Weekly highlights—13 December 2018

14 Dec 2018 | 45 min read

Brexit

 

Banking will suffer under all Brexit scenarios—MPs say

The financial services sector will contribute less to Britain's economy under all Brexit scenarios set out by the government, a panel of lawmakers said on Tuesday, warning that the country's regulators will lose their voice in forming policy during a transition period after March 29. The House of Commons Treasury Committee said that all possible outcomes for financial services after Britain leaves the European Union—predicted by the government in a policy paper in July—would ‘contribute less gross value added’ than under existing arrangements.

Brexit pushes BoE to delay cyber stress-test plans

The Bank of England (BoE) agreed to delay work on its first test of how banks respond to cyberattacks and IT failures to allow them to focus on preparing for Brexit, records published Wednesday reveal. The central bank’s financial policy committee (FPC) agreed to push back part of a project launched after a series of information technology glitches and meltdowns hit banks and payment systems. The stress tests are on hold until the first half of 2019, according to minutes of the FPC’s most recent meetings. Lenders were due to set out for the BoE by the end of the year how they would prepare for a serious cyberattack or technical outage which could disrupt services, such as the major meltdown at TSB PLC in April, which justify thousands of customers without access to their money or accounts. But the committee decided to push this back to 2019.

Bank of England (Amendment) (EU Exit) Regulations 2018

SI 2018/1297: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This enactment is being made in order to address deficiencies in UK domestic law arising from the UK’s withdrawal from the EU. Amendments made through this SI ensure that the constitution, responsibilities and functions of the BoE continue to be clearly defined after exit day in a no-deal scenario. Certain definitions and activities in primary and secondary legislation cross-refer to current EU legislation which will become deficient once the UK withdraws from the EU. This instrument makes consequential amendments in line with changes in the versions of these EU regulations which will become retained EU law. Without this instrument, aspects of existing legislation in relation to the BoE’s constitution and functions would not be operable after exit. It comes into force on exit day.

Short Selling (Amendment) (EU Exit) Regulations 2018

SI 2018/1321: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This enactment amends UK primary legislation and EU retained legislation in order to address deficiencies in retained EU law in relation to short selling, the selling of securities which are either borrowed or not owned by the seller, arising from the withdrawal of the UK from the EU. This ensures that the legislation continues to operate effectively at the point at which the UK leaves the EU. It comes into force on exit day unless the UK enters an implementation period (updated from draft on 7 December 2018).

Central Securities Depositories (Amendment) (EU Exit) Regulations 2018

SI 2018/1230: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This enactment amends and repeals UK legislation and retained EU legislation in relation to central securities depositories (CSDs), financial market infrastructures (FMIs) which keep a record of who owns individual securities, such as shares or bonds, in order to ensure the UK retains an operative regulatory framework for CSDs post exit. It comes into force partly on 7 December 2018 and fully on exit day (updated from draft on 7 December 2018).

Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018

SI 2018/1318: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This enactment amends EU European Markets Infrastructure Regulation (EU) 648/2012 on over the counter (OTC) derivatives, central counterparties (CCPs) and trade repositories in relation to the registration and supervision of trade repositories. Trade repositories are entities which collect and maintain the records of derivatives transactions to enhance the transparency of derivative markets and promote financial stability. Transitional provisions are also made. These Regulations will come into force partly on 7 December 2018 and fully on exit day (updated from draft on 7 December 2018).

Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018

SI 2018/Draft: This draft enactment is laid in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment proposes to amend UK legislation and retained EU legislation in relation to OTC derivatives, CCPs and trade repositories in order to ensure the legislation continues to operate effectively, and address deficiencies in retained EU legislation arising from the withdrawal of the UK from the EU. In relation to pensions, the draft enactment amends the European Market Infrastructure Regulation (EMIR) (being retained direct EU legislation) to ensure that a UK occupational pension scheme continues to be a 'financial counterparty' under EMIR following Brexit.

Market Abuse (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 enactment is being laid in order to address deficiencies in retained EU law in relation to market abuse arising from the withdrawal of the UK from the EU. This draft instrument amends retained EU law relating to market abuse, including the EU Market Abuse Regulation 596/2014 (MAR), the tertiary legislation made under MAR, and the UK legislation which complemented MAR, to ensure that the relevant legislation continues to operate effectively at the point at which the UK leaves the EU in the event of a no-deal scenario.

AFME and A&O paper on Brexit: Recognition of Resolution Actions

The Association for Financial Markets in Europe (AFME) together with Allen & Overy published a paper 'Brexit: Recognition of Resolution Actions' which considers the implications of the UK's withdrawal from the EU on the continued eligibility of English law governed capital and debt instruments issued by the EU27 banks to meet loss-absorbing capacity requirements.

