ESAs' Joint Committee report on cross-sector risks facing EU financial system: April 2017

The Joint Committee of the European Supervisory Authorities (ESAs) (that is, the EBA, EIOPA and ESMA) has published its report (JC 2017 09) on risks and vulnerabilities in the EU financial system.

The Joint Committee highlights the following main risks to the financial system:

  • Low profitability. The banking sector is being affected by high levels of non-performing loans (NPLs), high litigation costs, overcapacity, and lack of focus in strategies to return to sustained profitability. Addressing NPL challenges includes increasing supervisory action, making progress in structural reforms, and improving the efficiency of secondary markets. Insurers face substantial challenges arising from prolonged low interest rates, and the fund industry's rates of returns are subdued and remain mostly negative.
  • Valuation risk. Increased asset price volatility and liquidity concerns have heightened risks relating to adequate valuation of asset prices. This has been exacerbated by political uncertainties.
  • Interconnectedness within the financial system. Interconnectedness adds to financial sector risks. This includes concentration risk caused by highly correlated equity price movements for insurers and banks, and high exposures of EU insurers to EU banks. Interconnectedness with the wider financial system is also increasing.
  • Cyber risks and other IT-related risks. Cyber risk appears as a major risk and is on the rise. Currently, denial-of-service attacks, data theft or manipulation, malicious software, misinformation and false identification are the most relevant forms. Operational risks related to ICT risks also appear to be on the rise across the financial sector.

ESAs, 20 April 2017

Updated LMA consumer wordings guidance for managing agents

Lloyd's Market Association (LMA) has published an updated version of its consumer wordings guidance (v3.0). It is intended to assist managing agents with the practicalities of drafting new consumer products and adapting existing commercial wording to produce consumer versions. In an accompanying bulletin, the LMA explains that the guidance has been updated to reflect:

  • Claims handling: clarification relating to insured’s duty to mitigate the loss.
  • Data Protection (General Data Protection Regulation (GDPR)): placeholder added.
  • Rights of Third Parties: further clarified Third Parties (Rights Against Insurers) Act 2010.
  • Law and Jurisdiction: added Lloyd’s requirement.
  • Expanded guidance on definitions and exclusions.
  • New renewal documentation section to incorporate FCA rules on renewals transparency, which took effect from 01 April 2017

LMA, 20 April 2017

European Commission warns staff of Brexit ‘administrative chill’

The British Bankers Association has released the latest edition of its round-up on banking policy news, highlighting an internal memo sent by senior European Commission officials to all EU staff highlights a growing ‘administrative chill’ ahead of Brexit proceedings. The memo follows a statement from Margaritis Schinas, spokesperson for the European Commission, who said the UK will have ‘no say’ in the relocation of the European Banking Authority. BBA, 20 April 2017

Ten years on: fixing the fault lines of the global financial crisis

The governor of the Bank of England (BoE) and chair of the Financial Stability Board (FSB), Mark Carney, has published an article in Financial Stability Review. Mr Carney stressed that, since the inception of the FSB by the G20 leaders following the financial crisis in 2007, ‘the global financial system has been reregulated—leaving a safer, simpler, and fairer financial system that can support open markets and inclusive growth’. Financial Stability Review, 20 April 2017

ECB executive on future plans for CCPs

The Banque de France Financial Stability Review has published an article on Central clearing: reaping the benefits, controlling the risks by Benoît Coeuré, a member of the executive board of the European Central Bank and chair of the committee on payments and market infrastructures at the Bank for International Settlements. The article looks at the significant expansion in central clearing in recent years as a result of changes to financial markets and the introduction of mandatory central clearing obligations for standardised over-the-counter (OTC) derivatives. ECB, 20 April 2017

BIS conference looks at role of statistics in the global financial landscape

The eighth Irving Fisher Committee on Central Bank Statistics conference on the ‘Statistical implications of the new financial landscape’, examines central bank statisticians’ ongoing efforts to improve international financial statistics in response to the financial crisis of 2007–09. Such efforts are aimed at developing better quality, more comprehensive, and more flexible data sets. BIS, 20 April 2017

Valdis Dombrovskis calls for EU and US to keep developing regulation together

The vice-president of the European Commission, Valdis Dombrovskis, has given a speech in Washington DC on ‘Transatlantic co-operation—key for jobs and economic growth’, in which he calls for continuing co-operation on financial matters between the US and the EU. He said the global financial crisis shook the two economies to the core, in the process showing that the two financial systems are inherently linked and that financial stability requires a joint effort. Co-operation on financial services is vital, said Mr Dombrovskis, citing the derivatives market as an example, as no one country could provide a regulatory framework for what is a global market. EC, 20 April 2017


New LMA EU contract continuity clause

Lloyd's Market Association (LMA) has published a new model EU contract continuity clause (LMA5284) relating to Brexit. In an accompanying bulletin, the LMA explains that the clause provides that contracts will continue unless there is an urgent need to terminate a contract for licensing or other regulatory reason following Brexit or other EU member exit or Eurozone break-up. The LMA stresses that, like all LMA model clauses, the clause is purely illustrative and intended for the guidance of members, who are free to agree different conditions. LMA, 20 April 2017 INVESTMENTS AND FUNDS BBA guidance on MiFIR transaction reporting short selling indicator

British Bankers' Association (BBA) has published guidance on the short selling requirements in the transaction reporting regime under the Markets in Financial Instruments Regulation (MiFIR). The BBA explains that MiFIR transaction reporting introduces a number of new requirements, including a new field requiring the completion of a "short sale indicator" for transaction reports. Requiring firms to indicate whether or not a transaction is a short sale is a significant change from the current provisions under the Markets in Financial Instruments Directive (MiFID). The guidance discusses the key issues identified by the working group and sets out regulatory references to the rules. BBA, 20 April 2017