CAPITAL MARKETS AND MARKET INFRASTRUCTURE
See Recovery and Resolution section for an update on CCP recovery and resolution.
FCA makes available draft forms for benchmark administrators
On 6 July, as part of their consultation on Handbook changes to reflect application of Benchmarks Regulation, the FCA has made available the following draft versions of forms for benchmark administrators: (i) Draft authorisation form; (ii) Draft registration form; (iii) Draft endorsement form; and (iv) Draft recognition form. The FCA is seeking feedback on the draft forms by 6 August. Otherwise, CP17/17 closes to responses on 22 August. The FCA will consider the feedback received and intends to publish its final rules in a policy statement in October.
New ESMA Q&As on Benchmarks Regulation
On 5 July, ESMA published a new set of Q&As relating to the implementation of the Benchmarks Regulation. The first two answers included in the Q&As relate to the transitional provisions under the Benchmarks Regulation. They clarify which benchmarks supervised entities in the EU will be allowed to use after 1 January 2018.
ECB recommendation on power to regulate CCPs and other clearing systems published in OJ
On 1 July, a recommendation by the ECB to amend Article 22 of the statute of the ESCB and of the ECB to allow the ECB to regulate clearing systems for financial instruments was published in the OJ. The amendment would give the ECB the power to regulate CCPs. In particular, the Eurosystem would have the power to monitor and assess risks posed by CCPs clearing significant amounts of euro-denominated transactions and the ECB would be able to adopt additional requirements for those CCPs. The ECB has sent the recommendation to the Parliament and the Council for their consideration. The Commission will issue an opinion on the recommendation.
Prospectus Regulation: publication in OJ
On 30 June, Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC, was published in the OJ. Other than the insertion of dates and very minor drafting changes, the text of the regulation is the same as that adopted by the Council of the EU on 16 May. The regulation will enter into force on 20 July and it will apply from 21 July 2019, save for Articles 1(3) and 3(2) which will apply from 21 July 2018 and points (a), (b) and (c) of the first subparagraph of Article 1(5) and of the second subparagraph of Article 1(5) which will apply from 20 July.
FCA enforcement annual performance account for 2016/17
On 5 July, the FCA published its enforcement annual performance account for 2016/17. The FCA uses its enforcement annual performance account to set out an assessment of whether it is operating fairly and effectively in investigating suspected misconduct and in bringing criminal, civil and administrative proceedings where it is appropriate to do so. Points of interest for 2016/17 include: (i) The FCA issued 180 final notices (of which 155 were against firms and 25 against individuals), secured 209 outcomes using its enforcement powers (198 regulatory or civil and 11 criminal), and imposed 15 financial penalties totalling £181 million; (ii) Having accepted the recommendations made by Andrew Green QC in his report into the FSA's enforcement actions following the failure of HBOS plc, the FCA's general approach is to begin investigations under section 168 of FSMA where there are circumstances suggesting misconduct; (iii) In the area of wholesale conduct, the FCA is continuing to pursue outcomes in current investigations and litigation relating to individuals' misconduct in relation to benchmarks. The FCA is also seeking to ensure that the UK's wholesale markets are not used for trading that facilitates money laundering. Firms must ensure they are not enabling clients to engage in suspicious behaviour.
FSB progress report on reducing misconduct risks in financial sector
On 4 July, the FSB published a progress report for G20 leaders on initiatives intended to reduce misconduct risk in the finance industry. The report summarises initiatives undertaken by the FSB and other international standard-setters to address misconduct in the financial sector and the timeline for actions. Among other things, the FSB highlights the following initiatives: (i) Improving monitoring and report on the use of compensation tools; (ii) Reforming major interest rate benchmark setting to reduce manipulation risk; and (iii) Selection of benchmarks and contingency planning.
Fifth FSB progress report on compensation practices
On 4 July, the FSB published its fifth progress report on the implementation of its principles for sound compensation practices and their implementing standards by FSB jurisdictions. Key findings include: (i) Almost all FSB member jurisdictions have substantively implemented the principles and standards for banking organisations. However, there are some significant differences between the approaches taken to the oversight of compensation practices in banking organisations; (ii) In-year adjustments to compensation remains the compensation tool of choice in banking organisations. Application of malus is still rare in many jurisdictions and clawback is subject to more significant legal obstacles or enforcement issues in many jurisdictions; (iii) There are significant differences between banking organisations' approaches and supervisory frameworks for the identification of material risk takers; (iv) Progress on implementing the principles and standards in the insurance sector is significantly behind that of banking organisations; (v) In the securities sector, there is a great variety of approaches to compensation, with the variations reflecting the diversity of firms in the sector; and (vi) Securities industry participants believe that sound compensation practices may be a useful tool in managing misconduct risk. The FSB intends to publish its next progress report in 2019.
See Insurance section for update on template documentation for PRIIPS.
MAS toolkit for creditors working with debt advice sector
On 4 July, the MAS published a toolkit for creditors setting out best practice processes and case studies from creditors that have effective partnerships in place with the debt advice sector. One of the aims of the toolkit is to encourage more consistent creditor practices when people fall into financial difficulty. The toolkit sets out seven steps to improve collaboration between debt advice agencies and better support of customers in financial difficulty, including: (i) Debt advice interventions; (ii) Customer affordability; (iii) Debt advice referral strategies; and (iv) Target specific customer cohorts for debt advice intervention. The MAS shares examples and case studies of innovative partnerships between creditors and debt advice agencies.