ISDA responds to first FCA consultation paper on Brexit (CP18/28)

The International Swaps and Derivatives Association (ISDA) responded to the first Financial Conduct Authority (FCA) consultation paper on Brexit: Proposed changes to the Handbook and Binding Technical Standards (CP18/28). ISDA focussed on identifying specific challenges in implementing the onshored transaction reporting regime. Given the implementation challenges, ISDA asked the FCA for a period of forbearance after 29 March 2019 from the proposed transaction reporting changes. It says that its members will seek to comply on a best efforts basis.

CLLS and Law Society respond to FCA CP18/28

The Company Law Committees of the City of London Law Society (CLLS) and the Law Society published their joint response to FCA CP18/28 on Brexit: proposed changes to the Handbook and Binding Technical Standards, published in October 2018.

Philip Hammond speech at Bloomberg Global Regulatory Forum

The government published a speech given by Chancellor of the Exchequer Philip Hammond at the Bloomberg Global Regulatory Forum in London, in which he discussed the opportunities and challenges in the global economy with a focus on the UK, and the government’s plans for the UK to remain an international centre of finance and commerce post-Brexit.

Court of Justice says UK’s Article 50 notice of intention to leave EU can be unilaterally revoked (Wightman and Others v Secretary of State for Exiting the European Union)

The issue in the case is whether a Member State that notified the EU of its intention to withdraw from the EU under Article 50 of the Treaty on the European Union can change its mind and unilaterally revoke that notification of intention if it chooses to remain in the EU during the period of negotiation. The full Court of Justice said that Article 50 may be unilaterally revoked by the Member State, without needing the consent of the other Member States. This analysis is written by Maya Lester QC, barrister at Brick Court Chambers, who acted for the petitioners (Wightman and others).

 

Financial Conduct Authority updates

 

FCA policy development update for December 2018

The FCA published the latest version of its policy development update, which provides information on its recent and upcoming publications. Future developments include a new consultation on general insurance value measures reporting in 2019. A policy statement on regulatory fees and levies: policy proposals for 2019/20 (CP18/34) is now expected in March 2019, and a policy statement on the FCA's proposed general standards and communication rules for the payment services and e-money sectors (CP18/21) is expected in January 2019.

 

Prudential requirements

 

Basel Committee oversight body finalises Basel III reforms

The Basel Committee on Banking Supervision's (BCBS) oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), endorsed the outstanding Basel III post-crisis regulatory reforms. The revised standards will take effect from 1 January 2022 and will be phased in over five years. The Committee established a programme to evaluate its post-crisis reforms and will actively participate in the Financial Stability Board's efforts to evaluate the effects of reforms.

Basel Committee publishes updated Basel III disclosure requirements

The BCBS published updated Pillar 3 disclosure requirements which, together with the updates published in January 2015 and March 2017, complete Pillar 3 of the Basel Framework. The revised Pillar 3 framework reflects the BCBS's December 2017 Basel III post-crisis regulatory reforms. The Basel III framework is a central part of the Basel Committee's response to the global financial crisis, intended to address shortcomings of the pre-crisis regulatory framework and provide a regulatory foundation for a resilient banking system that supports the real economy.

ECON approves NPL regulation, with amendments

The European Parliament's Committee on Economic and Monetary Affairs (ECON) adopted its report on the European Commission's proposal for a regulation amending the Capital Requirements Regulation (Regulation (EU) 575/2013) as regards minimum loss coverage for non-performing loans (NPLs). ECON recommended a number of changes to the proposal. The Commission's proposal complements the existing prudential rules by requiring a deduction from own funds where NPLs are not sufficiently covered by provisions or other adjustments.

SRB Chair: resolution planning is a process, not a product

Elke König, Chair of the Single Resolution Board (SRB), gave a speech at a public hearing of ECON in which she outlined the SRB’s priorities for 2019 and discussed some policy topics that affect the SRB’s mandate.

FRC consults on guidance for quality bank audits and issues revised auditing standard

The Financial Reporting Council (FRC) issued a consultation on updates to its Practice Note on The Audit of Banks and Building Societies in the United Kingdom. It also issued an International Standard on Auditing Accounting Estimates and Related Disclosures, covering the audit of expected credit losses in banks and which reflects the increased importance and complexity of estimates in financial statements. The FRC strongly supported the development on this standard.

