of the most relevant aspects, for the institutions it directly supervises, of the applicable regulations on internal models (namely the Capital Requirements Regulation (CRR), the Capital Requirements Directive (CRD IV), relevant Commission Delegated Regulations and Commission Implementing Regulations, regulatory technical standards (RTS), EBA guidelines, and the approved ECB Banking Supervision manuals and guidelines).

EBA publishes final draft RTS defining an economic downturn under the CRR

The EBA published its final draft RTS specifying the nature, severity and duration of an economic downturn to be taken into account by institutions when estimating the loss given default (LGD) and conversion factors (CF) under the internal ratings-based (IRB) approach in accordance with the CRR. The EBA is currently finalising the related guidelines on the estimation of LGD appropriate for conditions of an economic downturn.

EBA chair calls for improvements to EU-wide stress tests

Andrea Enria, chair of the EBA, said that while the EU-wide stress test proved to be a flexible and adaptable tool, there are areas where improvements are needed and aspects that may require a more fundamental rethinking. Speaking at the National Bank of Romania, Mr Enria said that since the stress test exercise was introduced in 2011, it gradually evolved from a crisis management tool into a regular and flexible tool for competent authorities to identify banks' weaknesses to adverse shocks and residual areas of uncertainty that might need mitigating actions. Nevertheless, its distinctive features—the focus on solvency, the constrained bottom-up approach, and granular disclosure of banks' results remained stable.

SRB issues 2018 MREL policy statement

The SRB, together with the Banking Union national resolution authorities (NRAs), published the 2018 policy statement on the minimum requirement for own funds and eligible liabilities (MREL), which serves as a basis for setting binding consolidated MREL targets for banks under the remit of the SRB pertaining to the first wave of resolution plans. The SRB says that for this year, given the need to address the specificities of the most complex groups with more details, it split the cycle for resolution planning into two waves.

BoE writes to CFOs regarding valuation capabilities to support resolvability

The Bank of England (BoE) sent a letter to chief financial officers (CFOs) of relevant firms, providing guidance on the BoE's policy on valuation capabilities to support resolvability, which was published in June 2018. Following consultation in 2017 the BoE chose to take a principles-based approach when producing the policy and to provide supporting guidance at a later stage. That guidance is set out in annex 2 to the letter.

BoE brings forward publication date of stability report and stress test results

The BoE announced that the Financial Stability Report (FSR) and the full results of the BoE’s annual stress test of major UK banks, due to be published on 5 December 2018, will now be published at 07.00hrs on 28 November 2018. The change of date is to allow the BoE to fulfil a request from the Treasury Select Committee (TSC) to provide an analysis of how the EU Withdrawal Agreement will affect the BoE’s ability to deliver its statutory remits for monetary and financial stability, including in a 'no deal, no transition' scenario.

Regulatory architecture

Council of the EU publishes decisions on the position to be adopted concerning amendments of Annex IX (Financial Services) to the EEA Agreement

The Council of the EU published two decisions on the position to be adopted, on behalf of the EU, within the EEA Joint Committee, concerning the amendment of Annex IX (Financial Services) to the EEA Agreement. One decision seeks to incorporate Regulation (EU) 2015/847 (the EU Funds Transfer Regulation 2015) and Directive (EU) 2015/849 (the Fourth Anti-Money Laundering Directive) (MLD4) into the EEA Agreement. The other decision seeks to incorporate Directive 2014/51/EU (Omnibus II Directive).

EU agrees framework for screening foreign direct investment

The European Parliament, the Council and the Commission announced political agreement on an EU framework for screening foreign direct investment. The Commission said that while openness to foreign direct investment is enshrined in the EU Treaties, and such investment fuels growth, innovation and employment, there are some cases where foreign investors might seek to acquire strategic assets that allow them to control or influence European enterprises the activities of which are critical for the security and public order in the EU and in its Member States.

