Weekly highlights—24 January 2019
US-UK bilateral agreement on prudential measures regarding insurance and reinsurance presented to Parliament
The bilateral agreement between the US and the UK on prudential measures regarding insurance and reinsurance (the US-UK covered agreement), which was signed on 18 December 2018, was presented to Parliament. The US-UK covered agreement is intended to come into force once the UK is no longer a member of the EU and no longer covered by the existing US-EU covered agreement, the terms of which are consistent with the US-UK covered agreement. The aim is to ensure continuity for UK insurers and reinsurers accessing the US market.
John Glen explains temporary transitional power for no-deal Brexit
The House of Commons Treasury Committee published a letter from John Glen, economic secretary to the Treasury, to Nicky Morgan, the Committee chair, regarding the proposal for a temporary transitional power to be delegated to the Bank of England (BoE), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) in the event of a no-deal Brexit scenario. According to Mr Glen, the proposal is intended to complement and support other key transitional arrangements which Parliament already approved, including the Temporary Permissions Regime (TPeR).
Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2019
SI 2019/Draft: This draft enactment is laid in exercise of legislative powers under the European Communities Act 1972, the Financial Services and Markets Act 2000, and the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment amends UK primary and subordinate legislation in order to ensure that the regulatory regime for recognised investment exchanges, market operators (ie individuals who manage or operate the business of a regulated market, and who may be the regulated market itself), clearing houses (including central counterparties), and central securities depositories (CSD) continues to be clearly defined and operable in UK domestic law after exit day in a no-deal scenario. It comes into force on the day after these draft Regulations will be made and fully on exit day.
Uncertificated Securities (Amendment and EU Exit) Regulations 2019
SI 2019/Draft: This draft enactment is laid in exercise of legislative powers under the European Communities Act 1972, the Companies Act 2006, and the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment amends UK primary and subordinate legislation and retained direct EU legislation in light of Regulation (EU) 909/2014 as implemented in the UK via the Central Securities Depositories Regulations (CSDR) 2014 and the CSDR 2017, referred to as ‘the CSDR regime’. These amendments are predominantly to reflect the fact that, with the introduction of the CSDR regime, operators of relevant systems will obtain this status by virtue of obtaining authorisation or recognition as a CSD, rather than the previous route of applying under the Unified Securities Regulations 2001, and to ensure the UK retains an operative regulatory framework for uncertificated securities post-exit in the event of a no deal scenario.
Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019
SI 2019/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 amends and revokes retained direct EU legislation to address deficiencies in relation to the EU equivalence framework for financial services and retained EU law arising from the withdrawal of the UK from the EU. This instrument makes provisions for elements of the UK equivalence framework in a no deal scenario. It comes into force partly on the day after these draft Regulations will be made and fully on exit day.
Financial Conglomerates and Other Financial Groups (Amendment etc) (EU Exit) Regulations 2019
SI 2019/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 amends UK subordinate legislation and retained direct EU legislation related to financial conglomerates in order to address deficiencies arising as a result of the UK leaving the EU. This instrument acts to ensure that the UK’s regulation of financial conglomerates and other financial groups continues to operate as intended once the UK leaves the EU. It comes into force on exit day.
Official Listing of Securities, Prospectus and Transparency (Amendment etc) (EU Exit) Regulations 2019
SI 2019/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 and revoke provisions of UK primary legislation and retained direct EU legislation relating to the official listing of securities and prospectus and transparency requirements in order to address deficiencies which arise from the UK leaving the EU. This instrument will therefore act to ensure that the UK’s listing regime and transparency framework continue to operate as intended once the UK leaves the EU. It comes into force on exit day. The draft Regulations are identical to the draft Official Listing of Securities, Prospectus and Transparency (Amendment etc) (EU Exit) Regulations published in November 2018 with the exception of minor non-material amendments.
Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019
SI 2019/Draft: This draft enactment is laid in exercise of legislative powers under the European Communities Act 1972, the Financial Services and Markets Act 2000, the Financial Services (Banking Reform) Act 2013, and the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment proposes to amend UK primary and subordinate legislation and retained direct EU legislation in relation to the disclosure of confidential information in order to address deficiencies arising from the withdrawal of the UK from the EU. It comes into force partly on the day after these draft Regulations will be made and fully on exit day.
Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019
SI 2019/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 primary and subordinate legislation in relation to financial services passporting rights between the UK and Gibraltar in order to address deficiencies arising from the withdrawal of the UK from the EU. This draft instrument ensures authorised financial services firms in Gibraltar will continue to be able to provide services and establish branches in the UK market after exit day on current terms. It comes into force partly on the day after these draft Regulations will be made and fully on exit day.