 

Regulatory architecture

 

Council of EU endorses appointment of Andrea Enria as chair of ECB supervisory board

The Council of the EU adopted a decision appointing Andrea Enria as head of the supervisory board of the European Central Bank (ECB). He will hold the position for a period of five years, starting from 1 January 2019. Mr Enria, who currently heads the European Banking Authority (EBA), will replace Danièle Nouy, who was the first ever chair of the single supervisory mechanism.

FCA CP18/37 and CP18/38: proposals for permanent restrictions on binary options and CFDs for retail investors

The FCA published Consultation Paper 18/37: Product intervention measures for retail binary options (CP18/37) and Consultation Paper 18/38: Restricting contract for difference products sold to retail clients and a discussion of other retail derivative products (CP18/38). The consultations propose making the European Securities and Markets Authority's (ESMA) temporary product intervention measures on the provision of contracts for differences (CFDs) and binary options to retail investors permanent in the UK.

 

Authorisation, approval and supervision

 

AFME and UK Finance respond to FCA guidance consultation GC18/4 on SM&CR

AFME published its joint response with UK Finance to the FCA’s guidance consultation 18/4 on statements of responsibilities and responsibilities maps under the Senior Managers and Certification Regime (SM&CR).

 

Risk management and controls

 

EU negotiators agree on new measures to strengthen Europe's cybersecurity

The European Parliament, the Council of the European Union and the European Commission reached a political agreement on the Cybersecurity Act. The Cybersecurity Act reinforces the mandate of the European Union Agency for Network and Information Security (ENISA) to better support EU Member States in tackling cybersecurity threats and attacks and establishes an EU framework for cybersecurity certification to boost the cybersecurity of online services and consumer devices.

ECB board member speaks at Euro Cyber Resilience Board for pan-European Financial Infrastructures

Benoît Cœuré, Member of the Executive Board of the ECB, spoke at the second meeting of the Euro Cyber Resilience Board for pan-European Financial Infrastructures in Frankfurt about the progress that the ECB and the Eurosystem made in enhancing the cyber resilience of the financial sector. According to Mr Cœuré, the Eurosystem cyber strategy for FMIs rests on three pillars: individual FMI resilience, sector resilience and strategic regulator-industry collaboration.

 

Conduct requirements

 

Commission launches review of Distance Marketing Directive

The European Commission launched an evaluation of the Distance Marketing of Financial Services Directive (Directive 2002/65/EC). The Directive aims at ensuring the free movement of financial services in the single market by harmonising consumer protection rules governing this area. It sets out a list of information concerning the financial service and its provider that the consumer should receive before the distance contract is concluded. The evaluation will assess whether the Directive is relevant, effective, efficient and in line with other EU legislation. The deadline for feedback is 4 January 2019.

 

Financial crime

 

ECB issues opinion on amended proposal to extend EBA's AML/CTF supervisory powers

The ECB issued an opinion on the amended proposal for a Regulation amending Regulation (EU) 1093/2010 establishing a European Supervisory Authority—EBA and other EU Regulations. The ECB's opinion is supportive and contains a number of observations on points of detail.

Council of the EU publishes technical working document on ECB opinion on amended proposal to extend EBA's AML/CTF supervisory powers

The Council of the EU published a technical working document on the Opinion of the ECB of 7 December 2018 on an amended proposal for a regulation amending Regulation (EU) 1093/2010establishing the EBA and related legal acts (CON/2018/55).The technical working document contains a table which sets out text of the original proposal put forward by the Commission alongside amendments proposed by the ECB. Bold in the body of the text indicates where the ECB proposes inserting new text. Strikethrough in the body of the text indicates where the ECB proposes deleting text.

FATF—UK AML/CTF regime is robust

The Financial Action Task Force (FATF) published its mutual evaluation report on the UK's anti-money laundering (AML) and counter-terrorist financing (CTF) measures. FATF found that the UK has a robust understanding of its ML/TF risks which is reflected in its public national risk assessments (NRAs), proactively investigates, prosecutes and convicts a range of TF activity, routinely and aggressively identifies, pursues and prioritises ML investigations and prosecutions and, as a global leader in promoting corporate transparency, has a good understanding of the ML/TF risks posed by legal persons and arrangements.

UK Finance responds to FATF report on UK AML/CTF regime

UK finance responded to the FATF’s mutual evaluation report on the UK’s AML and CTF regime, published on 7 December 2018. Stephen Jones, Chief Executive of UK Finance, commented: ‘The UK should always strive to be the safest and most transparent place for financial services firms to do business. This evaluation report clearly recognises the UK’s role as a global leader in the fight against money laundering, which is underpinned by innovative public private partnerships such as the Joint Money Laundering Intelligence Taskforce'.