Authorisation, approval and supervision

ECON approves nomination of Andrea Enria as the new chair of the ECB supervisory board

The European Parliament's Committee on Economic and Monetary Affairs (ECON) approved the nomination of Andrea Enria as the new chair of the ECB supervisory board, replacing Danièle Nouy. The committee’s recommendation to approve Mr Enria will now be put to the Parliament’s plenary for a vote on 29 November 2018.

Risk management and controls

European Parliament Legal Affairs Committee approves draft Whistleblowing Directive

The Legal Affairs Committee of the European Parliament voted to approve a draft of the proposed Whistleblowing Directive. The approved text is an amended version of the proposal published by the European Commission in April 2018. The version of the Directive approved by the Legal Affairs Committee includes the following requirements:

  • Member States would be requested to ensure that private and public sectors put in place adequate internal and external reporting channels
  • reporting avenues should ensure that the reporting person is notified that their report has been received within a week, while follow-up on the report should be received no later than two months after the report was received, and
  • it should be up to the reporting person to choose the most appropriate channel to report, whether internal or external, depending on circumstances
UK cyberattack planning ‘wholly inadequate’, MPs warn

Failures by the UK government to tackle cyber threats have left the country’s financial systems and other critical infrastructure open to ‘potentially devastating’ attacks, a parliamentary committee warned on Monday. A report published by Parliament's joint committee on the national security strategy said that cyberattack is a major national security threat. Yet the government is failing to act with an urgency that matches the level of risk and improve the country's defences, the MPs said.

PRA updates Level 1 remuneration policy statement template and tables

The Prudential Regulation Authority (PRA) updated the language within the Level 1 remuneration policy statement (RPS) template and data tables in line with its recent letter to Level One firms' chairs of the remuneration committees on changes to its supervision of remuneration compliance for Level One firms. The revised documents are available on the PRA's 'Strengthening accountability' webpage under 'Self-assessment templates and tables'.

Financial crime

Council of the EU adopts negotiating position on law enforcement access to financial information

Following the European Commission’s April 2018 proposal for a directive to strengthen the legal framework from the point of view of law enforcement co-operation, to make sure the competent authorities can have timely access to the necessary information to prevent and investigate serious crime and terrorism, EU ambassadors agreed the Council of the EU's negotiating position on a directive laying down the rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences.

ECB steps up focus on thwarting money laundering

The ECB will set up a new anti-money laundering (AML) authority to help tackle the stream of scandals across its member states, bank Chief Supervisor Daniele Nouy said Tuesday. The ECB’s supervision arm—the Single Supervisory Mechanism will create a dedicated AML network, or office, to share information, ensure that alleged misconduct is speedily reported and help its members pursue suspected criminals, Nouy said. The ‘AML office’ will have three roles: to act as single point of entry for the exchange of AML information between the ECB and AML authorities; to set up a dedicated network of watchdogs sharing information on the matter and; to ‘act as a center of expertise’ on money laundering issues, Nouy told an audience in Brussels on Tuesday.

Head of financial crime department delivers speech on artificial intelligence and financial crime

The head of the FCA Financial Crime Department, Rob Gruppetta, delivered a speech on 19 November 2018 explaining how the FCA takes measured approaches in keeping pace with innovation to combat financial crime. Gruppetta also highlighted that the FCA published aggregated results from the first annual financial data return and how the data and algorithms are improving the FCA’s supervisory approach by focusing on where the risk is greatest.

Europol and Diebold Nixdorf sign Memorandum of Understanding

Europol and Diebold Nixdorf signed a Memorandum of Understanding on 16 November 2018 in The Hague. The agreement will see Diebold Nixdorf, a global provider of self-service transaction systems and point-of-sale technology, share threat intelligence and best practices with Europol’s European Cybercrime Centre (EC3). EC3 was created in 2013 to improve responses of law enforcement to cybercrime and facilitate joint identification, prioritisation, preparation and initiation of cross-border investigations and operations by its partners.

Enforcement and redress

FCA issues prohibition orders against two insider dealers

The FCA issued prohibition orders against two convicted insider dealers. In separate final notices, the FCA said that Martyn Dodgson and Andrew Hind were not fit and proper to perform any function in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm, as their conduct demonstrated a clear and serious lack of honesty, integrity and reputation.

