Major UK and European regulatory developments of interest to banks, insurers and reinsurers, asset managers and other market participants Selected Headlines General Remuneration and performance management of sales staff – FCA publishes information on SYSC19F 2.2 Data Protection Act 2018 3.1 Brexit The solvency position of insurance undertakings in light of the UK’s withdrawal from the EU – EIOPA publishes Opinion 4.1 Banking and Finance Sustainable finance – European Commission publishes legislative proposals 6.1 CRR II, SRM II, BRD II and CRD V - Council publishes Presidency compromise texts 7.1 Estimating and identifying an economic downturn in IRB modelling – EBA consults on RTS and Guidelines 8.1 Cash Ratio Deposits (Value Bands and Ratios) Order 2018 (SI 2018/633) 13.1 Securities and Markets Digital currencies inquiry – Treasury Committee publishes evidence 16.1 Fair and Effective Markets Review – Bank of England, HM Treasury and FCA publish progress report 17.1 PRA Consultation Paper CP12/18 – Securitisation: the new EU framework and significant risk transfer 18.2 Asset Management Review of automated investment services – FCA publishes findings 19.1 Insurance Market and credit risk modelling – EIOPA publishes findings of comparative study 22.1 Financial Crime Monetary penalties for breaches of financial sanctions – guidance updated by HM Treasury and OFSI 23.1 Quick Links Financial Regulation / 24 May 2018 / Issue 963 2 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Enforcement Misappropriating client money – FCA publishes decision notice imposing prohibition order 27.1 General 1. House of Commons Treasury Committee 1.1 Maxwellisation – Treasury Committee launches inquiry – 14 May 2018 – The House of Commons Treasury Committee has launched an inquiry into ‘Maxwellisation’, which it defines as the process whereby those who stand to be criticised in a public report are given an opportunity to respond to criticisms. This follows Andrew Green QC’s review of Maxwellisation and its use in public inquiries, commissioned by the Treasury Committee and published in December 2016. The inquiry webpage is here. Publications related to the inquiry, including accounts of oral evidence, can be found here. Andrew Green QC’s review is here. 2. Financial Conduct Authority 2.1 Memorandum of Understanding – FCA and the Insolvency Service – 21 May 2018 – The Financial Conduct Authority (FCA) and the Insolvency Service have entered into a Memorandum of Understanding (MoU) (dated 25 January 2018) detailing their respective roles and outlining the ways in which they will exchange information and intelligence. The MoU is here. 2.2 Remuneration and performance management of sales staff – FCA publishes information on SYSC19F – 23 May 2018 – The FCA has published information on the rules relating to sales incentives in Chapter 19F of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC). SYSC 19F deals with certain remuneration incentives under MiFID II ((EU) 2014/65). The information published by the FCA clarifies matters such as the scope of SYSC 19F, the types of roles captured and its interaction with other remuneration codes. The information is here. 3. New legislation 3.1 Data Protection Act 2018 has been published after the Bill received Royal Assent on 23 May 2018. The Act repeals and replaces the Data Protection Act 1998 to provide a legal framework for data protection in the UK. It sets out exemptions and derogations permitted under the EU General Data Protection Regulation ((EU) 2016/679) (GDPR), implements the EU Directive on processing for law enforcement purposes ((EU) 2016/680) and extends the application of the GDPR to types of processing outside the scope of the GDPR. The Act will take effect on 25 May 2018, on the same day that the GDPR becomes applicable in all Member States. Financial Regulation / 24 May 2018 / Issue 963 3 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The Act is here. Hansard for the Royal Assent is here. The GDPR is here. The Law Enforcement Directive is here. Brexit 4. European Insurance and Occupational Pensions Authority 4.1 The solvency of insurance undertakings arising from the UK’s withdrawal from the EU – EIOPA publishes Opinion – 18 May 2018 - The European Insurance and Occupational Pensions Authority (EIOPA) has published an Opinion in which it calls on national supervisory authorities to ensure that risks relating to the solvency of insurance and reinsurance undertakings if the UK becomes a “third country” for EU law purposes are properly identified, monitored, managed and reported. The Opinion is structured around 14 potential changes to the determination of technical provisions, own funds and capital requirements of (re)insurers under Solvency II. These include changes relating to the risk-mitigating impact of derivatives, the recognition of ratings from UK rating agencies and the regulatory treatment of credit risk exposures situated in the UK. The Opinion does not consider the consequences of an implementation period. The Opinion is here. The press release is here. See also the