Securitisation (Amendment) (EU Exit) Regulations 2019
SI 2019/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 subordinate legislation and retained direct EU legislation in relation to EU Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 in order to address deficiencies which arise from the withdrawal of the UK from the EU. This draft enactment also amends EU Regulations (EC) 1060/2009 (the Credit Rating Agencies Regulation) (CRA), (EU) 648/2012 (the European Market Infrastructure Regulation) (EMIR), (EU) 575/2013 (the Capital Requirements Regulation) (CRR) and (EU) 2017/2401 and EU Delegated Regulations (EU) 2015/61 as well as making necessary changes to relevant UK law, ensuring the legislation continues to operate effectively at the point at which the UK leaves the EU.
FCA publishes guidance for UCITS and AIFs on how to notify under the temporary permissions regime
The FCA published a document providing guidance on how to notify the FCA under the TPeR for inbound passporting European Economic Area (EEA) investment funds. If the UK leaves the EU without a withdrawal agreement in place, the TPeR will allow EEA firms and funds which currently passport into the UK to continue operating in the UK within the scope of their current permissions for a limited period after exit day, while seeking full UK authorisation, and will allow funds with a passport to continue marketing temporarily in the UK. Managers of undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) wishing to use the regime must tell the FCA which of their funds they wish to continue marketing in the UK, and the document published by the FCA provides detailed instructions for doing this.
FCA leaders update Treasury Committee on Brexit and other issues
The House of Commons Treasury Committee published oral evidence given on 15 January 2019 by Andrew Bailey and Charles Randell on the work of the FCA, in which they update the Committee on a range of topics including preparations for Brexit. With regard to Brexit, Mr Bailey said that there are currently about 62 statutory instruments that relate to the on-shoring of EU financial services legislation. Of these, 43 are laid in Parliament, 16 are made, another 10 are published in draft, and about nine are yet to appear. About 50 of these instruments are the Treasury’s responsibility and about 12 belong to other departments.
Dombrovskis speaks on Capital Markets Union and Brexit
European Commission vice-president, Valdis Dombrovskis, said that the EU needs to make progress on Capital Markets Union before European elections in May 2019. In his keynote speech at the Euronext New Year ceremony, Mr Dombrovskis also said that the UK Parliament’s rejection of the government’s proposed withdrawal agreement made the risk of a no-deal exit more real. Mr Dombrovskis called on public authorities at the national level to do their part in their fields of responsibility, and he said that market participants need to get ready for all different scenarios, including a no-deal Brexit.
ECB director—a supervisory perspective on Brexit and new technologies
Sabine Lautenschläger of the European Central Bank (ECB) spoke on the impact that Brexit and new technologies is having on banks, markets and supervisors in the EU. She said that the ECB will continue to push banks to prepare for Brexit and any other challenges it sees coming their way. Ms Lautenschläger said that European banking supervisors worked hard to ensure that banks are prepared for Brexit. From the start, the ECB identified areas of concern for individual banks, particularly those that plan to relocate from the UK to the EU. It also outlined the main areas it would be looking at when evaluating banks’ risk management, their staffing and their booking models.
Financial Conduct Authority updates
FCA’s regulatory round-up for January 2019 now available
The FCA published its regulatory round-up for January 2019. Hot topics include misleading financial promotions for over 50s life cover, an update on how firms should be preparing for Brexit, and the FCA and Practitioner Panel Survey. Other topics covered by the round-up include:
- reform of overdraft pricing
- the strategic review of retail banking, and
- the FCA’s Live and Local events for 2018/19
Prudential Regulation Authority updates
PRA’s Secondary Competition Objective: Speech by Sam Woods
Sam Woods, Deputy Governor for Prudential Regulation and CEO of the PRA, gave a speech at a panel to celebrate the fifth anniversary of the PRA’s Secondary Competition Objective (SCO). The SCO requires the PRA to act, where possible, to facilitate effective competition when making policies to advance its primary objectives of safety and soundness, and policyholder protection. In his speech, Mr Woods explained that the SCO, in his view, profoundly effects the PRA’s activities. He said that, while a lot was achieved over the past years, the PRA should start a debate as it enters the second five-year period about the next set of questions, some of which are quite awkward.
ECON endorses political agreement on CRR amendments addressing non-performing exposures
The European Parliament’s Economic and Monetary Affairs Committee (ECON) approved the provisional agreement resulting from interinstitutional negotiations on the European Commission’s proposal for a regulation amending the CRR with regard to minimum loss coverage for non-performing exposures (NPEs). The Parliament reached a provisional political agreement with the Council of the EU on 18 December 2018. The proposal provides for a statutory prudential backstop against any excess future build-up of NPEs without sufficient loss coverage on banks’ balance sheets. The establishment of a comprehensive strategy to address the issue of NPEs is an important goal for the EU in its attempt to make the financial system more resilient.
Basel Committee completes review of Principles for sound liquidity risk management and supervision
The Basel Committee on Banking Supervision (BCBS) completed a review of its 2008 Principles for sound liquidity risk management and supervision (the Sound Principles), which underscore the importance for banks of establishing a robust liquidity risk management framework. The review, which began in 2017 and also covered liquidity risk-related developments in financial markets since 2008, confirmed that the Sound Principles remain fit for purpose. The BCBS advised banks and supervisors to remain vigilant of liquidity risks in financial markets.