Treasury Committee chair voices concerns over scope of FOS' case review

In correspondence published between the chair of the Treasury Committee, Nicky Morgan MP, and the chief ombudsman and chief executive of the Financial Ombudsman Service (FOS), Caroline Wyman, Ms Morgan expressed concerns about the FOS' review into cases made during the early phases of its reorganisation in 2016. Ms Morgan wrote to express the Committee's concerns that the FOS's two-stage review would focus too much on the process of how cases were investigated and not on whether outcomes had been properly decided.

FSCS outlines long-term strategy and priorities

The Financial Services Compensation Scheme (FSCS) published its strategy for the 2020s, identifying the challenges of the coming decade and its priorities in meeting those challenges. The document sets out four strategic priorities for the next few years:

  • the FSCS must be able to protect consumers in a crisis or in the event of major failures to maintain public confidence and financial stability
  • the FSCS is known and trusted for protection that puts people back on track through outstanding customer experience
  • the full range of FSCS protection is known about and trusted, and
  • the FSCS collaborates with its regulatory and industry stakeholders to help prevent future failures and to reduce compensation costs

Report offers recommendations to address SMEs’ denial of justice in financial services disputes

The Centre for Policy Studies published a report on the issue of small to medium-sized enterprises (SMEs) being increasingly denied access to justice in financial services disputes. At present the only recourse for SMEs attempting to seek independent resolution of a financial dispute, is to complain to the FOS or go to court. The report states that the jurisdiction and powers of the FOS are limited, and litigation is costly and sluggish. The Centre for Policy Studies recommends that the rights of action under section 138D of the Financial Services and Markets Act 2000 should be expanded to incorporate SMEs and the establishment of a new Financial Services Tribunal for the resolution of financial disputes.

CMA investigation: Investigation opened into suspected anti-competitive practices in the financial services sector

On 16 November 2018, the Competition and Markets Authority (CMA) announced it is investigating suspected anti-competitive arrangements in the financial services sector which may infringe Chapter I of the Competition Act 1998 and/or Article 101 of the Treaty on the Functioning of the European Union (TFEU). The CMA and the FCA have concurrent functions to enforce competition law infringements in the financial services sector. It was agreed (pursuant to regulation 4 of the Competition Act 1998(Concurrency) Regulations 2014) that the CMA will exercise those functions in relation to this investigation.

CMA publishes responses to investment consultants market investigation consultation and working paper

The CMA published the responses to its market outcomes working paper and consultation paper on draft definitions of 'investment consultancy services' and 'fiduciary management services' for the purposes of potential remedies with regard to its market investigation into the supply and acquisition of investment consultancy and fiduciary management services in the UK.

Markets and trading

ESMA publishes first annual report on sanctions and other measures under MAR

The European Securities and Markets Authority (ESMA) published its first annual report concerning administrative and criminal sanctions as well as other administrative measures issued by national competent authorities (NCAs) under the Market Abuse Regulation (MAR). The report provides an overview of the legal framework and information on the sanctions imposed from 3 July 2016 to 31 December 2017.

FSB publishes 2018 resolution report and consults on resolution of CCPs

The Financial Stability Board (FSB) published its 2018 resolution report, ‘Keeping the pressure up’, and also launched for public consultation a discussion paper on financial resources to support central counterparty (CCP) resolution and on the treatment of CCP equity in resolution. Consultation responses are sought by 1 February 2019.

Report on incentives to centrally clear derivatives finds G20 reforms broadly working

The FSB, the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a final report on the effects of the G20 financial regulatory reforms on the incentives to centrally clear OTC derivatives. The report concludes that the reforms particularly capital requirements, clearing mandates and margin requirements for non-centrally cleared derivatives are achieving their goals of promoting central clearing, especially for the most systemic market participants. The FSB also published its thirteenth progress report on implementation of the OTC derivatives market reforms and an update on trade reporting legal barriers.

