BREXIT

ECB on no-deal Brexit

On 28 August, the ECB published the transcript of an interview (dated 15 August) with by Andrea Enria, Supervisory Board Chair of the ECB. In the interview, among other things, Mr Enria discusses Brexit. He states that affected banks are prepared for a possible hard Brexit, as the ECB pushed banks to make all necessary preparations to make sure that they have the licences, establishments of their branches and subsidiaries in place to continue to operate smoothly and to continue serving their customers in the EU. Mr Enria states that the banks have defined the operating models and plans to gradually move their assets into the euro area, and for banks in the euro area to move assets into the UK, in an orderly fashion. At the end of the process, around EUR1.3 trillion in assets will move from London to the euro area. Although Mr Enria states that banks are prepared for a hard Brexit, the ECB continues to put pressure on them to accelerate their no-deal Brexit preparations.

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CONSUMER/RETAIL

FCA sets up implementation group on proposed changes to responsible lending rules

On 27 August, the FCA updated its webpage regarding its March consultation paper (CP19/14) on proposed changes to responsible lending rules and guidance. CP19/14 includes proposals to allow mortgage lenders to undertake a modified affordability assessment for eligible consumers, as well as requiring lenders and mortgage administrators to notify certain categories of customers of the possibility that they may be able to switch. The FCA states that it is now considering responses received to CP19/14, and if it decides to proceed with the proposals, it expects to publish rules in a policy statement in late 2019. In the meantime, the FCA has set up an implementation group of trade associations, lenders and third-party administrators to assist the industry’s preparation allowing them to take advantage of the proposed modified assessments sooner if it does decide to proceed with rules later in the year. The FCA has also published a new webpage that outlines information on the group, together with a summary of the group’s discussions at its first meeting which was held on 2 August.

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FCA finds widespread poor-practice in claims management companies (CMCs) promotions

On 23 August, the FCA announced that CMCs must do more to ensure that their financial promotions do not mislead potential customers. The FCA has introduced a number of new rules with regards to financial promotions issued by CMCs to ensure that they provide information to consumers that is fair, clear and not misleading. The rules require CMC firms to: (i) identify themselves as a CMC; (ii) state if a claim can be made to a statutory ombudsman / compensation scheme without using a CMC and without incurring a fee; and (iii) include prominent information relating to fees and termination fees which the customer may have to pay if a firm uses the term ‘no win, no fee’ or a term with similar meaning. Firms using poor promotions are reminded that they are unlikely to meet the Threshold Conditions for continuing authorisation.

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FINANCIAL CRIME

Please see the client alert on the German Federal Ministry of Justice’s draft Corporate Sanctions Act.

ECB Chair states more harmonised AML regulatory framework needed

On 28 August, the ECB published the transcript of an interview (dated 22 August) with Andrea Enria, Chair of the Supervisory Board of the ECB. In the interview, among other things, Mr Enria discusses money laundering. He states that the ECB does not have legal responsibility for AML, but it has seen how important co-operation is between prudential supervisors and AML authorities. If the ECB visits a bank and identifies problems in relation to AML, it needs to cooperate and pass the information on to the AML authority and vice versa. As such, this is the reason why the ECB has established cooperation agreements with AML authorities. Mr Enria considers that the new EU AML legislative framework has clarified and strengthened the controls and legal safeguards to protect against cases of money laundering, however, the EU needs to move to a much more harmonised regulatory framework if it wants to be serious about preventing money laundering. Mr Enria believes the EU should have AML regulations, rather than directives, as they are directly applicable to all banks, and authorities should have very strict co-ordination mechanisms.

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FINTECH

European Commission’s crypto-assets and Libra workstreams

On 29 August, the EP published an answer from the EC regarding a question relating to Libra. The publication states that the EC is currently engaged in two workstreams: (i) for crypto-assets that are covered by EU rules, the EC is screening EU legislation to ensure that it does not hinder innovation and can effectively be applied to this type of asset; and (ii) for crypto-assets that are currently not covered by EU legislation, the EC is assessing internally the merits of a possible common regulatory approach at EU level to ensure protection of consumers. Both assessments should be ready by April 2020. In relation to Libra, the EC is monitoring developments from an EU regulatory perspective and assessing its risks, in particular with regard to financial stability, monetary policy, data privacy, money laundering, consumer protection, competition and cyber security. Furthermore, the EC is working with international partners with the aim of ensuring a coordinated approach globally to manage any risks posed by Libra.

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PAYMENT SERVICES AND PAYMENT SYSTEMS

Pay.UK call for information on proposed faster payments service (FPS) rule requiring payment of Contingent Reimbursement Model (CRM) fee

On 28 August, Pay.UK published a call for information regarding a proposal to introduce an FPS rule requiring the payment of a CRM fee. Pay.UK wants to obtain insight from stakeholders on the change request that has been made by UK Finance on behalf of seven FPS direct participants. The change request proposes to introduce new FPS Rules with the aim of supporting delivery of part of a voluntary mechanism that has been developed to help deal with instances of APP scams. The change would require participants in the FPS rules to pay a CRM fee to fund the reimbursement of customers who fall within the category of ‘no blame’ as per the assessments outlined in the CRM code for APP scams that came into effect in May. Pay.UK intends to publish a decision on the change request by the end of November.