EBA publishes final guidance on exposures to be associated with high risk under CRR
The European Banking Authority (EBA) published its final guidelines on the types of exposures to be associated with high risk under the CRR. The aim of the Guidelines is to enable better comparability of current practices in identifying exposures associated with high risk, and to facilitate the transition to upcoming regulatory revisions noting that the future implementation of the revised Basel standards will apply from 2022. The Guidelines are due to be implemented by 1 July 2019.
PRA publishes Policy Statement (PS2/19) with final amended rules and forms for regulatory transactions
The PRA published Policy Statement (PS)2/19 (PS2/19) which provides the final rules and forms to Consultation Paper (CP) 21/18 (CP21/18) entitled ‘Regulatory transactions: Changes to notification and application forms’. PS2/19 is relevant to all PRA-authorised firms as well as firms with a qualifying holding (or intending to acquire a qualifying holding) in a PRA-authorised firm. The PRA did not receive any responses to CP21/18 and decided to make its proposed changes to the rules and forms as set out in CP21/18 (with some minor typographical and drafting changes, as set out in PS2/19). The final rules and forms will take effect from Saturday 19 January 2019.
WFE publishes response to BCBS’s discussion paper on leverage ratio treatment of client cleared derivatives
The World Federation of Exchanges (WFE) published a response to the BCBS’s discussion paper on leverage ratio treatment of client cleared derivatives. According to the WFE, authorities and market infrastructures concur on the necessity of a policy framework that allows for accessible, competitive and vibrant derivatives markets that also ensures the soundness of banks (including the prevention of excessive leverage).
Council of the EU sets out progress on financial services legislative files
The General Secretariat of the Council of the EU published a note addressing Council delegations which contains information from the Presidency concerning the upcoming Economic and Financial Affairs (ECOFIN) Council on the state of play of legislative proposals in the field of financial services. The Note contains a table which sets out the Progress on 27 key financial services’ legislative files. The table sets out the title of particular files, the date the files were presented by the European Commission and the state of play of those files.
President Centeno gives closing remarks on economic policy, EMU reform and Brexit at Eurogroup meeting
The Council of the EU published concluding remarks given by President of the Eurogroup, Mario Centeno, at a meeting of the Eurogroup on 21 January 2019. President Centeno's speech summarised the points discussed and agreed at the meeting, which included euro area economic policy priorities, the international role of the euro, Economic and Monetary Union (EMU) reform and preparations for Brexit. President Centeno set out the five priorities agreed by the Eurogroup for euro area economic policy in 2019, which related to (1) growth enhancing structural reforms (2) fiscal sustainability and public investment (3) labour markets and social inclusion (4) financial stability, and (5) EMU deepening.
ECOFIN discusses EU financial supervision and InvestEU at latest meeting
The Council of the EU discussed proposals to review the functioning of the current European System of Financial Supervision (ESFS) and agreed to start negotiations with the European Parliament on the anti-money laundering and terrorist financing activities provisions, with the aim of reaching a political agreement on the file by the end of the current legislative term. At the most recent meeting of ECOFIN on 22 January 2019, the Council also undertook taking forward work on InvestEU as a matter of priority.
Commission Vice-President Valdis Dombrovskis speaks at ECOFIN press conference
The European Commission published a speech given by Vice-President Valdis Dombrovskis at the ECOFIN press conference on 22 January 2019. In his speech, Mr Dombrovskis highlighted the challenges ahead for economic growth both in Europe and globally, outlined steps being taken to address those challenges and gave a brief update on the ongoing review of the ESFS.
MEPs support new ‘InvestEU Programme’ to boost financing for jobs and growth
The European Parliament issued a press release stating that it adopted its position on a new EU programme to support investment and access to finance from 2021 to 2027. The new ‘InvestEU Programme’ follows and replaces the current EFSI (European Fund for Strategic Investments), which was set up after the financial crisis.
European Scrutiny Committee considers EU proposals on green finance and the European system of financial supervision
The House of Commons European Scrutiny Committee published its 51st report, which summaries its review and conclusions of EU documents considered by the Committee on 16 January 2019. Documents considered include the European Commission’s proposal for a Regulation amending Regulation (EU) 2016/1011 on low carbon benchmarks and positive carbon impact benchmarks and the Commission’s proposed changes to the ESFS.
Authorisation, approval and supervision
Council of EU publishes letter from European Parliament on ESFS review
The Council of the EU published a letter received from the European Parliament regarding the European Commission’s proposed review of the ESFS. In the letter, the European Parliament emphasises the importance of the current ESFS review and urges the Council of the EU to adopt a position as soon as possible on the related legislative package to allow interinstitutional negotiations to begin.