Government announces new measures to tackle international money laundering

The government published its response to the consultation on the reform of Limited Partnership law, announcing new measures aimed at increasing transparency and preventing the abuse of limited partnerships. Scottish Limited Partnerships (SLP) and Limited Partnerships (LP) are used by many legitimate British businesses particularly the private equity and pensions industry which invests over £30bn in the UK. However, due to corruption and money laundering concerns, the government introduced new laws and requirements designed to make it harder to abuse them.

 

Enforcement and redress

 

FCA prosecution: Manraj Virdee pleads guilty to illegally operating an investment scheme and fraud

In a case brought by the FCA, Manraj Virdee pleaded guilty at Southwark Crown Court to four charges encompassing illegal operation of an unauthorised investment scheme, misleading consumers, and two related counts of fraud and will be sentenced at a date to be confirmed in due course. The FCA alleges that, between October 2015 and November 2017, Mr Virdee, through a company called Dynamic UK Trades Ltd, promoted a deposit taking scheme, marketed as an 'investment package' without authorisation from the FCA. The FCA alleges he received approximately £600,000 in investment funds and misled investors.

 

Markets and trading

 

European Commission adopts Delegated Regulation under MiFIR relating to systematic internalisers' quote obligations

The European Commission adopted a Delegated Regulation amending Commission Delegated Regulation (EU) 2017/587 under the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014 (MiFIR) to specify the requirement for prices to reflect prevailing market conditions and to update and correct certain provisions. MiFIR introduced pre-trade and post-trade requirements on regulated markets and multilateral trading facilities offering trading in shares and on systematic internalisers in shares traded on a trading venue. It also introduced post-trade transparency requirements on investment firms for shares traded on a trading venue.

ECON publishes report on proposed regulation to promote SME growth markets

ECON published its report on the European Commission's proposal for a regulation amending MAR and Regulation (EU) 2017/1129 (the Prospectus Regulation) as regards the promotion of the use of SME growth markets. The report was adopted on 3 December 2018 and makes a number of changes to the Commission's proposal. The Committee also decided to open interinstitutional negotiations with its report, which was tabled for plenary in the European Parliament on 7 December 2018.

FCA quarterly consultation includes proposal to recognise FX Global Code

The FCA published its latest quarterly consultation paper (CP18/39), with proposed miscellaneous amendments to the FCA Handbook. Proposals include recognising the FX Global Code and the UK Money Markets Code, and changes to 'Firm Details' reporting requirements in the Supervision manual. Feedback is sought by 6 February 2019.

​BoE executive urges buy-side to buy into the FX Global Code

Andrew Hauser, Executive Director for Markets at the BoE, outlined the progress made on developing and embedding the FX Global Code in a speech given at London FX Hive Live. Mr Hauser noted that one of the top priorities of the Global FX Committee (GFXC) for the coming year is to strengthen buy-side adoption of the Code. He also offered responses to four common concerns of the buy-side.

Industry bodies ask for clarity on temporary equivalence and recognition for UK CCPs

ISDA, Futures Industry Association (FIA), AFME and International Capital Markets Association (ICMA) (the Associations) wrote to Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, Financial Stability, Financial Services and Capital Markets Union, urgently requesting that the Commission publish its proposed temporary equivalence determination for the UK (together with any conditions) and, in turn, procure that ESMA confirms that the three UK CCPs are each recognised under EMIR, on the condition that the UK leaves the European Union at the end of 29 March 2019 (CET) without a transition period coming into effect at the point of leaving and that the proposed temporary regime is implemented.

ISDA requests forbearance on reporting historical derivatives contracts under EMIR

ISDA published a letter to ESMA in which ISDA asked for forbearance on the reporting of historical derivatives contracts in the event that the proposed amendment to EMIR (proposed by the European Commission in May 2017 in the context of its Regulatory Fitness and Performance (REFIT) programme) is not published in the Official Journal and in effect before 12 February 2019.

ISDA letter to Commission welcomes proposed RTS extending the deferred dates of application of the clearing obligation transactions

ISDA wrote a  letter to the European Commission in which it expresses support for the ESMA’s final report on the clearing obligation under EMIR, proposing an extension to 21 December 2020 of the deferred dates of application of the clearing obligation to intragroup transactions. ISDA asks the Commission to endorse ESMA’s proposed regulatory technical standards (RTS) without amendments while also calling for actions regarding the need for regulatory forbearance.

ISDA publishes its 2018 Benchmarks Supplement Protocol

ISDA published its 2018 Benchmarks Supplement Protocol, which is intended to help market participants incorporate the ISDA Benchmarks Supplement into their interest rate, foreign exchange, equity and commodity derivatives transactions. The ISDA Benchmarks Supplement, published in September 2018, was developed primarily to ensure that certain contracts reflect the actions parties will take if a referenced benchmark is materially changed or ceases to be provided, as required by the EU Benchmarks Regulation (EU) 2016/1011.