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PENSIONS

Department for Work and Pensions (DWP) Tailored Review of the Pensions Ombudsman

On 27 August, the DWP published its tailored review of the Pensions Ombudsman (TPO). The review notes several recommendations, including, among other things: (i) TPO should continue to build its relationship with the Financial Ombudsman Service (FOS), and develop a collaborative process to reduce customer confusion and duplication of efforts; (ii) DWP should provide greater support to TPO, and be properly resourced to achieve this; (iii) TPO should continue its positive journey to expand stakeholder liaison and to become a more influential player in raising standards across the pensions industry; (iv) given the requirement to review and increase charges to sustain the growing demand for levy-funded services, DWP should set clearer expectations in 2019-20 and as part of a future Spending Review on areas for efficiency and continuous performance improvement. The next tailored review will take place in five years' time.

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PRUDENTIAL REGULATION

EBA annual reports on funding plans and asset encumbrance

On 28 August, the EBA published its annual reports on funding plans and asset encumbrance. The objective of the funding report is to analyse and assess the feasibility of the funding plans that have been submitted for the EU banking system. The EBA's findings include that the total assets of banks increased in 2018 by 0.5% compared with their 2017 levels, which was mainly driven by an increase in loans to households and non-financial corporates (NFCs). The cut-off date for all funding plan data submitted by banks was 27 May. The asset encumbrance report monitors the evolution of asset encumbrance and contributes to the ongoing assessment of the composition of funding sources across EU banks. The 2018 data shows a stable level of asset encumbrance across the EU compared with 2017. The EBA found that the highest levels of encumbrance are reported by specialised mortgage institutions and repurchase agreement (repo) financing remains the most important source of asset encumbrance in the EU.

EBA report on funding plans

EBA report on asset encumbrance

ECB decisions passporting, acquisition of qualifying holdings and withdrawal of authorisations of credit institutions published in the OJ

On 28 August, two decisions were published in the OJ: (i) Decision (EU) 2019/1376 of the ECB on delegation of the power to adopt decisions on passporting, acquisition of qualifying holdings and withdrawal of authorisations of credit institutions. The decision was adopted on 23 July; and (ii) Decision (EU) 2019/1377 of the ECB on nominating heads of work units to adopt delegated decisions on passporting, acquisition of qualifying holdings and withdrawal of authorisations of credit institutions (ECB/2019/26). The decision was adopted on 31 July. Both decisions will enter into force on 17 September (20 days after publication in the OJ).

Decision (EU) 2019/1376

Decision (EU) 2019/1377

RECOVERY AND RESOLUTION

FSB summary of workshop on continuity of access to FMIs for firms in resolution

On 28 August, the FSB published an informal summary of an industry workshop on continuity of access to FMIs for firms in resolution. The FSB held the workshop on 21 May, as a means of engaging with external stakeholders on the implementation of its guidance on continuity of access to FMIs for firms in resolution. The workshop was attended by various FMI service providers, international CSDs and CCPs, and participants discussed possible actions to progress implementation, including: (i) for firms’ resolution planning, developing common templates for collection of certain core information from FMIs by FMI types; (ii) FMIs disclosing publicly certain information including non-binding ‘presumptive path’ summaries of responses to a member experiencing distress or entering into resolution; (iii) sharing relevant resolution contact information; and (iv) engagement between FMIs and resolution authorities regarding resolution strategies and approaches, and likely communication and information needs during resolution planning, as well as in the lead up to and during a resolution of a member.

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OTHER DEVELOPMENTS

FCA letter on 2019/20 remuneration round

On 28 August, the FCA published a letter (dated 19 August) sent to the Chairs of the Remuneration Committee of level 1 firms. The letter outlines the FCA’s findings and observations from the 2018/19 remuneration round, and sets out its approach for assessing firms remuneration practices throughout 2019/20. The remuneration round involves the FCA and the PRA reviewing the remuneration policies and practices of level 1 firms against the requirements of the dual-regulated firms' Remuneration Code (SYSC 19C) and applicable European regulations. In the letter, the FCA comments on ex-post risk adjustments, diversity and inclusion, and firms’ Remuneration Policy Statements.

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Law Commission call for evidence: Intermediated securities

On 27 August, the Law Commission published a call for evidence on intermediated securities, in order to assist it with producing a scoping study. The Law Commission seeks views on specific questions in relation to, among other things: (i) voting rights; (ii) schemes of arrangement; (iii) investor’s ability to sue the company or a higher intermediary; (iv) insolvency and intermediated securities; (v) good faith purchasers; (vi) transfers of equitable interests; and (vii) technological developments. The deadline for comments is 5 November. The Law Commission intends to publish its study in autumn 2020.

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