Risk management and controls
FCA proposes to clarify how the SM&CR applies to the legal function
The FCA published CP19/4 in which it clarifies a number of aspects of the Senior Managers & Certification Regime (SM&CR), including the application of the SM&CR to the legal function, which it is proposing to exclude from the overall responsibility requirement. Having considered the responses received to its Discussion Paper (DP16/4), ‘Overall responsibility and the legal function’, which was published in September 2016, the FCA is proposing to exclude the head of legal from the requirement to be a senior manager. It notes that the laws of legal privilege may restrict the FCA, in practice, from using its powers over senior managers and carrying out its usual supervisory processes relating to senior managers. The deadline for comments is 23 April 2019.
IOSCO issues good practices report to assist audit committees in supporting audit quality
The Board of the International Organisation of Securities Commissions (IOSCO) published the IOSCO Report on Good Practices for Audit Committees in Supporting Audit Quality, which aims to assist audit committees in promoting and supporting audit quality. Audit committees play an important role in contributing to greater confidence in the quality of information in listed companies’ financial reports and the good practices report sets out recommendations for features that audit committees should be more effective in their role, including matters such as the qualifications and experience of audit committee members.
Tesco DPA published in full following acquittal of the final executive accused of fraud
Serious Fraud Office v Tesco Stores Limited (2017 DPA): The deferred prosecution agreement (DPA) between the Serious Fraud Office (SFO) and Tesco Stores Ltd, which was subject to reporting restrictions since April 2017, was published. Tesco Stores Limited (a wholly-owned subsidiary of Tesco Plc) avoided prosecution in respect of a charge of false accounting relating to its overstatement of its expected profit by £284m, in a half year period in 2013/2014. The terms of the agreement included cooperation with the SFO and other regulators in respect of all matters arising incidental to the conduct, payment of £128m in financial penalties and £3m in costs and remedial actions including commissioning a review, by external auditors, of systems and processes. The DPA will last until April 2020.
Wolfsberg Group publishes guidance for financial institutions on sanctions screening
The Wolfsberg Group published new guidance on how financial institutions should carry out sanctions screening as a control to detect, prevent and manage sanctions risk. Sanctions screening is intended to be carried out as part of an effective financial crime compliance programme, to assist in identifying sanctioned individuals and organisations as well as the illegal activities to which financial institutions might be exposed. The guidance aims to assist financial institutions in assessing the effectiveness of their sanctions screening controls.
Enforcement and redress
Chancellor responds to UK Finance’s voluntary scheme for SME grievances
The Chancellor of the Exchequer, Philip Hammond, welcomed the initiatives proposed by UK Finance in response to recommendations of Simon Walker’s review of alternative dispute resolution for small and medium size enterprises (SMEs). However, in a letter to Stephen Jones, the chief executive of UK Finance, Mr Hammond argued that the voluntary ombudsman scheme for historic cases does not go far enough.
Treasury Select Committee receives letter from independent reviewer of the FOS
The government published a letter received by the Treasury Select Committee relating to the independent review of the Financial Ombudsman Service (FOS). The letter from Richard Lloyd, who carried out the independent review and issued his report in July 2018, relates to the progress being made by the FOS in response to the review. Richard Lloyd’s report found that more consumers should use the FOS, confident that it is not institutionally biased while being realistic about the limitations of its free and informal service and recommended 22 actions including measures to improve service quality, address organisational issues and create a clear, more sustainable and impactful future strategy and funding.
Backlog grows as UK financial ombudsman sees case surge
Consumers are waiting three times longer for the UK's financial ombudsman to rule on their complaints since the organisation was overhauled two years ago, amid a tenfold increase in the backlog of unresolved cases and a surge in new cases, lawmakers revealed. A whistleblower within the FOS disclosed in a letter to MPs that about 30,000 consumer complaint cases were yet to be assigned to a caseworker and an additional 8,000 were awaiting adjudication, lawmakers on the Treasury select committee told FOS chief executive Caroline Wayman during a hearing. Wayman did not dispute the figures and disclosed that there was a surge in claims from consumers complaining about payday lenders, as well a technical failure that locked thousands out of their online bank accounts.
FCA issues second supervisory notice with respect to London Capital & Finance
The FCA published a second supervisory notice with respect to London Capital & Finance plc (LCF). The notice revokes parts of the FCA’s first supervisory notice dated 10 December 2018 which are no longer necessary now LCF is not permitted to communicate or approve any financial promotions. The FCA issued the first supervisory notice as it considered that LCF’s communications in relation to its ‘Fixed Rate ISA or Bond’ were misleading, not fair and not clear, in breach of the Conduct of Business Sourcebook (COBS) at COBS 4.2.1R.
FSCS declares six firms in default
The UK’s statutory compensation scheme, the Financial Services Compensation Scheme (FSCS), announced six financial firms it declared to be in default during December 2018. Any consumers who lost money due to dealings with any of the six failed firms named by the FSCS could claim that money back under the FSCS. The FSCS protects customers of regulated financial services firms. The FSCS will declare a firm to be in default if it is satisfied the firm is unable to pay claims for compensation made against it, paving the way for its customers to make a claim to the FSCS for compensation.