Banking and Finance section for an item on Brexit-related comments made by the House of Commons European Scrutiny Committee in respect of the CRD V, CRR II and BRRD II proposals. Banking and Finance 5. Official Journal of the European Union 5.1 CRD IV - Commission Implementing Regulation on benchmarking portfolios and reporting instructions published in the Official Journal – 18 May 2018 - Commission Implementing Regulation (EU) 2018/688 of 23 March 2018, amending Implementing Regulation (EU) 2016/2070 regarding benchmarking portfolios, reporting templates and reporting instructions under the Capital Requirements Directive (2013/36/EU) (CRD IV), has been published in the Official Journal of the EU. It enters into force on 7 June 2018. The Regulation can be found here. 5.2 CRR – RTS on excluding transactions with non-financial counterparties established in a third country from the own funds requirement for credit valuation adjustment published in the Official Journal – 18 May 2018 – Commission Delegated Regulation (EU) 2018/728 of 24 January 2018, supplementing the Capital Requirements Regulation (575/2013/EU) (CRR), regarding the regulatory technical standards (RTS) for procedures for excluding transactions with non-financial counterparties established in a third country from the own funds requirement for credit valuation Financial Regulation / 24 May 2018 / Issue 963 4 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement adjustment risk has been published in the Official Journal of the EU. It enters into force on 7 June 2018. The Regulation is here. 6. European Commission 6.1 Sustainable finance – European Commission publishes legislative proposals – 24 May 2018 – The European Commission (Commission) has published three legislative proposals following on from its March 2018 action plan on financing sustainable growth. These are: a proposal for a Regulation (COM(2018) 353 final) on the establishment of a framework to facilitate sustainable investment – providing uniform criteria for determining whether an economic activity is environmentally sustainable; a proposal for a Regulation (COM(2018) 354) on disclosures relating to sustainable investments and sustainability risks, and amending the Directive on the activities and supervision of institutions for occupational retirement provision (IORPs) ((EU) 2016/2341) (IORP II) – setting out public disclosure requirements for institutional investors in relation to the integration of environmental, social and governance (ESG) factors in their risk processes. The Commission also proposes to make related amendments to two Delegated Regulations supplementing MiFID II ((EU) 2014/65) and the Insurance Distribution Directive ((EU) 2016/97) (IDD) respectively. It is accepting feedback on these Delegated Acts until 21 June 2018; and a proposal for a Regulation (COM(2018)355), amending the Benchmarks Regulation ((EU) 2016/1011), on low carbon benchmarks and positive carbon impact benchmarks – creating a new category of benchmarks to assist investors comparing the carbon footprint of their investments. The Commission is accepting feedback on this proposal until 19 July 2018. The Commission's proposals will now be discussed by the European Parliament and the Council. The proposed Regulation on the establishment of a framework to facilitate sustainable investment is here. The proposed Regulation on disclosures relating to sustainable investments and sustainability risks is here. The proposed Delegated Regulation which amends the MiFID II Delegated Regulation ((EU) 2017/565) can be found here. The proposed Delegated Regulation which amends the IDD Delegated Regulation can be found here. The proposed Regulation on low carbon benchmarks and positive carbon impact benchmarks can be found here. The holding page for the proposals is here. FAQs on the proposals are here. A factsheet on sustainable finance is here. Financial Regulation / 24 May 2018 / Issue 963 5 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The Commission’s Action Plan on sustainable finance is here. The press release is here. 7. The Council of the European Union 7.1 CRR II, SRM II, BRD II and CRD V - Council publishes Presidency compromise texts – 24 May 2018 – The Council of the European Union has published Presidency compromise texts for: CRR II: the proposal for a Regulation (2016/0360 (COD)) (CRR II), amending the CRR as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties (CCPs), exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and amending the European Market Infrastructure Regulation (648/2012/EU) (EMIR); SRM II: the proposal for a Regulation (2016/0361(COD)) (SRM II), amending the Single Resolution Mechanism Regulation (806/2014/EU) as regards loss-absorbing and recapitalisation capacity for credit institutions and investment firms; BRD II: the proposal for a Directive (2016/0362(COD)) (BRD II), amending the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) on loss-absorbing and recapitalisation capacity of credit institutions and investment firms; and CRD V: the proposed Directive (2016/0364 (COD)) (CRD