ISDA publishes paper on key trends in OTC derivatives markets

ISDA published a research paper that analyses recent trends in the size and composition of OTC derivatives markets, using the latest data from the Bank for International Settlements (BIS) and ISDA.

ICMA report finds that MiFID II regime has yet to deliver for bond markets

ICMA published a report on the impacts and challenges of the recast Markets in Financial Instruments Directive (MiFID II) and MiFIR for the international bond market since they came into effect. The report concludes that the European bond markets are still waiting to experience the benefits of the new regime.

FIA releases guidelines for simplified execution source code

The FIA, together with its affiliate FIA Tech, announced new technical guidelines for firms to properly identify the correct brokerage when executing and clearing exchange traded derivatives. The guidelines reflect common industry practice regarding different types of execution, providing both a simple model (‘high touch’ and ‘low touch’) and a more complex model including sponsored access, third-party trading screens, and third-party premium algorithmic trading providers. Firms can implement the guidelines within vendor solutions to identify the correct brokerage rate at point of origin to ensure timely and accurate settlement.

Recent CFTC meeting focused on clearinghouse risks, FIA reports

The FIA published a special report on a public meeting held by the U.S. Commodity Futures Trading Commission (CFTC) of its Market Risk Advisory Committee (MRAC) on 4 December 2019 in Washington, D.C. The MRAC discussed, among other issues, clearinghouse risk management, governance and clearing incentives, and explored the challenges of balancing the interests of clearinghouses, their members and end-users. The CFTC also announced the launch of a subcommittee on interest rate benchmark reform.

GLEIF publishes beta version of new LEI search tool and invites comments

The Global Legal Entity Identifier Foundation (GLEIF) published the beta version of its new Legal Entity Identifier (LEI) search tool 2.0, which market participants can use to find information on over 1.3 million organisations within the public LEI data pool. The new tool, entitled LEI Search 2.0 Beta, is available on the GLEIF website and allows users to search (free of charge and without the need to register) by LEI, legal name, regulated status, entity status or country. The GLEIF invited stakeholders to comment on the beta version of the new tool by 30 June 2019.

CCP 12 publishes primer on initial margin

CCP12, the global association of CCPs whose 35 members operate more than 50 individual CCPs across Europe/Middle East/Africa, the Americas and the Asia-Pacific region, published ‘Primer on Initial Margin – A CCP12 White Paper’. The aim of the White Paper is to provide background and context on CCPs' initial margin requirements.

 

Regulation of capital markets

 

EBA publishes final guidelines on the STS criteria in securitisation

The EBA published its final Guidelines under the Securitisation Regulation, which will provide a harmonised interpretation of the criteria for the securitisation to be eligible as simple, transparent and standardised (STS) on a cross-sectoral basis throughout the EU. These Guidelines will play a crucial role in the new EU securitisation framework that becomes applicable on 1 January 2019, by providing a single point of consistent interpretation of the STS criteria for all entities involved in the STS securitisation including originators, sponsors, investors, competent authorities and third-party STS verifiers.

 

Investment funds and asset management

 

ECON tables report on cross-border distribution of funds proposal

ECON published its report on the European Commission’s proposal for a regulation on facilitating cross-border distribution of collective investment funds. The report was adopted on 3 December 2018 and makes a number of changes to the Commission’s proposal. The Committee also decided to open interinstitutional negotiations with its report, which was tabled for plenary in the European Parliament on 6 December 2018.

ESMA publishes responses to its consultation on stress testing guidelines for MMFs

ESMA published the responses it received to its consultation paper on draft guidelines on stress test scenarios under the Money Market Funds (MMF) Regulation (EU) 2017/1131 (the MMF Regulation). The consultation requested views on certain aspects of the stress testing guidelines required to be provided by ESMA under the MMF Regulation, to give managers of MMFs the information they need to fill in certain fields of the reporting template mentioned in Article 37 of the MMF Regulation.

FCA proposes changes to facilitate investment in patient capital

The FCA published consultation paper 18/40 (CP18/40): Consultation on proposed amendment of COBS 21.3 permitted links rules, the purpose of which is to further enable retail investors to invest in patient capital through unit-linked funds. The FCA also published discussion paper 18/10 (DP18/10): Patient Capital and Authorised Funds, which explores how UK authorised funds can be used to invest in patient capital.