PRA statement on consumer credit
On 4 July, the PRA published a statement on consumer credit following its review of consumer credit lending, which examined PRA-regulated firms' asset quality and underwriting practices for credit cards, unsecured personal loans and motor finance. The statement summarises the findings from the PRA's review and outlines issues arising for PRA-regulated firms that provide consumer credit to consider and, if necessary, take action. The statement also reports that the BoE will bring forward the assessment of stressed losses on consumer credit lending in its ACS test for the major firms. In addition, the PRA will work with firms not captured by the ACS stress test, but with relatively high exposures to consumer credit, to review their resilience against the 2017 (or similar) stress scenario and provide feedback privately.
FCA consults on staff incentives and performance management in consumer credit firms
On 4 July, the FCA published a consultation paper (CP17/20) setting out its proposals for how consumer credit firms should manage risks related to how they pay and manage the performance of their staff. The consultation affects firms that are engaged in credit-related regulated activity and are not subject to any of the existing remuneration codes in SYSC. CP17/20 closes on 4 October. Depending on the nature of responses, the FCA intends to publish a policy statement in early 2018.
European Commission adopts guidelines on application of PRIIPS Regulation
On 4 July, the EC adopted guidelines on the application of the PRIIPS Regulation. The guidelines are intended to help providers and distributors of investment products, funds and investment insurance policies design their KIDs by smoothing out potential interpretative divergences throughout the EU. The guidelines address 19 issues, including: (i) Products covered by the PRIIPS Regulation; (ii) Products made available to retail investors against no consideration; (iii) Multi-option PRIIPs; (iv) Insurance-based investment products with PRIIPs and non-PRIIPs as underlying investment options; (v) Territorial application; (vi) Use of KIDs by UCITS; (vii) PRIIPs only sold by intermediaries; (viii) Distribution of a PRIIP without a KID; (ix) A non-PRIIP product offered alongside a PRIIP. Firms must comply with the PRIIPS Regulation from 1 January 2018.
Joint Committee of ESAs Q&As on PRIIPs KID
On 4 July, the Joint Committee of the ESAs published Q&As relating to the KID requirements for PRIIPs, as laid down in Commission Delegated Regulation (EU) 2017/653. The Q&As aim to promote common supervisory approaches and practices in the implementation of the KID and include answers to questions linked with the presentation, content and review of the KID, including the methodologies underpinning the risk, reward and costs information. Commission Delegated Regulation (EU) 2017/653 supplements the PRIIPs Regulation. It was published in the OJ in April and will apply from 1 January 2018.
European Commission launches online consultation on targeted revisions to EU consumer law directives
On 30 June, the EC published an inception impact assessment and launched an online consultation to seek views on possible targeted amendments to key EU consumer law directives. This follows the results of the fitness check on EU consumer law, and the evaluation of the Consumer Rights Directive (2011/83/EU) published at the end of May. The consultation closing date is 8 October.
FCA Financial Advice Market Review baseline report and updates to FCA advice unit
On 30 June, the FCA published a baseline report on its FAMR, which is supported by two pieces of consumer research, a qualitative and a quantitative piece. The report identified three main themes to measure the development of the market: (i) Accessibility (including customer engagement). Increased access to advice and guidance for all consumers was a main theme of the FAMR recommendations; (ii) Affordability. The FAMR report, which was published in March 2016, set out how a number of factors combine so that not all consumers can currently afford to access advice at a price they are willing, or able, to pay; and (iii) Quality of advice and guidance. The FAMR report stated that the UK's financial advice market can work better to deliver high-quality, affordable advice and guidance for all consumers.
MAR: ESMA updated Q&A
On 6 July, ESMA published an updated version of its Q&A on the MAR to include a new question on the definition of a closely associated person (question 7.7). ESMA gives an example where a person sits on the administrative, management or supervisory body of an issuer and on the board of another legal person, trust or partnership where they exercise executive or non-executive functions but do not take part in or influence the decision of that legal entity to carry out transactions in financial instruments of the issuer. Such a person should not be considered as discharging managerial responsibilities within that legal entity for the purposes of Article 3(1)(26)(d). Therefore, that legal entity would not be subject to the notification obligations in Article 19(1) (managers' transactions) unless it was directly or indirectly controlled by, was set up for the benefit of, or its economic interests were substantially equivalent to those of that person.
FCA final guidance on treatment of PEPs for AML purposes
On 6 July, the FCA published finalised guidance (FG17/5) on the treatment of PEPs for AML purposes. FG17/5 provides clarity on how firms should apply the definitions of a PEP in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) in the UK. The guidance only applies to business relationships undertaken in the course of business in the UK. The FCA has made a number of amendments to the draft guidance. It also warns that, as the EU is currently negotiating targeted amendments to the MLD4 (referred to as MLD5), the final text may impact the guidance.