V), amending CRD IV regarding exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures, and powers and capital conservation measures. The compromise text for CRR II is here and the corrigendum is here. The compromise text for SRM II is here. The compromise text for BRD II is here. The compromise text for CRD V is here. 8. European Banking Authority 8.1 Estimating and identifying an economic downturn in IRB modelling – EBA consults on RTS and Guidelines – 22 May 2018 - The European Banking Authority (EBA) today launched two consultations on: draft regulatory technical standards (RTS) specifying the nature, severity and duration of an economic downturn; and draft Guidelines (supplementing the RTS) relating to the estimation of the loss-given default (LGD) appropriate for conditions in an economic downturn. The draft RTS and Guidelines form part of the EBA’s work on the review of the internal ratingsbased (IRB) approach, which aims to reduce the unjustified variability in the outcomes of internal models while preserving the risk sensitivity of capital requirements. Financial Regulation / 24 May 2018 / Issue 963 6 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The draft RTS have been developed in accordance with Articles 181(3)(a) and 182(4)(a) of the CRR, while the draft Guidelines have been developed on the EBA’s own initiative. The EBA will hold a public hearing and workshop on the RTS and the Guidelines on 29 May 2018. The consultations close on 22 June 2018. The Consultation Paper on the draft RTS is here. The Consultation Paper on the Guidelines is here. The holding page is here. The press release is here. 8.2 Deposit Guarantee Schemes Directive – EBA publishes data on available financial means and covered deposits – 24 May 2018 - The EBA has published 2017 data collected in accordance with the Deposit Guarantee Schemes Directive (2014/49/EU) (DGSD) on the concepts of “available financial means” and “covered deposits”. The data can be found here. The press release is here. 9. European Central Bank 9.1 New euro unsecured overnight interest rate – ECB publishes summary of responses to consultation – May 2018 - The European Central Bank (ECB) has published a summary of responses to its second consultation on a new euro unsecured overnight interest rate. The rate, which will be finalised by 2020, will complement existing benchmark rates produced by the private sector, and serve as a backstop reference rate. The ECB sought views on the methodology for the new rate, as well as certain key operational and technical parameters. The consultation closed on 20 April 2018. The summary of responses is here. The consultation webpage is here. The ECB’s webpage on interest rate benchmarks is here. 10. UK Parliament 10.1 CRD V, CRR II and BRRD II – House of Commons European Scrutiny Committee retains proposals for scrutiny and makes Brexit-related comments – 22 May 2018 - During its meeting on 16 May 2018, the House of Commons European Scrutiny Committee (the Committee) did not clear from scrutiny, and requested further information on, the following legislative proposals (among others): BRRD II: the proposed Directive (2016/0362 (COD)), amending the BRRD on the loss-absorbing and recapitalisation capacity of credit institutions and investment firms; Financial Regulation / 24 May 2018 / Issue 963 7 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement CRD V: the proposed Directive (2016/0364 (COD)), amending CRD IV regarding exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures, and powers and capital conservation measures; and CRR II: the proposal for a Regulation (2016/0360 (COD)), amending the CRR as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to CCPs, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and amending EMIR. In relation to CRD V, the Committee reiterated its concerns around the impact of the intermediate parent undertaking (IPU) proposal in CRD V, which would require certain non-EU financial institutions to establish an EU IPU where they have two or more banks or investment firms in the EU. The Committee also remarked that formal adoption of the proposals cited above could take place after the UK ceases to have a vote in the Council in March 2019. Notwithstanding the comments above, the Committee has granted a scrutiny waiver in relation to these proposals and has endorsed a general approach at the ECOFIN meeting on 25 May 2018. The report is here. The procedure file for BRRD II is here. The procedure file for CRD V is here. The procedure file for CRR II is here. 11. Financial Conduct Authority 11.1 Building societies and the future of retail banking – speech by Jonathan Davidson, FCA Director of Supervision – 23 May 2018 – The Director of Supervision – Retail and Authorisations at the FCA, Jonathan Davidson, has delivered a speech on potential opportunities for the building societies sector. Key points made were that: building societies have an opportunity to provide a valuable service for consumers. But while they can offer unique and complex products, they must also consider accompanying