CMA publishes final report on its investigation of investment consultancy and fiduciary management services and FCA issues response

The Competition and Markets Authority (CMA) published the final report and remedies for its market investigation of investment consultancy and fiduciary management services. Investment consultancy and fiduciary management are important services for their main customers, pension scheme trustees, helping them to manage over £1.6trn of investments on behalf of scheme members. The CMA found that there is an adverse effect on competition in the investment consultancy market and the fiduciary management market from which substantial customer detriment may be expected to result. The FCA issued a press release welcoming the report.

Trade group calls for ‘real solutions’ to disclosure rules

Europe’s top financial regulators must ditch a superficial ‘quick fix’ to unpopular disclosure rules for investment products and instead find ‘real solutions’ that will benefit consumers, the bloc’s insurers said on Monday, as they added to growing resistance to the regulation. Insurance Europe, a lobby group, called on the European Supervisory Authorities (ESAs) to conduct a thorough assessment of how well so-called key information documents (KIDs) are providing vital data to help Europe’s consumers make investment choices. Testing how well these documents are working will allow the authorities to propose effective changes, Insurance Europe said.

AIC calls for FCA to protect investors in non-UCITS funds following confirmed two-year delay of KIDs rules for UCITS funds

The Association of Investment Companies (AIC) called on the FCA to protect consumers, following the European Parliament's decision to delay the requirement for undertakings for collective investment in transferable securities (UCITS) to produce a KID under the Packaged Retail and Insurance-based Investment Products (PRIIPs) rules. The AIC is concerned that KIDs contain misleading information due to failings in the PRIIPs rules, but they must still be produced by non-UCITS funds.

 

Banks and mutuals

 

Financial Services (Banking Reform) Act 2013 (Commencement No 12) Order 2018

SI 2018/1306: Certain provisions of the Financial Services (Banking Reform) Act 2013 (FS(BR)A 2013) relating to the ring-fencing regime that are not already in force in the UK, will come into force on 1 January 2019. The ring-fencing regime applies to ring-fenced bodies, which are UK institutions that fall within the definition in section 142A of the Financial Services and Markets Act 2000. The coming into force of the provisions of FS(BR)A 2013 set out in this Order will enable the ring-fencing regime to take effect.

ECB adopts Regulation amending the MMSR Regulation

The ECB adopted a Regulation (ECB/2018/33) (the Amending Regulation) amending Regulation (EU) 1333/2014 of the ECB concerning statistics on the money markets (ECB/2014/48) (the Money Market Statistical Reporting (MMSR) Regulation). The aim of the Amending Regulation is to improve the ECB's money market statistics. The MMSR Regulation requires the reporting of statistical data by reporting agents to the ECB or the relevant national central bank so that the European System of Central Banks may produce statistics on the euro money market. However, not all transactions are required to be reported under the MMSR. The Amending Regulation widens the scope of the MMSR Regulation to guarantee that transactions with all financial counterparties are reported.

 

Consumer credit, mortgage and home finance

 

FCA publishes thematic review (TR18/5) on management of long-term mortgage arrears

The FCA published its findings on how mortgage lenders treat customers with long-term mortgage arrears and provide forbearance to affected customers (TR18/5). Overall, the FCA did not identify widespread harm to customers from extended forbearance. However, it did find some inconsistencies in firms' arrears management practices that may result in poor customer experience and/or customer harm. Firms offering or administering mortgages are advised to read TR18/5 and where necessary make improvements.

PF (International) Ltd v Financial Conduct Authority

Pursuant to its power under r 5(5) of the Tribunal Procedure (Upper Tribunal) Rules 2008, SI 2008/2698, the Upper Tribunal (Tax and Chancery Chamber)(the tribunal) was not obliged to grant the suspension of a decision in respect of which a reference had been made if it was satisfied that to do so would not prejudice the interests of consumers. It was necessary for the tribunal to carry out a balancing exercise in light of all relevant factors and decide whether in all the circumstances it was in the interests of justice to grant the application. Consequently, the tribunal dismissed the applicant company's application to suspend the variation by the FCA of the permission it had granted to the applicant in relation to its right to exercise lender's rights and duties under regulated credit agreements. For further information, see: [2018] UKUT 400 (TCC).

 

Payment services and systems

 

EBA publishes an Opinion on the use of eIDAS certificates under PSD2

The EBA published an Opinion on the use of electronic identification and trust services (eIDAS) certificates under the RTS on Strong Customer Authentication and Common and Secure Communication (SCA&CSC), which underpin the new security requirements under the revised Payment Services Directive (EU) 2015/2366 (PSD2). The EBA's Opinion clarifies specific aspects on the use of qualified certificates for electronic seals (QSealCs) and qualified certificates for website authentication (QWACs) to identify payment service providers (PSPs) under the RTS, the content of these certificates, and the process for revoking them.