FCA anti-money laundering annual report for 2016/17
On 5 July, the FCA published its AML annual report for 2016/17. The report explains how it has sought to achieve its AML objectives over the last year by examining: (i) Developments in AML supervision strategy; (ii) Findings and outcomes from recent specialist supervision work; (iii) New technology and effectiveness; and (iv) how the FCA cooperates with its partners both at home and overseas. Looking ahead, the FCA will continue to review its supervision strategy, using the information from the new financial crime data return to target its work on the highest-risk firms and sectors.
Wolfsberg Group updated guidance on anti-bribery and corruption compliance programmes for financial institutions
On 4 July, the Wolfsberg Group published updated guidance on how financial institutions should construct an effective anti-bribery and corruption compliance programme, together with a statement that summarises the changes made and the reasons for those changes. The guidance focuses on how financial institutions can manage their own bribery and corruption risk in respect of the behaviour of their employees and third parties acting on their behalf. The guidance makes substantive changes to the following areas: (i) The definition of government/public officials; (ii) The definition of intermediaries and associated controls; (iii) Risk management of principal investments and joint ventures; (iv) Offers of employment and work experience; and (v) The reduction of focus on customer-related AML provisions.
Implementing Regulation on ITS regarding procedures and forms for competent authorities exchanging information with ESMA under MAR published in OJ
On 30 June, Commission Implementing Regulation (EU) 2017/1158 laying down ITS regarding the procedures and forms for competent authorities exchanging information with ESMA as referred to in Article 33 of the MAR was published in the OJ. Under the Implementing Regulation: (i) To facilitate communication between competent authorities and ESMA, and avoid unnecessary delays or failed submissions, each competent authority must designate (and notify ESMA of) a single contact point specifically for the purpose of submitting the information required; (ii) Competent authorities must provide ESMA with the information referred to in Article 33(1) and (2) of MAR by completing, as appropriate, the form set out in Annex I to the Implementing Regulation. This information must be provided to ESMA no later than 31 March each year and must relate to all investigations undertaken and all sanctions and measures imposed during the previous calendar year. The information must be provided by secure electronic means of transmission (as specified and identified by ESMA), to ensure that the completeness, integrity and confidentiality of the information is maintained during its transmission; and (iii) Competent authorities must report to ESMA the sanctions and measures it has disclosed to the public, using the interfaces provided by the IT system and related database that have been set up by ESMA to manage the receipt, storage and publication of information on those sanctions and measures. Annex II to the Implementing Regulation sets out the format in which these reports must be made. The Commission adopted the Implementing Regulation on 29 June. It enters into force on 20 July.
MAR: CLLS and Law Society updated Q&A
On 30 June, the CLLS and Law Society Company Law Committees' Joint Working Parties on Market Abuse, Share Plans and Takeovers Code published an updated version of their Q&A setting out their suggested approach to implementing certain aspects of MAR. The updated version of the Q&A includes a new Part C relating to contractual arrangements involving a subscription for shares (for example an issue of consideration shares in connection with an acquisition, an undertaking to subscribe for shares under a firm placing or signing an irrevocable undertaking in connection with a takeover) and the disclosure of inside information.
IOSCO consults on recommendations and good practices in liquidity risk management for funds
On 6 July, IOSCO published consultation documents on good practices and issues for consideration in open-ended fund liquidity and risk management and CIS liquidity risk management recommendations. The consultations seek to address structural vulnerabilities arising from asset management activities, as part of IOSCO’s mission to protect investors and mitigate systemic risk in global financial markets. The deadline for comments for both consultations is 18 September.
MMF Regulation published in OJ
On 30 June, the text of the MMF Regulation was published in the OJ. The MMF Regulation will enter into force on 20 July, 20 days after publication in the OJ. It will apply from 21 July 2018, with the exception of Article 11(4), Article 15(7), Article 22 and Article 37(4), which will apply from 20 July.
See Consumer Retail for an update on the application of the PRIIPS Regulation.
IAIS provides update on development of activities-based approach to assessment of systemic risk in insurance sector
On 6 July, the IAIS published a press release following its recent global seminar. Points of interest from the seminar include: (i) The IAIS provided a high-level summary of comments received during its recent consultation on certain ComFrame-related material and announced plans for a public consultation of ComFrame in mid-2018 It was agreed that the final product should allow for comparability across jurisdictions; (ii) The IAIS announced executive committee approval of insurance capital standard (ICS) version 1.0 for extended field testing. Publication is intended for mid-July; (iii) The IAIS held its first stakeholder session on the development of an activities-based approach to systemic risk assessment. It also reiterated its plans for a consultation on the initial findings, which is expected later in 2017. It will be followed by a consultation on systemic risk assessment by the end of 2018. The IAIS announced that it had adopted a systemic risk assessment and policy workplan in February; (iv) High-level conduct of business principles and risk-based supervisory approaches could provide important benefits in a changing environment; and (v) There is a need for ongoing dialogue between the insurance industry and supervisors concerning the digitalisation of the insurance sector.