risks; the consideration of affordability and lending risk is imperative; and building societies should focus on healthy competition for the benefit of the consumer, rather than the loosening of underwriting standards or chasing significant differentials in front-to-back book pricing. The speech is here. 12. Money Advice Service 12.1 The funding of debt advice – Money Advice Service supports Peter Wyman’s recommendations – 22 May 2018 – The Money Advice Service has announced the implementation by its Debt Advice Steering Group (DASG) of certain recommendations in Peter Wyman’s report on the funding of debt advice in England, Wales, Scotland and Northern Ireland (published on 25 January 2018 as reported previously in this Bulletin). The DASG will prioritise the following measures: Financial Regulation / 24 May 2018 / Issue 963 8 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement increasing capacity in the debt advice sector by 50%; broadening the base of organisations who contribute to funding; measures which ensure high-quality advice; increasing investment of the debt advice levy in coordination, infrastructure and technology; and increasing collaboration in the sector. The Money Advice Service will lead the implementation of the changes, alongside the devolved administrations and the DASG. Detailed action plans for delivering on the prioritised areas will be produced in the coming months. The Money Advice Service has also published a speech given by its Chief Executive, Charles Counsell, on 21 May 2018, in which he talks about moving forward with the recommendations in Peter Wyman’s report. He also mentions the Money Advice Service’s transition to the new single financial guidance body, which will be established under the Financial Guidance and Claims Act 2018. The press release is here. The speech is here. Peter Wyman’s report is here. 13. New legislation 13.1 Cash Ratio Deposits (Value Bands and Ratios) Order 2018 (SI 2018/633) (the Order) was made on 24 May 2018 and comes into force on 1 June 2018. The Order amends the ratio used for calculating the percentage of eligible liabilities that certain financial institutions are required to deposit in a non-interest bearing account at the Bank of England under the cash ratio deposit scheme. The scheme funds the Bank of England’s monetary policy and financial stability operations. The ratio for institutions whose eligible liabilities are more than £600 million will be calculated every six months by applying the formula contained in the Order. The ratio to be applied in respect of institutions whose eligible liabilities are £600 million and below remains at 0%. The Order is here. The explanatory memorandum is here. The final impact assessment is here. Financial Regulation / 24 May 2018 / Issue 963 9 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Securities and Markets 14. European Commission 14.1 Supporting SME listings – European Commission publishes legislative proposals – 24 May 2018 – The Commission has published legislative proposals to give small and medium enterprises (SMEs) easier and better access to financing through public markets. These are: a proposal for a Regulation (COM(2018) 331/2), amending the Market Abuse Regulation ((EU) 596/2014) (MAR) and the Prospectus Regulation ((EU) 2017/1129), regarding the promotion of the use of SME growth markets; and a proposed Delegated Regulation, amending the MiFID II Delegated Regulation ((EU) 2017/565), regarding certain registration conditions to promote the use of SME growth markets for the purposes of MiFID II – the Commission is accepting feedback on this Regulation until 21 June 2018. These proposals seek to reduce the administrative burden and the regulatory compliance costs faced by SMEs when their financial instruments are admitted to trading on an SME growth market. They are also aimed at increasing the liquidity of equity instruments listed on SME growth markets. These initiatives form part of the EU's Capital Markets Union project. The proposed Regulation will now be discussed by the European Parliament and the Council. A sixmonth scrutiny period by the Council and the European Parliament will follow at the end of the consultation period for the Delegated Commission Regulation. The Commission’s consultation on these proposals closed on 26 February 2018. The proposed Regulation on the promotion of the use of SME growth markets, along with the related impact assessment and feedback statement, can be found here. The proposed Delegated Regulation on certain registration conditions to promote the use of SME growth markets can be found here. The holding page for the proposals is here. FAQs on the proposals are here. The consultation webpage is here. The press release is here. 14.2 Sovereign bond-backed securities – European Commission publishes legislative proposal – 24 May 2018 – The Commission has published a proposal for a Regulation COM(2018) 339 on sovereign bond-backed securities (SBBS), a new class of low-risk securities backed by a diversified pool of national government bonds. SBBS have been held