ASA rulings for 23 January 2019
An advert for 118 118 Money's new credit card prompted one complaint to the Advertising Standards Authority (ASA) because, the complainant said, that the ad didn’t include the credit card’s Annual Percentage Rate (RAPR). The ASA upheld the complaint, along with complaints about two other ads.
Markets and trading
Private sector working group publishes ‘Guiding principles for fallback provisions in new contracts for euro-denominated cash products’
The working group on euro risk-free rates, for which the ECB provides the secretariat, published the paper ‘Guiding principles for fallback provisions in new contracts for euro-denominated cash products’. The paper offers an overview of the legal frameworks and market practices applicable to cash products, such as mortgages, loans and bonds, that reference EURIBOR and EONIA, with a specific focus on fallback clauses.
Industry associations respond to Basel Committee consultation on leverage ratio treatment of client cleared derivatives
Two responses to the BCBS’s consultation on the leverage ratio treatment of client cleared derivatives were published. One of those responses was issued by the Futures Industry Association (FIA) and the second is a joint response by the International Swaps and Derivatives Association (ISDA), the Global Financial Markets Association (GFMA) and the Institute of International Finance (IIF).
ISDA chief delivers speech on financial policy developments and future challenges
The chief executive of ISDA, Scott O’Malia, delivered a speech at the Exchequer Club Luncheon. During the speech, ISDA’s perspective on financial policy developments and future challenges were announced. Mr O'Malia stressed that ISDA should co-operate regularly with regulators and policy-makers all over the world to make sure that the key issues are understood. During the speech, O’Malia stressed the lack of substantive debate at the political level about the main elements of derivatives regulatory reform.
WFE publishes second report on factors that drive international investor participation in emerging markets
The WFE published a research report–from the investor viewpoint–that seeks to understand what encourages or discourages international investor participation in emerging markets. The purpose of the report, written with the support of the European Bank for Reconstruction and Development, is to provide exchange operators, securities regulators and policy-makers with greater insight into the factors that drive investment decisions, as reported by investors themselves.
ESMA updates commodity derivatives transitional transparency calculations for MiFID II and MiFIR
The European Securities and Markets Authority (ESMA) published an updated version of the recast Market in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) transitional transparency calculations (TTC). The update relates to the TTC for commodity derivatives and only affects electricity derivatives. For sub-classes of these derivatives that were liquid and are now illiquid, the updated results can be applied immediately. For sub-classes that were illiquid and are now liquid, trading venues are invited to contact their national competent authority to agree on a reasonable application date as the change in liquidity status may require adjusting their trading systems.
ESMA publishes six more opinions on MiFID II position limits
ESMA published six opinions on position limits regarding commodity derivatives under MiFID II/MIFIR. ESMA found that the proposed position limits are consistent with the objectives established in MiFID II and with the methodology developed for setting those limits. ESMA will continue to assess the notifications received and issue opinions in order to ensure that the position limits are set in accordance with the MiFID II framework.
Transparency under MiFID II: ESMA publishes responses to call for evidence on batch auctions
ESMA published the responses received to its call for evidence on periodic auctions for equity instruments. ESMA issued the call for evidence in November to help it develop its understanding of frequent batch auction trading systems, to assess whether and to what extent they could be used to circumvent the MiFID II transparency requirements and, should this be the case, to develop appropriate policy measures. The responses are available to download from ESMA’s website.
Regulation of capital markets
BIS committee highlights ways to boost domestic capital markets
The Committee on the Global Financial System (CGFS) of the Bank for International Settlements (BIS) published a new report outlining ways to boost domestic capital markets. The report examines recent trends in capital market development and identifies the factors that foster the development of robust capital markets, including greater market autonomy and better investor protection. The analysis highlights the importance of macroeconomic stability, market autonomy, strong legal frameworks and effective regulatory regimes in supporting market development. It also finds better disclosure standards, investor diversity, internationalisation, and deep hedging and funding markets, as well as efficient and robust market infrastructures, also play a key role.
ICMA updates Frequently Asked Questions on Repo
The International Capital Market Association (ICMA) updated its FAQs on repo. The document includes a new item on mapping the interdealer European repo market, which describes the different stages of a transaction's life and looks at trading, clearing and collateral management. The FAQs also include questions and answers on understanding repo and the repo market, how repos are managed, and topical issues such as how MiFID II and MiFIR apply to the repo market in the EU.
Investment funds and asset management
ECON publishes erratum to report on cross-border distribution of funds proposal
ECON published an erratum to its report on the proposal for a regulation on facilitating cross-border distribution of collective investment funds and amending Regulations (EU) 345/2013 on European venture capital funds (EuVECA) and Regulation (EU) 346/2013 on European social entrepreneurship funds (EuSEF). The erratum amends ECON’s report to reflect the extension of the UCITS exemption from producing key information documents (KIDs) under the Packaged Retail and Insurance-based Investment Products Regulation (EU) 1286/2014 (the PRIIPs Regulation) and to correct errors in the drafting of the report.