FSB evaluates impact of financial regulatory reforms on infrastructure finance

The FSB published its final report on the Evaluation of the effects of financial regulatory reforms on infrastructure finance, following public consultation earlier in 2018. The report concludes that the effect of the G20 reforms on infrastructure finance was of a second order relative to factors such as the macro-financial environment, government policy and institutional factors.

IOSCO publishes updated survey on regulation of commodity derivatives

IOSCO published an update to its survey on the principles for the regulation and supervision of commodity derivatives markets, which shows that IOSCO members are broadly compliant with the IOSCO principles. IOSCO published the principles in 2011 to help ensure that commodity derivatives markets are able to facilitate price discovery and hedging activity while avoiding manipulation and abusive trading.

BoE and FCA appoint new Sterling Risk Free Reference Rates Working Group chair

The BoE and the FCA appointed a new chair of the Sterling Risk Free Reference Rates Working Group. Tushar Morzaria will take over from François Jourdain, who was chair since the Group was formed in 2015 to implement the Financial Stability Board's recommendation to develop alternative risk-free rates for use instead of Libor-style reference rates.

BoE writes to UK firm compliance officers—internalised settlement reporting under CSDR

The BoE wrote to compliance officers of UK firms requesting they confirm whether or not their firms will be captured by the upcoming obligation to report settlement internalisation, which will come into effect in July 2019 under Article 9 of the Central Securities Depositories Regulation (Regulation (EU) 909/2014) (CSDR). Compliance officers should respond by 31 December through the short survey provided by the BoE. The letter includes an annex setting out the format for making such reports and reminds firms to ensure that IT systems are in place to facilitate the transmission of reports to the BoE.

ESMA tutorial on ESEF

ESMA published the script of its video tutorial on the European Single Electronic Format (ESEF). ESEF is the electronic reporting format in which issuers of securities traded on EU regulated markets will be required to prepare their annual financial reports from 1 January 2020.

ISDA briefing on the need to extend the transition period of the Benchmark Regulation

The International Swaps and Derivatives Association (ISDA) published a briefing that it produced with three other trade associations—namely the Global Financial Markets Association (GFMA), the Futures Industry Association (FIA) and the Emerging Markets Traders Association (EMTA) which requests EU policymakers to extend the transition period of the Benchmark Regulation for critical and non-critical benchmarks due to significant negative implications for financial stability in European and global financial markets and competitive disadvantages for European companies.

ISDA video explains online IM documentation tool

ISDA published a video which explains ISDA Create–IM, the new online tool that will allow firms to electronically negotiate and execute initial margin (IM) documentation. The video explains the challenges market participants face in manually negotiating IM documents, and highlights the benefits of ISDA Create–IM. The IM module is the first step in a broader push to make ISDA documentation available online through ISDA Create, ISDA's new digital documentation platform.

FIA President and Chief Executive Officer calls for CFTC and SEC regulatory coordination

President and Chief Executive Officer of the FIA, Walt L Lukken wrote a letter to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) proposing areas in which the SEC and the CFTC could co-ordinate and harmonise their regulatory programmes. Lukken expresses that the proposals will clarify regulated markets and decrease unnecessary costs for regulators and market participants.

Regulation of capital markets

PRA policy statement on new EU securitisation framework and Significant Risk Transfer

The PRA published a Policy Statement entitled 'Securitisation: The new EU framework and Significant Risk Transfer' (PS29/18). This provides feedback to responses to PRA CP 12/18 'Securitisation: The new EU framework and Significant Risk Transfer'. It also contains the PRA's final policy, as follows: final Supervisory Statement SS10/18 'Securitisation: General requirements and capital framework' (Appendix 1); updated SS9/13 'Securitisation: Significant Risk Transfer' (Appendix 2); and updated SS31/15 'The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)' (Appendix 3).

Investment funds and asset management

IOSCO seeks feedback on proposed framework for assessing leverage in investment funds

The Board of IOSCO is requesting feedback on a proposed framework to help measure leverage used by investment funds which in some circumstances could pose financial stability risks. The proposed framework, outlined in the IOSCO report: Leverage (CR08/2018), comprises a two-step process aimed at achieving a meaningful and consistent assessment of global leverage. Comments should be submitted by 1 February 2019.