EIOPA opinion on recovery and resolution framework for insurers
On 5 July, EIOPA published an opinion on the harmonisation of recovery and resolution of insurers and reinsurers. EIOPA's view is that a minimum harmonisation of national recovery and resolution frameworks for insurers and reinsurers within the scope of Solvency II would contribute to adequately protecting policyholders, maintaining financial stability and protecting public funds. In the opinion, EIOPA sets out its proposed building blocks for a harmonised framework, namely: (i) Preparation and planning; (ii) Early intervention; (iii) Resolution; and (iv) Cross-border co-operation and co-ordination. EIOPA recommends that the framework should be applied in a proportionate manner in order to avoid excessive administrative burdens for insurers and national authorities.
PRA policy statement on Solvency II matching adjustment relating to illiquid unrated assets and equity release mortgages
On 5 July, the PRA published a policy statement on the matching adjustment relating to illiquid unrated assets and equity release mortgages under Solvency II (PS14/17). In PS14/17, the PRA provides feedback to its December 2016 consultation paper (CP48/16). The PRA has made changes to the draft supervisory statement it consulted on as a result of the comments received. Details of the changes are set out in chapter 2 of PS14/17. However, the PRA does not consider the impact of the changes on firms to be significant.
PRA policy statement on cyber insurance underwriting risk
On 5 July, the PRA published a policy statement on cyber insurance underwriting risk (PS15/17). In PS15/17, the PRA provides feedback to its November 2016 consultation paper (CP39/16) in which the PRA consulted on a new supervisory statement setting out its expectations for the prudent management of cyber underwriting risk. The PRA states that it has made amendments to the supervisory statement to clarify issues raised by respondents with: (i) The definitions of cyber insurance underwriting risk and of silent cyber risk; (ii) The lines of business to which non-affirmative cyber risk applies; (iii) The list of potential actions for managing silent cyber risk; and (iv) Strategy and board management information.
PRA policy statement on dealing with market turning event in general insurance sector
On 5 July, the PRA published a policy statement on dealing with a market turning event (MTE) in the general insurance sector (PS16/17). PS16/17 is relevant to all PRA-regulated general insurance firms that are in scope of Solvency II, and to the Society of Lloyd's and managing agents. It provides responses to recommendations made to the PRA in a January 2017 industry white paper, which followed an industry-sponsored dry run exercise simulating a USD200 billion catastrophic loss event that took place in November 2016. An Appendix to PS16/17 sets out an amended supervisory statement (SS5/17). The amendments include: (i) Further consideration of the characteristics of a MTE and its impact on firms' model change policies; (ii) Addressing concerns over the speed of a regulatory response following a MTE; (iii) Changes to the example loss return template; (iv) Clarification of the application of proportionality and firms' use of existing documentation such as ORSAs; and (v) More explicit drawing out the importance of liquidity management following a MTE.
EIOPA consults on first set of technical advice on Solvency II Delegated Regulation
On 4 July, EIOPA published a consultation paper on the first set of advice to the EC on specific items in Solvency II. In the consultation paper, EIOPA sets out its draft advice on: (i) Simplified calculations; (ii) Reducing reliance on external credit ratings in the standard formula; (iii) Treatment of guarantees, exposure guaranteed by a third party and exposures to regional governments and local authorities; (iv) Risk-mitigation techniques; (v) Look-through approach on investment related vehicles; (vi) Undertaking specific parameters; and (vii) Loss-absorbing capacity of deferred taxes. The deadline for responses is 31 August. EIOPA intends to finalise its first set of technical advice in October. EIOPA intends to publish a second consultation paper before the end of 2017 on other issues relating to the Delegated Regulation, with the aim of sending its second and final set of advice to the EC by February 2018.
Insurance Europe templates for PRIIPs information exchange
On 30 June, Insurance Europe published two templates that aim to facilitate the exchange of information between insurers and asset managers, which is required under the PRIIPs Regulation, in relation to multi-option products. The templates are: (i) The European PRIIPs template (EPT), which includes the minimum data necessary for insurers to produce a KID in accordance with the provisions of the PRIIPs Regulation. Asset managers will deliver the files for free; and (ii) The "Comfort" EPT, which includes more data. Its delivery depends on ad hoc bilateral agreements between insurers and asset managers.
FCA information request to with-profits firms
On 30 June, the FCA published a press release announcing that it has issued an information request to the majority of firms with with-profits business to help it carry out a multi-firm review of the sector. The latest review is into the fair treatment of with-profits customers and will allow the FCA to further understand the range of practices that are now being adopted by firms. The FCA referred to the review into the fair treatment of with-profits customers in its 2017/2018 business plan.
IAIS consults on draft application paper on product oversight in inclusive insurance
On 30 June, the IAIS launched a consultation on a draft application paper on product oversight in inclusive insurance. The purpose of the application paper is to provide guidance to supervisors, regulators and policymakers when considering, designing and implementing regulations and supervisory practices on product oversight in inclusive insurance markets. The IAIS suggests that the insurance industry may also want to take note of the paper as they are expected to design products that are suitable for their target customers. The consultation closes on 29 August. The IAIS will hold a public "background" call via teleconference to discuss the draft paper, and will announce details of the call separately.