Industry associations respond to second LEI ROC consultation on fund relationships in the global LEI system
ISDA, the Securities Industry and Financial Markets Association’s Asset Management Group (SIFMA AMG), and the Managed Funds Association (MFA) issued a joint response to the second consultation by the Legal Entity Identifier (LEI) Regulatory Oversight Committee (ROC) on fund relationships in the global LEI system. The consultation proposes a limited update to the way relationships affecting funds are recorded in the global LEI system and to replace the current optional single ‘fund family’ relationship as part of Level 1 (reference data of the entity) with the following relationships as part of Level 2 data (relationship data): ‘Fund Management Entity’, ‘Umbrella Structures’, and ‘Master-Feeder’ relationship.
UK stewardship code set for major rewrite, regulator says
The UK stewardship code, which sets out how fund managers should hold the companies they invest in to account, is to undergo a major overhaul, the Financial Reporting Council (FRC) told lawmakers. Paul George, executive director of corporate governance and reporting at the auditing watchdog, said it plans to overhaul the stewardship code—which it published in 2010 to guide institutional investors who hold voting rights in UK companies—with a consultation expected to open soon. ‘We will be issuing a full consultation on the code shortly. That code raises considerably the expectation of the investment community in terms of their engagement with companies,’ George told a hearing of the parliamentary Business, Energy and Industrial Strategy Committee.
Banks and mutual
ECB publishes results of January 2019 euro area bank lending survey
The ECB published the results of its January 2019 euro area bank lending survey, which showed that credit standards remained broadly unchanged for loans to enterprises and housing loans, firms’ and households’ demand for loans was higher, but banks expected some moderation in demand, and banks’ non-performing loans (NPLs) created a tightening impact on credit standards. The ECB’s bank lending survey is conducted four times a year and was developed by the Eurosystem to improve its understanding of banks’ lending behaviour in the euro area. The January 2019 survey round was conducted between 7 and 28 December 2018.
BoE publishes results of Bank Liabilities Survey for Q4 2018
The BoE published the results of its Bank Liabilities Survey for the fourth quarter of 2018. The quarterly survey of banks and building societies, which looks at bank funding, capital and transfer pricing, is aimed at improving the BoE’s understanding of the role of lenders’ liabilities and capital in driving credit and monetary conditions. The survey was carried out between 19 November and 7 December 2018 and covers developments in the volume and price of bank funding, developments in the loss-absorbing capacity of banks as determined by their capital positions, and developments in the internal price charged to business units within individual banks to fund the flow of new loans (the transfer price).
BoE publishes results of Credit Conditions Survey for Q4 2018
The BoE published the results of its Credit Conditions Survey for the fourth quarter of 2018. The quarterly survey of banks and building societies, which looks at supply, demand, loan pricing and defaults, is aimed at improving the BoE’s understanding of trends and developments in credit conditions. The survey was carried out between 19 November and 7 December 2018 and looked at secured and unsecured lending to households, and lending to non-financial corporations, small businesses and non-bank financial firms.
Consumer credit, mortgage and home finance
Treasury Committee publishes FSCP response to the Committee’s Inquiry on Consumers’ Access to Financial Services
The Treasury Committee published the Financial Services Consumer Panel (FSCP) response to the Treasury Committee inquiry on consumers’ access to financial services. Among other things, the FSCP argued for a duty of care in financial services as the FCAs treating customers fairly principle for businesses does not go far enough to eliminate conflicts of interest and deter firms from mis-selling products and providing poor service.
Payment services and systems
EU investigation: Mastercard fined €570m for obstructing merchants' access to cross-border card payment services
On 22 January 2019, the European Commission announced it fined Mastercard €570m (including a 10% reduction for co-operation) for obstructing merchant’s access to cross-border card payment services (Case AT.40049). The Commission found that Mastercard's cross-border rules prevented banks from offering lower interchange fees to retailers based in another EEA Member State, where interchange fees may be higher. This meant that retailers could not benefit from lower fees elsewhere, competition between banks cross-border was restricted, and the Single Market was segmented artificially. The Commission found that this conduct violated Art 101 TFEU. The Commission’s investigation into Mastercard’s inter-regional interchange fees continues under the same case number.
EPC updates guidelines on cryptographic algorithms usage and key management
The European Payments Council (EPC) published a new version of its guidelines on cryptographic algorithms usage and key management in order to provide guidance to the European payments industry, more precisely to security officers, risk managers, system engineers and systems designers. The document was updated to reflect newsworthy developments in cryptography, including the impacts of the latest progress in cryptoanalysis.
Insurance and pensions
Decision to start winding-up proceedings in respect of Qudos Insurance A/S published in Official Journal
A decision to start winding-up proceedings in respect of Qudos Insurance A/S was published in the Official Journal of the EU. The decision was published in accordance with Article 280 of Directive 2009/138/EC (Solvency II). Qudos Insurance A/S, which was authorised and regulated by the Danish Financial Supervisory Authority and operated in the UK on a freedom of services basis, announced in November 2018 that it entered into solvent liquidation. The decision to start winding-up proceedings entered into force on 20 December 2018.