LEI ROC publishes second consultation document on fund relationships in the global LEI system

The Legal Entity Identifier Regulatory Oversight Committee (LEI ROC) published its second consultation document on fund relationships in the global LEI system. The consultation document proposes a limited update to the way relationships affecting funds are recorded in the Global LEI System (GLEIS), with the aims of ensuring that the implementation of relationship data is consistent throughout the GLEIS and providing a means to facilitate a standardised collection of fund relationship information at the global level.

AIC responds to proposal to delay KIDs by two years for UCITS funds

The Association of Investment Companies (AIC), the trade body which represents the interests of the investment trust industry called for key information documents (KIDs) to be suspended for all investment products as a result of the European Commission indicating that it supports a delay in the implementation of KIDs for Undertakings for Collective Investment in Transferable Securities (UCITS) funds for two years.

Banks and mutuals

FSB publishes 2018 G-SIBs list

The FSB published the 2018 list of global systemically important banks (G-SIBs), using end-2017 data and an assessment methodology designed by the BCBS. Groupe BPCE was added to the list, while Nordea and Royal Bank of Scotland have been removed, decreasing the overall number of G-SIBs from 30 to 29. The BCBS also published further information related to its 2018 assessment of G-SIBs, including additional details to help understand the scoring methodology.

FSB reports set out updated data and measures to address the decline in correspondent banking

The FSB published two reports on its work to assess and address the decline in correspondent banking relationships. The first contains updated data on trends in correspondent banking relationships using data provided by SWIFT as of end-2017. The second is a progress report on the FSB’s four-point action plan to assess and address the decline in correspondent banking that will be delivered to the G20 Summit.

FCA publishes research on current account prompts

The FCA published 'Personal and business current account prompt pilot findings', a report prepared for the FCA by Critical Research and Accent Research. Prompts are used by banks and building societies to increase consumers' engagement with their current account, raise awareness of the current account switching service, and highlight developments in the retail banking market. The aim of the report is to help firms to design effective prompts that work in practice.

UK Finance: industry delivers commitment on service information for customers

UK Finance announced that from 15 November consumers will be able to compare clearer and more consistent information about the additional services current account providers offer customers, including those in potentially vulnerable circumstances, after a voluntary commitment made by the finance industry comes into action.

Consumer credit, mortgage and home finance

FCA says some motor finance firms are in breach of financial promotions rules

The FCA said that its financial promotions team learned that some motor finance firms are not complying with the FCA's rules in chapter 3 of the Consumer Credit sourcebook (CONC 3), which deal with financial promotions and communications with customers. This is particularly in relation to posts on social media platforms such as Facebook, Twitter and Instagram.

UK Finance responds to Treasury Committee letter on trapped borrowers and UK Asset Resolution

UK Finance responded to a letter from the economic secretary to the Treasury, John Glen MP, to the Treasury Committee on ‘mortgage prisoners’, which states that ‘exploring solutions’ for customers with inactive lenders is a top priority. Jackie Bennett, director of mortgages at UK Finance, responded to say UK Finance strongly supports the government’s commitment to explore potential solutions for customers who have mortgages with inactive and unregulated lenders.

Payment services and systems

BoE collaborate with BoC and MAS on cross-border interbank payments and settlements report

The report ‘Cross-border interbank payments and settlements’ is a cross-jurisdictional industry collaboration between the Bank of Canada (BoC), the Monetary Authority of Singapore (MAS) and the BoE, in addition to participating financial institutions, to examine the existing challenges and frictions that arise when undertaking cross-border payments. The report explores proposals for new and more efficient models for processing cross-border transactions.