IAIS consults on revised draft ICPs on the supervisor, intermediaries and conduct of business
On 30 June, the IAIS launched a consultation on revised versions of a number of the ICPs. In particular: (i) ICP 1: Objectives, powers and responsibilities of the supervisor; (ii) ICP 2: Supervisor; (iii) ICP 18: Intermediaries; and (iv) ICP 19: Conduct of business. The consultation closes on 29 August. Feedback received will enable the IAIS to finalise the ICPs. The IAIS will launch a further ICP consultation in the summer. It expects to release ICP 24 on Macroprudential surveillance and insurance supervision at the beginning of August.
MiFID II - ESMA publishes corrected opinion on calculating market size of ancillary activity
On 6 July, ESMA published a corrected version of its opinion on calculating the market size of ancillary activity under MiFID II. ESMA published the opinion in June and states that it has reissued the opinion to correct an error in the table entitled "H2 2016 Estimates" on page 6.
MiFID II - ESMA opinion on transitional transparency calculations
On 3 July, ESMA published an opinion providing interim transparency calculations for non-equity instruments in relation to the implementation of MiFID II and MiFIR. The opinion sets out a list of asset classes, as defined in MiFIR, and provides hyperlinks to data files containing the outcomes of the transitional transparency calculations for all non-equity instruments that have been classified as liquid in accordance with Commission Delegated Regulation (EU) 2017/583. ESMA has also published accompanying FAQs to assist firms.
MiFID II - FCA second policy statement
On 3 July, the FCA published its second policy statement (PS17/14) on the UK implementation of MiFID II and the MiFIR. PS17/14 sets out the FCA's final rules relating to matters including conduct of business and client assets. The final rules are set out in the following Handbook instruments: (i) Glossary (MiFID 2) Instrument 2017; (ii) MiFID 2 Fees (Data Reporting Applications) Instrument 2017; (iii) Markets and Organisational Requirements (MiFID 2) Instrument 2017; and (iv) Conduct, Perimeter Guidance and Miscellaneous Provisions (MiFID 2) Instrument 2017.
MiFID II - Sixth FCA consultation on UK implementation
On 3 July, the FCA published its sixth consultation paper (CP17/19) on the UK implementation of MiFID II and MiFIR. CP17/19 concerns issues relating to the implementation of MiFID II covering a small number of Handbook changes that the FCA has not previously been able to consult on. These relate to: (i) FSCS cover for RIEs operating MTFs and OTFs (Chapter 2). This is because under MiFID II it is a requirement for such facilities to adhere to an investor compensation scheme; (ii) Changes to the DEPP and the EG. (Chapter 3) The FCA proposes changes to its proposed amendments to DEPP and EG as set out in CP17/8. This is due to the final version of the MiFID II implementing legislation published on 22 June. The substance of the FCA's proposals has not changed; (iii) Consequential changes to the Prospectus Rules and the FCA glossary (Chapter 4) arising out of legislative changes by HM Treasury to implement MiFID II. The consultation closes on 7 September. The FCA intends to publish a policy statement with final rules by November.
MiFID II - ESMA opinion on calculating market size of ancillary activity
On 30 June, ESMA published an opinion to help market participants assess whether their commodity derivatives activities can be considered as ancillary to their main business. The aim of the opinion is to help market participants perform the ancillary activity test in MiFID II in the absence of publicly available data for commodity derivatives and emission allowances. The opinion sets out the methodology applied and the way market participants can use the data to calculate their market share.
European Commission inception impact assessment on review of SEPA Migration Regulation
On 5 July, the EC published an inception impact assessment on a review of the SEPA Migration Regulation to consider extending the scope of the Regulation to all non-euro currencies in the EU. The impact assessment (also referred to as a roadmap) explains that the SEPA Migration Regulation equalised fees for cross-border and national payments in euro within the EU, which has led to a reduction in transaction fees for payments in euro to a few cents. However, payments in other EU currencies tend to be much more expensive, which creates economic barriers between member states and imposes significant costs on anyone making cross-border transactions in non-euro currencies. The only exception is the Swedish krona, as Sweden extended the SEPA Migration Regulation to its currency. The EC sets out three possible options: (i) Equalising fees for local currency cross-border transfers and corresponding domestic transfers (excluding currency conversion costs); (ii) Equalising fees for local currency transactions with euro transactions; and (iii) Imposing requirements on fee structures applied to payment services users such as minimum fees, ad valorem pricing, or maximum fees or caps for cross-border transactions. The EC will hold a public consultation on the initiative, plus targeted consultations through online questionnaires and interviews.
PSR annual report for 2016/17
On 5 July, the PSR published its annual report and accounts for 2016/17. The report sets out the work the PSR undertook in 2016 and 2017 and describes how it has met the aims and priorities that it set out in its 2016/17 annual plan and policy work programme.
BoE policy statement on code of practice and supervisory statement on governance of recognised payment system operators
On 3 July, the BoE published a policy statement setting out a code of practice and supervisory statement on the governance of operators of RPSOs, being those payment systems that have been recognised by HM Treasury under section 184 of the Banking Act 2009. The code (which is set out in Annex 1 to the policy statement) and supervisory statement (which is set out in Annex 2 to the policy statement) apply to all RPSOs excluding those operated by a RCH or a CSD, since they are or will be subject to other requirements (for example, EMIR and the CSDR). The code will be implemented on 21 June 2018 and contains a transitional provision stating that it does not apply for the first twelve months after a payment system is recognised as a RPSO. However, the supervisory statement clarifies that the BoE expects that an RPSO will make all reasonable effort to work towards full compliance as soon as practicable in its first year, and will in any event be fully compliant by the end of the twelve-month period.
The Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment) Regulations 2017 (SI 2017/717)
On 6 July, the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment) Regulations 2017 were laid before Parliament. The Regulations look to simplify advice requirements for safeguarded pension benefits and introducing new consumer protections. The Regulations come into force on 6 April 2018.
DWP: Government response: Consultation on valuing pensions for the advice requirement and introducing new consumer protections
On 6 July, the Government published its response to its September 2016 consultation on valuing pensions for the advice requirement and introducing new consumer protections.
Government's response to consultation on single public financial guidance body
On 5 July, HM Treasury and the DWP published the response to their consultation on creating a single financial guidance body. The paper outlines further details on its plan to create a new single financial guidance body. The new body will replace the MAS, the Pensions Advisory Service and the DWP's "pension wise" guidance.
See Insurance section for updates on Solvency II.
FSB guiding principles on internal TLAC
On 6 July, the FSB published guiding principles on the internal loss absorbing capacity of G-SIBs. The consultation follows on from the FSB's work on the TLAC standard, which it finalised in November 2015. It relates to the loss absorbing-capacity that resolution entities in G-SIBs are expected to commit to material sub-groups. The principles cover: (i) The process for identifying material sub-groups, the composition of material sub-groups, the distribution of internal TLAC within material sub-groups and the treatment of unregulated or non-bank entities; (ii) The role of home and host authorities and the factors to be considered when determining the size of the internal TLAC requirement; (iii) Practical considerations relating to the issuance and composition of internal TLAC; (iv) Features of the trigger mechanism for internal TLAC; and (v) Co-operation and co-ordination between home and host authorities in triggering the write-down or conversion (or both) into equity of internal TLAC.
PRA policy statement on IRFS 9 and changes to reporting requirements
On 6 July, the PRA published a policy statement on changes to regulatory reporting requirements arising from the introduction of IFRS 9 (PS18/17). In PS18/17, the PRA sets out its final rules and guidance relating to the introduction of IFRS 9 from 1 January 2018 for UK banks and building societies. The PRA states that, following feedback to the consultation, it has amended its proposals on the requirement to report on an individual and consolidated basis. The amendments to the Regulatory Reporting Part and to SS34/15 will take effect from 1 January 2018. Firms are required to submit their FINREP templates 30 business days after the end of their first reporting period. Firms that do not have an accounting year end of 31 December can apply for a rule modification using the modification by consent process to enable them to delay the application of the new rules until the start of their financial year beginning in 2018. The PRA will permit firms planning to implement IFRS 9 before 1 January 2018 to apply for a rule modification to enable them to bring forward implementation of the requirements to the start of their financial year in 2017. Firms seeking the rule modification should contact the PRA directly.
BCBS and IOSCO consult on STC short-term securitisations
On 6 July, the BCBS and IOSCO published a consultative document on criteria for identifying simple transparent and comparable (STC) short-term securitisations (BCBS414). The BCBS has also published a separate consultative document (BCBS413) on the capital treatment for STC short-term securitisations. In the consultation, the BCBS sets out proposals for incorporating the short-term STC criteria into the BCBS securitisation framework, which was most recently revised by the BCBS in July 2016 (BCBS374). BCBS413 sets out additional guidance and requirements for the purpose of applying preferential regulatory capital treatment for banks acting as investors in or as sponsors of STC short-term securitisations. Annex 2 to BCBS413 contains proposed revisions to BCBS374. The deadline for responses to both consultations is 5 October. The BCBS states that it intends to publish the final standard for the capital treatment for STC short-term securitisations "within an appropriate time frame", taking into account the expectation that the BCBS' revised securitisation framework should be implemented by January 2018.
European Commission adopts Implementing Regulation on ITS on supervisory reporting to reflect IFRS 9 changes to FINREP
On 5 July, the EBA published a press release announcing that on 29 June, the EC adopted an Implementing Regulation amending the Implementing Regulation on supervisory reporting of institutions (Regulation 680/2014) under the CRR. The amendments relate to the provisions in Regulation 680/2014 concerning FINREP and are intended to align these provisions with IFRS 9. The Implementing Regulation has not yet been published in the OJ. It will apply from 1 March 2018.
BCBS reports to G20 on implementation of Basel III
On 4 July, the BCBS published a report for G20 leaders on the implementation of the Basel III regulatory reforms. The report summarises the outcomes from the BCBS' regulatory consistency assessment programme, which involves monitoring progress in adopting the Basel III standards, assessing the consistency of domestic banking regulations with the Basel III standards and analysing the prudential outcomes from those regulations. The BCBS states that progress has been made and that banks are continuing to build larger and better-quality capital and liquidity buffers while reducing their leverage. The BCBS also identified a number challenges to the implementation of Basel III: (i) Delays in many jurisdictions in the implementation of domestic rules on SA-CCR, CCPs and capital requirements for equity investments; and (ii) A large number of Basel standards remain to be transposed into domestic regulation in the next two years, including those on market risk capital requirements, limits on large exposures and securitisation.