ECON urges Commission to amend the Solvency II Delegated Regulation
ECON called on the European Commission to make the amendments recommended by ECON to the Solvency II Delegated Regulation (EU) 2015/35 as part of the Commission’s 2018 review of the Solvency Capital Requirement standard formula, rather than waiting until 2020. In a statement, the ECON Chair, Roberto Gualtieri, said that ECON is ‘confident that this delay means the Commission is duly analysing and taking into account’ the Committee’s concerns, and they expect to see them address in the forthcoming delegated act.
EIOPA calls for evidence on integration of sustainability risks in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) issued a call for evidence from market participants on the integration of sustainability risks and factors in investment and underwriting practices. The call for evidence is part of EIOPA’s action plan on sustainable finance and follows a request from the European Commission for an opinion by EIOPA on sustainability within Solvency II. The deadline for submissions is 23:59 on Friday 8 March 2019.
EIOPA publishes updated Q&As on Solvency II delegated acts
EIOPA published updated Q&As relating to Commission Delegated Regulation (EU) 2015/35 and Commission Delegated Regulation (EU) 2015/2450, both of which supplement Solvency II Directive. Commission Delegated Regulation (EU) 2015/35 contains provisions relating to valuation and risk-based capital requirements (Pillar I), enhanced governance (Pillar II) and increased transparency (Pillar III), insurance groups and third country equivalence and final provisions.
FCA warns of misleading life insurance ads for over-50s
The FCA warned that older life insurance customers risk being misled into believing that their policies will pay for their funerals, and told British companies to promote their products accurately. The regulator said its financial promotions team spotted adverts for life policies aimed at the over-50s that could mislead consumers into believing their full burial costs will be paid for. ‘If a firm’s promotion includes product features or benefits, these must be presented in a fair, clear, and non-misleading way, taking into account the target audience,’ the City watchdog said in an update on 17 January 2019. ‘We expect all promotions to be fair, clear and not misleading’.
Insurers ask OECD for clarity on cover for GDPR fines
On 22 January 2019, international insurers sought answers as to whether they can cover policyholders' huge fines following a data breach, as they seek new business in the wake of Europe’s sweeping data protection regime. The Global Federation of Insurance Associations called for clarity from the Organisation for Economic Cooperation and Development (OECD) about whether insurers can provide cover for fines under Europe’s General Data Protection Regulation (GDPR).
Insurance Europe says new regulation could hamper the benefits of big data
Insurance Europe warned that premature regulation of big data could not only hamper innovation and impair the effectiveness of the insurance market, but also quickly become unfit for purpose due to technological advances and market developments. Instead, it recommends that existing rules are fully implemented and enforced at national level. In an insight briefing entitled ‘Big data and its big benefits for insurance consumers’, Insurance Europe provides various examples of how insurers’ use of big data can benefit consumers. For example, it explains how ‘pay as you drive’ motor insurance policies enable insurers to tailor insurance premiums, resulting in savings for good drivers.
FCA, TPR and SFGB welcome review of pension scheme communications to British Steel workers and issue joint protocol to support pension scheme members
The FCA, the Pensions Regulator (TPR) and the Single Financial Guidance Body (SFGB) welcomed an independent review into communications and support provided to British Steel Pension Scheme members during the pension restructuring exercise in 2017-18 and the ‘Time to Choose’ exercise in late 2017. The review proposes several recommendations for the FCA, TPR and SFGB to help savers make the right decision about whether to transfer their pension pots from a defined benefit scheme. The organisations also announced the publication of a joint protocol to support members of pension schemes.
Government warns of £200M pension fraud after winding up 24 companies
The UK government warned savers to protect their retirement pots against investment scammers after revealing that it applied to wind up 24 companies involved in pension fraud since 2015. The companies misused pensions totalling £202m ($260m) in value since 2015, the Insolvency Service, an executive body of the government, said. Some 3,750 individuals and businesses contributed to the pensions held by the companies, the agency said. The 24 firms misused the pensions by convincing victims to invest their funds in unregulated schemes or by using trustees who carried out their duties negligently.
Fintech and virtual currencies
FCA consults on cryptoassets guidance
The FCA published CP19/3: Guidance on Cryptoassets which contains draft guidance, which, once finalised, will set out the cryptoasset activities the FCA regulates. The guidance will help firms understand whether their cryptoasset activities fall under FCA regulation. Firms should therefore have a better understanding of whether they need to be authorised and can ensure they are compliant and have appropriate consumer safeguards in place. The FCA is asking for comments by Friday 5 April.
BIS publishes working paper: Beyond the doomsday economics of ‘proof-of-work’ in cryptocurrencies
The BIS published a working paper which focuses on how Bitcoin and related crypto-assets verify that payments are final (ie irreversible) once written into the blockchain. It points to the high costs of achieving such finality via ‘proof-of-work’. It then weighs the outlook for cryptocurrencies based on this kind of algorithm and looks at possible future avenues for progress. The paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, ie ‘proof-of-work’. Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm.