PSR consults on proposed amendments to retained IFR RTS

The Payment Systems Regulator (PSR) is consulting on its proposed amendments to the retained regulatory technical standards regulation (RTS Regulation) adopted under Article 7 of the EU IFR for onshoring purposes. The amendments are designed to ensure the RTS Regulation can still operate effectively once the UK leaves the EU and that it is consistent with the changes made by the Treasury in the draft Interchange Fee (Amendment) (EU Exit) Regulations 2018 SI (the draft SI) onshoring the retained IFR. Feedback is sought by 17 December 2018.

PSR responds to third ATM Footprint Report from LINK

The PSR published its response to the third 'footprint report' of the UK's largest cash machine network, LINK, on access to cash points. LINK's latest figures show that in September several free-to-use (FTU) ATMs in more remote areas ('protected' ATMs—ie those 1km or more away from another FTU machine) were withdrawn from service by the companies providing them. The PSR previously noted concerns about closures of FTU ATMs, particularly 'protected' ones, and reiterated these concerns and is receiving regular updates from LINK's senior team to ensure it delivers on its commitments to protect the broad spread of FTU ATMs.

World Payments Report 2018: key findings

The European Payments Council published an interview with Christophe Vergne, Payment and World Payments Report leader at Capgemini Financial Services, to discuss the findings of the World Payments Report 2018, which Capgemini recently prepared in conjunction with BNP Paribas. The report provides an analysis of the development of the new payment landscape based on executive interviews and online surveys.

Insurance and pensions

European Court of Auditors highlights shortcomings in EU insurance supervision

The European Court of Auditors (ECA) said in a special report that the European Insurance and Occupational Pensions Authority (EIOPA) made an 'important contribution to a common supervisory culture and financial stability in the insurance sector'. However, it also acknowledged that significant challenges remain. In a statement, EIOPA said that it welcomed the ECA's report, in particular its recognition of EIOPA's contribution. It said that it took note of the findings, recommendations and corresponding target dates made by the ECA and will keep the ECA informed of the progress in implementing the recommendations.

EIOPA assesses supervisory practices and application of key functions through peer review

EIOPA published the findings of its peer review assessing how NCAs supervise and determine whether an insurer's set­ting of key functions fulfils the legal requirements of Solvency II, with a particular emphasis on proportionality. The review examines practices regarding:

  • combining key functions under one holder
  • combining key functions with administrative, management or supervisory body (AMSB) membership or with carrying out operational tasks
  • subordination of one key function under another key function
  • split of one key function among several holders
  • assessment of the fitness of key function holders, and
  • outsourcing of key functions

EIOPA publishes new Q&As

EIOPA updated its Q&As with guidelines on the submission of information to the supervisory authorities, Solvency II, and treatment of related undertakings, including participations.

IAIS publishes draft revised ICP 8 and updated ICPs

The International Association of Insurance Supervisors (IAIS) published a draft revised insurance core principle (ICP) 8 on risk management and internal controls, together with an updated document containing current versions of all the ICPs. The draft revised ICP 8 was endorsed by the IAIS executive committee and was published for information purposes only. It is subject to further changes before being presented for adoption by the general membership at the 2019 annual general meeting.

IAIS announces details of conference calls

The IAIS will hold a public background session on the holistic framework for systemic risk in the insurance sector on 29 November 2018. The purpose of the session is to present the consultation document and to provide an opportunity for stakeholders to give initial feedback on the holistic framework and its key elements. The call will take place on 29 November 2018, from 14.00–15.30 CET (Basel time). The IAIS will also be holding a teleconference for the Accounting and Auditing Working Group, on 5 December 2018.

IASB votes to propose one-year IFRS 17 delay

The International Accounting Standards Board (IASB) voted to propose a one-year deferral of the effective date for IFRS 17, the new insurance contracts standard, to 2022. The IASB also decided to propose extending to 2022 the temporary exemption for insurers to apply the financial instruments standard, IFRS 9, so that both IFRS 9 and IFRS 17 can be applied at the same time. The proposed deferral is subject to public consultation, which is expected in 2019.

Association of British Insurers and National Employment Savings Trust announce partnership

The Association of British Insurers (ABI) announced a new partnership with the National Employment Savings Trust (NEST), aiming to further the existing relationship between the two bodies. The ABI and NEST, the government-established workplace pension scheme, have already worked together on key issues affecting the long-term savings industry, including the development of auto-enrolment and the pensions dashboard.