EPC publishes recommended functionalities for APIs to align with PSD2

The European Payments Council (EPC) published a summary of the 20th meeting of its Application Programming Interface (API) Evaluation Group (EG) and an updated document setting out the API EG's recommended functionalities for APIs to achieve alignment with PSD2 and related RTS and EBA Opinion.

EPC calls for independent candidates for its Scheme Management Board

The EPC is calling for independent candidates for its Scheme Management Board (SMB)—the body responsible for the administration and evolution of the Single Euro Payments Area payment schemes, which will be renewed in 2019. In addition to the seats allocated to scheme participant representatives (maximum 20), three seats (including the Chairmanship of the SMB) are available for 'independent members'. The EPC invites all interested candidates to apply by 8 February 2019.

BoE deputy governor outlines plans for new payments standards

Dave Ramsden, deputy governor for markets and banking at the BoE, spoke at the BoE's ISO 20022 Conference on the work the BoE is doing with the UK payments industry to adopt ISO 20022 as the global standard for payments messaging, as well as promoting the take-up of LEIs.

Latest BIS data show that payments are changing, but cash is still important

The BIS published the latest update of its statistics on payments and FMIs in member jurisdictions of the Committee on Payments and Market Infrastructures (CPMI), widely known as the Red Book statistics. The data show that, despite the promise of cashless societies, paper-based payments like cheques and cash still play important roles.

 

Insurance and pensions

 

SM&CR extended to insurers

The SM&CR was extended to all insurers regulated by the FCA and Prudential Regulation Authority (PRA) with effect from 10 December 2018. The SM&CR now applies to all dual regulated insurance and reinsurance firms and will replace the Senior Insurance Managers Regime (SIMR) and the Revised Approved Persons Regime for insurance firms.

US and UK agree on Prudential Measures Regarding Insurance and Reinsurance

The US Department of the Treasury and the Office of the US Trade Representative published a press release announcing their intent to sign the Bilateral Agreement between the USA and UK on Prudential Measures Regarding Insurance and Reinsurance (US-UK Covered Agreement). Consistent with the US-EU Covered Agreement signed in 2017, the Administration intends to issue a US policy statement regarding implementation of the US-UK Covered Agreement.

EIOPA calls for experts to join technical network on catastrophe risks

The European Insurance and Occupational Pensions Authority (EIOPA) issued a  call for experts to join EIOPA's new Technical Expert Network on Catastrophe Risks. The aim is to strengthen and complement EIOPA's expertise with regard to the modelling and mitigation of (natural) catastrophe risks and climate change risks. The deadline for applications is Friday 4 January 2019.

ESMA's SMSG reply to CP concerning amendments to the PRIIPs KID

The Securities and Markets Stakeholder Group (SMSG) of ESMA published its advice to ESMA on the ESAs public consultation on targeted amendments to Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 covering the rules for the KID for PRIIPs. The SMSG believes there are serious problems in the PRIIPs framework with the scope of the regulation, cost information about funds and performance scenarios. It regrets the consultation only addresses the performance scenario.

ECON reiterates its concerns on Solvency II

ECON published a response to the European Commission's letter of 27 November 2018 regarding the review of the implementing measures contained in Delegated Regulation (EU) 2015/35 under Solvency II (Directive 2009/138/EC). In its response, ECON reiterates its position on the importance of reconsidering the points raised in its earlier letter of 18 September 2018.

PRA publishes Policy Statement (PS31/18) on Solvency II: equity release mortgages and updates Supervisory Statement (SS3/17) on Solvency II: Matching adjustment - illiquid unrated assets and equity release mortgages

The PRA published Policy Statement 31/18 (PS31/18) on Solvency II—equity release mortgages and updated Supervisory Statement 3/17 (SS3/17) on Solvency II: Matching adjustment—illiquid unrated assets and equity release mortgages. The PRA also published a Dear CEO letter which provides additional information on PS31/18 and the updated SS3/17.

Insurance Europe responds to European Commission 2018 Solvency II consultation

Insurance Europe, the European insurance and reinsurance federation, published its response to the European Commission's consultation on draft proposals for the 2018 review of the Solvency II Delegated Regulation. In its response, Insurance Europe raised serious concerns about the Commission's proposals, stating that whilst the industry welcomes the Commission's aim of simplifying Solvency II and increasing proportionality in its application, the proposals lack ambition in several important areas.