IOSCO issues statement on ESG disclosures by issuers
IOSCO published a statement emphasising the importance of issuers considering environmental, social and governance (ESG) matters when disclosing information material to investors’ decisions. The guidance notes that disclosure of ESG information by issuers increased, but disclosure practices remain varied among issuers. IOSCO encourages issuers to consider the materiality of ESG matters to their business and to assess risks and opportunities having regard to their business strategy and risk assessment methodology.
APPG hosts UK launch of UNEP FI Principles for Responsible Banking consultation
The All Party Parliamentary Group (APPG) on Fair Business Banking hosted the UK launch of the United Nations Environment Programme Finance Initiative (UNEP FI) consultation on their ‘Principles for Responsible Banking’, which provide the banking industry with a framework to embed sustainability at the heart of their operations in order to tackle climate change and promote the Sustainable Development Goals. The UNEP FI launched its consultation on 26 November 2018. The Principles are open for consultation until 31 May 2019.
USA financial services regulation
FINRA outlines risk monitoring and examination priorities for 2019
The Financial Industry Regulatory Authority (FINRA) published its 2019 Annual Risk Monitoring and Examination Priorities Letter, which identifies topics that FINRA will focus on in the coming year. Highlighted items include online distribution platforms, mark-up disclosure obligations on fixed income transactions, and regulatory technology. Unlike previous letters, the 2019 letter focuses primarily on topics that will be materially new areas of emphasis for FINRA’s risk monitoring and examination programs in the coming year. FINRA also broadened the scope of the letter to more explicitly include its priorities for risk monitoring, as well as examinations and enforcement.
IFSB publishes paper on consumer protection in the takāful sector
The Islamic Financial Services Board (IFSB) issued a working paper, which examines regulatory and market practices issues relating to consumer protection in the takāful sector (WP-09). Supported by the results of an industry-wide survey responses from takāful operators and their regulatory and supervisory authorities, this working paper explores how an effective and comprehensive consumer protection regime can be designed and implemented throughout different phases of customer engagement with the takāful operators and their intermediaries.
Dates for your diary
25 January 2019
The deadline for feedback to IAIS’ public consultation on draft Holistic Framework for Systemic Risk in the Insurance Sector is 25 January 2019.
|25 January 2019||Markets and trading|
Ten different Commission Delegated Regulation’s in relation to the Benchmark Regulation will apply from 25 January 2019.
|25 January 2019||Prudential requirements|
The EBA will host a public hearing at its London premises (from 14:00 to 15:30 UK time) in relation to it’s Consultation Paper: ‘Draft Implementing Technical Standards amending Commission Implementing Regulation (EU) 2016/2070 with regard to benchmarking of internal models’ on 25 January 2019.
|28 January 2019||Pensions|
The deadline for feedback to the Department of Work and Pensions consultation on Pensions dashboards: Working together for the consumer is 28 January 2019.
|29 January 2019||Brexit|
The deadline for feedback to FCA ‘CP19/2: Brexit and contractual continuity’ is 29 January 2019.
|29 January 2019||Consumer credit|
The deadline for feedback to HM Treasury’s consultation: ‘Breathing space scheme—consultation on a policy proposal’ is 29 January 2019.
|29 January 2019||Insurance|
As part of its live and local series the FCA will host it’s ‘Regulatory update focusing on the extension of the SM&CR and the Insurance Distribution Directive’ Workshop in Leicester on 29 January 2019.
|30—31 January 2019||Retail investments|
As part of it’s live and local series the FCA will host its interactive workshop on defined benefit pension transfers on 30 and 31 January 2019 in London.
|31 January 2019||Enforcement and redress|
The Dispute Resolution: Complaints (Authorised Push Payment Fraud) Instrument 2018 (FCA 2018/60) (FOS 2018/5) comes into force on 31 January 2019.
|31 January 2019||Payment systems and services|
The FCA’s final rules extending the jurisdiction of the FOS in relation to authorised push payment fraud (and which are set out in PS18/22) will take effect on 31 January 2019.
|31 January 2019||Sustainable finance|
Deadline for response to FCA discussion paper, DP18/8 on the impact of climate change and green finance on financial services is on this date.
|31 January 2019||Insurance and pensions|
The deadline for responses to FCA DP18/9: Fair Pricing in Financial Services is 31 January 2019.
|31 January 2019||Enforcement and redress|
The deadline for responses to the FOS’s consultation on its strategic plans and budget for 2019/2020 is 31 January 2019.
|31 January 2019||Prudential requirements|
The deadline for feedback to the EBA’s Consultation Paper: ‘Draft Implementing Technical Standards amending Commission Implementing Regulation (EU) 2016/2070 with regard to benchmarking of internal models’ is 31 January 2019.
|31 January 2019||Insurance and pensions|
The deadline for responses to the Work and Pensions Committee inquiry into contingent charging is 31 January 2019.