Fintech and virtual currencies

ESMA executive director Verena Ross discusses the regulatory response to FinTech

The Executive Director of ESMA, Verena Ross, a speech at the FinPulse Regulatory Summit entitled ‘New Financial Technologies and Regulation’. Ms Ross discusses the opportunities and challenges arising from financial technology and its use in the securities sector, from the point of view of the regulator. Her focus includes binary options, crowd funding, distributed ledger technology (DLT) and crypto-assets.

CPMI chair Benoît Cœuré on the new frontier of payments and market infrastructure: cryptos, cyber and CCPs

Mr Benoît Cœuré, chair of the CPMI and member of the executive board of the ECB gave a speech regarding the new frontier of payments and market infrastructure, on cryptos, cyber-resilience and CCPs at the Economics of Payments IX conference, Basel on 15 November 2018.

FCA’s Christopher Woolard on the rise of crypto-assets and the regulatory response

The FCA published a speech by its executive director of strategy and competition, Christopher Woolard, looking at the growth, benefits and risks of crypto-assets. Mr Woolard summarised the work of the crypto-assets taskforce, formed by the FCA, HM Treasury and the Bank of England, which delivered its final report in October 2018. The report concluded that there are examples of crypto-assets and other applications of DLT delivering beneficial innovation in financial services, but there are also three major harms: to consumers, to market integrity and the risk of financial crime.

BoE’s James Proudman on AI in financial services

The BoE published a speech by its executive director for UK deposit takers, James Proudman, which explores the impact of artificial intelligence (AI), advanced analytics and the extent to which the development of advanced analytics changes the risks to the safety and soundness of the firms the BoE supervises. Mr Proudman discussed how the BoE is itself starting to apply this technology, and described an ongoing project using advanced analytics to understand the complexity of the PRA rulebook.

Sustainable finance

ECON publishes amends to proposal on sustainable investment

ECON published a draft report on the European Commission proposal for a Regulation on the establishment of a framework to facilitate sustainable investment. Deletions are indicated in bold italics in the left-hand column. Replacements are indicated in bold italics in both columns. New text is indicated in bold italics in the right-hand column.

Mark Carney on how financial services can respond to climate change

The governor of the BoE, Mark Carney, gave a speech on the financial risks from climate change and sustainable investment at the Accounting for Sustainability Summit 2018. Mr Carney said the human costs of severe weather events was immeasurable, but the financial costs are also significant, and warned that the longer meaningful adjustment is delayed, the more transition risks will rise.

Dates for your diary

Date Subject Event
26 November 2018 Markets and trading Effective from 26 November 2018, ISDA 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.
27 November 2018 Banking and credit institutions 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 Directive 2014/59/EU of the European Parliament and of the Council, and repealing Commission Implementing Regulation (EU) 2016/1066 shall enter into force on this day.
27 November 2018 Prudential requirements Deadline for responses to EBA consultation papers:

27–28 November 2018 Pensions The FCA and The Pensions Regulator (TPR) are to hold a joint TechSprint in Edinburgh on 27 and 28 November 2018. The event will challenge participants to come up with innovative approaches to help consumers engage with and navigate their pension options.
28 November 2018 Prudential requirements The BoE announced that the Financial Stability Report and the full results of the BoE’s annual stress test of major UK banks, will be published at 07.00hrs on 28 November 2018.
28–29 November 2018 Regulatory architecture The EBA’s seventh policy research workshop will take place in London on these dates.
29 November 2018 Insurance A public background session will be held via teleconference on 29 November 2018 to discuss the IAIS’ public consultation on a draft Holistic Framework for Systemic Risk in the Insurance Sector.
29–30 November 2018 Foreign Exchange The results of a GFXC survey, to measure awareness and adoption of the FX Global Code among market participants, launched in October 2018 will be considered at its next meeting, which will take place on 29-30 November 2018 in Paris.

Area of Interest