Global insurance bodies call on IASB to delay IFRS 17 by two years

A group of 11 insurance associations wrote a joint letter to the International Accounting Standards Board (IASB) chair, Hans Hoogervorst, calling for a two-year delay to International Financial Reporting Standard (IFRS) 17, which covers insurance contracts. The letter follows the IASB's decision to propose a one-year deferral of the effective date of the standard. The insurance bodies, including Insurance Europe, consider that a one-year delay is insufficient to fix problems and implement IFRS 17 properly.

FSI paper on proportionality in applying insurance solvency requirements

The BIS published a Financial Stability Institute (FSI) paper analysing proportionality in the application of insurance solvency requirements. The paper, based on a survey of 16 insurance authorities, sets out how the authorities identify insurers that are eligible for simplified solvency rules and provides specific examples.

IAIS publishes details of stakeholder event on Holistic framework for systemic risk

The International Association of Insurance Supervisors (IAIS) updated its webpage of upcoming stakeholder events by stating that on 15 January 2019, the IAIS will host a stakeholder event on the Holistic Framework for Systemic Risk in the Insurance Sector in Miami, United States. The event will take place between 9.30 and 13.00 EST on 15 January 2019, at the Hilton Miami Airport Blue Lagoon, in Miami, United States.

IAIS newsletter November-December 2018

The IAIS published its November-December 2018 newsletter. The newsletter includes a special report on the recent round of committee meetings, Annual General Meeting and Annual Conference. It notes the IAIS delivery of the post-crisis reform agenda and the IAIS draft strategic plan for the years ahead.

FCA publishes key findings on its recent work on pension transfer advice

The FCA published a new webpage which sets out the key findings on its recent work on pension transfer advice. Pension transfers were a priority for the FCA throughout 2018, its work focussed in particular on those firms most active in the market. The FCA also looked more closely into some firms based on intelligence (for example whistleblowing) it received.

 

Sustainable finance

 

European Commission invites feedback on economic activities contributing to climate change mitigation

The European Commission published an invitation for feedback on certain economic activities that contribute substantially to climate change mitigation and on the usability of that list of activities. This consultation relates to the work by the Commission's technical expert group on sustainable finance (TEG) which was established in July 2018 and which is required to publish a report based on a broad consultation of all relevant stakeholders.

HM Treasury updates House of Commons EU Scrutiny and Union Committees on progress of proposed Regulation on disclosures relating to sustainable investments and sustainability risks

HM Treasury published two letters from John Glen, Economic Secretary to the Treasury, to Sir Bill Cash, Chair of the European Scrutiny Committee, and to Lord Boswell of Aynho, Chair of the European Union Committee setting out the progress of the European Commission's proposed Regulation on disclosures relating to sustainable investments and sustainability risks (2018/0179 (COD)).

LMA, APLMA and LSTA publish extended Green Loan Principles

The Loan Market Association (LMA), together with the Asia Pacific Loan Market Authority (APLMA) and the Loan Syndications and Trading Association (LSTA), published an extended version of the Green Loan Principles (GLP). The extended version explains in greater depth how the GLP can be applied to revolving credit facilities whilst maintaining the integrity of the green loan product.

Chartered Banker Institute’s first green finance certificate

The Chartered Banker Institute showcased its first green finance certificate at the COP24 climate summit in Katowice, Poland from 9–14 December 2018. The certificate is the world’s first benchmark qualification for green finance. It encourages financial services professionals to enhance their knowledge of green finance, develops pool of green finance professionals and positions the UK as the global hub.

 

Dates for your diary

 

DateSubject

Event

 

14 December 2018Consumer access

The Treasury Committee launched an inquiry into consumer access to financial services. It will focus on the interaction between vulnerable consumers and financial services firms. Submissions to the enquiry are sought by 14 December 2018.

 

14 December 2018Money laundering

The deadline for feedback to the FCAs ‘CP18/32: Recovering the costs of the Office for Professional Body Anti-Money-laundering Supervision (OPBAS): proposed fee rates for 2018/19’ is 14 December 2018.

 

17 December 2018Payment services

The deadline for responses to PSR Consultation: ‘Onshoring EU regulatory technical standards under the Interchange Fee Regulation’ is 17 December 2018.

 

17 December 2018Insurance

The IAIS published a draft application paper for consulation: Application paper on proactive supervision of corporate governance. It sets out good practices related to the organisation and functioning of the supervisor, with the objective of promoting proactive supervision of corporate governance. Comments are requested by 17 December 2018.

 

18 December 2018Financial crimeThe ESAs will hold a public hearing on the draft guidelines on the co-operation and information exchange between competent authorities supervising credit and financial institutions for the purposes of anti-money laundering and countering the financing of terrorism supervision, at the EBA premises in London on 18 December 2018 from 14:00 to 16:30 UK time.

 

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