BCBS implementation assessments of LCR in China, EU and USA
On 3 July, the BCBS published reports assessing the implementation of the LCR under the Basel III framework in: (i) China (BCBS411); (ii) EU (BCBS410); and (iii) USA (BCBS409). Overall, the LCR regulations in China and the USA are assessed as "compliant" with the Basel framework. This is the highest of four possible grades. The EU LCR regulations are found to be "largely compliant" (which is one notch below the highest possible grade), reflecting the fact that most but not all provisions of the Basel standards are satisfied.
ECB decision on reporting of credit institutions' funding plans by NCAs to ECB under SSM
On 30 June, the ECB published a decision on the reporting of funding plans of credit institutions, by NCAs. It refers to the need to specify the manner in which NCAs provide the ECB with funding plans. In particular, the format, frequency and timing of the submission of information, as well as details of the quality checks performed by NCAs before submitting information to the ECB should be specified.
RECOVERY AND RESOLUTION
See Insurance section for an update on recovery and resolution proposals for insurers.
FSB guidance on continuity of access to FMIs for a firm in resolution
On 6 July, the FSB published guidance on continuity of access to FMIs for a firm in resolution. The guidance covers: (i) Arrangements to support continuity of access to FMIs at the level of the providers of critical FMI services. (ii) Arrangements at the level of the firm or FMI participants; and (iii) The role of the supervisory and resolution authorities of a firm or an FMI participant, and oversight and supervisory authorities of providers of critical FMI services, in preparing for and facilitating continuity of access to critical FMI services by FMI service users.
FSB sixth progress report on implementation of resolution reforms
On 6 July, the FSB published its sixth progress report to the G20 on the implementation of its resolution reforms. The report provides an update on the progress of the implementation of the resolution reforms co-ordinated by the FSB and the commitments set out in its fifth progress report, which was published in August 2016. In the report the FSB sets out its priorities in 2017/18 relating to resolution; including: (i) Implementing the TLAC standard in full. The FSB intends to conduct a review of the technical implementation in 2019; (ii) Publishing a consultative document on the execution of bail-in before the end of 2017, with the aim of producing final guidance in 2018; and (iii) Developing robust resolution plans for G-SIIs. The FSB will work with the IAIS on the execution of resolution powers in the insurance context and the application of the NCWOL safeguard. Section 6 of the report contains a summary of the FSB's initiatives and its anticipated timelines.
FSB, CPMI, IOSCO and BCBS guidance and reports on CCP resilience, recovery and resolvability
On 5 July, the FSB announced the publication of the following documents relating to the resilience, recovery and resolvability of CCPs: (i) Guidance on the resilience of CCPs, produced by the CPMI and IOSCO; (ii) Guidance on the recovery of financial market infrastructures (FMIs), produced jointly by the CPMI and IOSCO; (iii) Guidance on CCP resolution and resolution planning, produced by the FSB; (iv) Report on central clearing interdependencies produced jointly by the BCBS, CPMI, FSB and IOSCO; and (v) Chairs' Report on the implementation of the joint workplan for strengthening the resilience, recovery and resolvability of CCPs. This report has been produced jointly by the BCBS, CPMI, FSB and IOSCO.
PRA policy statement on 2017/18 regulatory fees and levies
On 6 July, the PRA published a policy statement (PS18/16) on regulatory fees and levies for 2017/18, following its March consultation paper (CP4/17). PS18/16 sets out the final fee rates and rules to recover the PRA's annual funding requirement, the ring-fencing implementation fee and the international financial reporting standard 9 fee for the financial period 1 March 2017 to 28 February 2018. The PRA has also published the final rules and an updated supervisory statement, Fees: PRA approach and application (SS3/16) to implement changes to the supervisory approach relating to special project fees (SPF) for restructuring and regulatory transaction fees. The final rules are in the PRA Rulebook: PRA Periodic Fees (2017/18) And Other Fees Instrument 2017, which comes into force on 8 July.
FCA policy statement on regulated fees and levies for 2017/18
On 3 July, the FCA published a policy statement on regulated fees and levies for 2017/18 (PS17/15). In PS17/15, the FCA reports on the main issues arising from its April consultation paper on draft fees and levies rules (CP17/12) It sets out the final rules on the 2017/18 periodic regulatory fees and levies for the FCA, the FOS general levy, the MAS, the pensions guidance levies and the illegal money lending levy. The FCA also notes in PS17/15 that it will consult on variable fee rates for RIEs and benchmark administrators in a separate consultation paper to be published at the end of July.
FCA Competition Report 2016-2017
On 5 July, the FCA published its second Annual Competition Report. The FCA states that its objective is to make markets work better in the interests of consumers. During the year, the FCA completed market studies on credit cards and investment and corporate banking; published its interim findings on asset management; and launched a study on mortgages. The FCA has also progressed and implemented remedies from earlier studies, for example, the cash savings market study. The FCA states that it has progressed its existing investigation into anti-competitive agreements and concerted practices under the Competition Act 1998, which it opened in March 2016. It has also opened a new investigation and issued 23 'on notice' letters to firms and six advisory letters. No further details are provided about the Competition Act investigations. A focus on entry and innovation is stated to be central to the FCA's competition work. Competition considerations are also an integral part of the FCA's broader regulatory activities, including its policy, supervisory, authorisation and enforcement work, for example, in its work to ensure that MiFID II open access requirements are effectively implemented in the UK.
FSB progress report on correspondent banking
On 4 July, the FSB published a progress report on its action plan to assess and address the decline in correspondent banking. The progress report provides an update on the implementation of the FSB's November 2015 action plan. The FSB highlights areas where it believes further work is needed, including: (i) National regulators should produce statements to clarify expectations at the national level relating to the FATF and BCBS guidance on correspondent banking, so that they are appropriately reflected in supervisory practices and banks' risk management practices; (ii) Challenges associated with standardisation, governance and the degree to which supervisors allow reliance on KYC utilities should be addressed; and (iii) The FSB will conduct a stock-take of initiatives to address the challenges faced by remittance providers in accessing banking services, following a request by the G20 Presidency. It will explore where there areas not dealt with in existing initiatives and will evaluate the need to address gaps. The FSB will hold a high-level meeting in the margins of the October IMF and World Bank annual meetings to discuss the evidence from the stock-take. The FSB intends to publish its next progress report in December.
FPC responds to Chancellor's letter on remit and recommendations for 2017/18
On 4 July, the BoE published a letter (dated 3 July) from Mark Carney, BoE Governor and Chairman of the FPC, responding to a letter from Philip Hammond, Chancellor of the Exchequer, on the remit and recommendations for the FPC for 2017/18 that was published in March. In the covering letter, Dr Carney confirms that the FPC is prioritising the following initiatives over the next two to three years: (i) Finalising and refining if necessary, post-crisis bank capital and liquidity reforms; (ii) Completing post-crisis reforms to market-based finance in the UK and improving the assessment of systemic risks across the financial system; and (iii) Preparing for the UK's withdrawal from the EU.
EBA consults on draft report on implementation of guidelines on methods for calculating contributions to deposit guarantee schemes
On 3 July, the EBA published a consultation paper on a draft report on the implementation of its guidelines on methods for calculating contributions to DGSs. The report's conclusions include that: (i) The risk-based method as outlined in the guidelines has broadly met the aim of ensuring differentiation between institutions affiliated to a DGS based on risk. However, the method seems to allow flexibility for the authorities to design risk-based systems that provide less differentiation than what would be expected based on the core indicator data. Some elements of the methodology may need to be revisited in the future; (ii) More consistency may be needed in relation to the balance between consistent application of the guidelines across member states and the flexibility to cater to national specificities; and (iii) There appears to be no need to amend the guidelines to enhance transparency for stakeholders. The deadline for responses is 28 August. The EBA will consider any amendments to the guidelines as part of a wider review of the DGSD in 2019.
Third annual FSB report on implementation and effects of G20 financial regulatory reforms
On 3 July, the FSB published its third annual report on the implementation and effects of the G20 financial regulatory reforms, together with a related letter from FSB Chair, Mark Carney, to the G20 leaders. Three areas are identified in the report where authorities need to remain vigilant: (i) Maintaining an open and integrated global financial system. A system like this has major benefits, provided that, as a whole, it is resilient against shocks. The risks of geographic market fragmentation remain and should be monitored. Areas where co-operation may be enhanced should continue to be identified and addressed; (ii) Market liquidity. There continues to be limited evidence of a broad reduction in market liquidity in normal times, but continued monitoring and analysis (including of liquidity during periods of stress) is needed; and (iii) The effects of the reforms on EMDEs. Some EMDEs continue to report implementation challenges and concerns from the reduction in global banks' activity in their domestic markets. However, to date, these do not seem to have significantly impacted their overall credit growth.
FSB framework for post-implementation evaluation of effects of G20 financial regulatory reforms
On 3 July, the FSB published a framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms, together with a technical appendix and FAQs. The core reform areas to which the framework will be applied are: (i) Making financial institutions more resilient; (ii) Ending too-big-to-fail; (iii) Making derivatives markets safer; and (iv) Transforming shadow banking into resilient market-based finance. An accompanying webpage states that the framework is a living document, which will be enhanced as experience is gained and its roll-out will take place progressively in the coming years.
FSB report on shadow banking activities, risks, and adequacy of post-crisis policy tools
On 3 July, the FSB published a report (dated 30 June) assessing shadow banking activities, risks and the adequacy of post-crisis tools to address financial stability concerns. The FSB concludes that the aspects of shadow banking considered to have contributed to the global financial crisis have declined significantly and, in general, no longer pose financial stability risks. Since the crisis, policies have been introduced to address financial stability risks from shadow banking, including establishing system-wide oversight and monitoring frameworks, addressing banks' involvement in shadow banking, reducing liquidity and maturity mismatches, and undertaking national and regional reforms. These reforms have contributed to a reduction in vulnerabilities in areas such as money market funds and repurchase agreements. However, an increase in assets held in certain investment funds has increased the risks from liquidity transformation. The FSB highlights that these developments underline the importance of effective operationalisation and implementation of its January policy recommendations to address structural vulnerabilities from asset management activities.