out as a solution to help banks diversify their sovereign exposures and would, under the proposal, be treated like national euro-area sovereign bonds for regulatory purposes. The proposal will now be discussed with the European Parliament and the Council. The Commission is accepting feedback on this proposal until 19 July 2018. Financial Regulation / 24 May 2018 / Issue 963 10 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The proposed Regulation and the related impact assessment can be found here. FAQs on the proposal are here. A factsheet on the proposal is here. The webpage for SBBS is here. The press release is here. 15. European Parliament 15.1 EMIR 2 – European Parliament gives indicative plenary session date of 11 June 2018 – 24 May 2018 - The European Parliament’s procedure file for the proposed Regulation amending EMIR following its refit review (COM(2017) 0208) (EMIR 2) has been updated to show an indicative plenary session date of 11 June 2018. The procedure file is here. 16. House of Commons Treasury Committee 16.1 Digital currencies inquiry – Treasury Committee publishes evidence – 22 May 2018 - The House of Commons Treasury Committee has published written evidence on the role of digital currencies and distributed ledger technology in the UK as part of its inquiry. Those submitting evidence include the Financial Reporting Council, the FCA, the City of London Corporation, the Bank of England and the Electronic Money Association. The written evidence can be found here. The inquiry webpage and its terms of reference can be found here. 17. Bank of England, Financial Conduct Authority and HM Treasury 17.1 Fair and Effective Markets Review – Bank of England, HM Treasury and FCA publish progress report – 24 May 2018 - The Bank of England, the FCA and HM Treasury have published a report on progress made in implementing the recommendations of the Fair and Effective Markets Review (FEMR) Final Report (Final Report) published in July 2015. The Final Report contained an analysis of the root causes of misconduct and other sources of unfairness or ineffective operation in the wholesale Fixed Income, Currency and Commodities markets. The progress report notes that we are now beginning to see the impact of a range of initiatives designed to improve the fairness and effectiveness of the FICC market, citing in particular the senior managers and certification regimes (SMCR), regulatory references and the launch of the FX Global Code. It advises the industry to ensure that market infrastructures and practices keep pace with innovation. The Bank of England, the FCA and HM Treasury state that they will “support industry’s efforts in this regard and catalyse reform held back by private sector co-ordination failures.” The Bank of England has also published a speech by Mark Carney, governor of the Bank of England, in which he highlights key achievements and plans to establish fair and efficient markets. The speech emphasises the transition from a regime focused on fining those firms who have breached rules to a regime which incentivises individuals to adhere to them. The SMCR is highlighted as Financial Regulation / 24 May 2018 / Issue 963 11 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement integral to re-establishing accountability for senior personnel on an individual and collective basis. The speech also focuses on how the transition from LIBOR to SONIA will improve the market ecosystem. SONIA’s status as an overnight rate benchmark should enable more accurate representation of market conditions, with reduced fluctuations and volatility in interest payments for benchmark users as a result. It is expected that a wide range of products will develop to reference SONIA going forward. The progress report is here. The holding page is here. The Final Report is here. The FEMR webpage is here. The speech is here. 18. Prudential Regulation Authority 18.1 PRA Rulebook: MiFID II Passporting Amendment Instrument 2018 – 11 May 2018 – The Prudential Regulation Authority (PRA) has published the PRA Rulebook: MiFID II Passporting Amendment Instrument 2018 (PRA 2018/12). The instrument amends the Passporting Part of the PRA Rulebook, requiring firms to use the forms set out in Commission Implementing Regulation (EU) 2017/2382 when notifying the PRA about the exercise of passporting rights under the MiFID II. The instrument came into force on 5 February 2018. PRA Policy Statement PS31/17 has been updated to refer to this instrument. There is no change in PRA policy. The instrument is here. The webpage for PS31/17 is here. 18.2 PRA Consultation Paper CP12/18 – Securitisation: the new EU framework and significant risk transfer – 22 May 2018 – The PRA has published a Consultation Paper (CP12/8) proposing a new Supervisory Statement ‘Securitisation: general requirements and capital framework’. The document sets out the PRA’s approach and expectations in relation to: chapter 2 (provisions applicable to all securitisations) of the Securitisation Regulation ((EU) 2017/2402); firms that intend to sponsor simple, transparent and standardised (STS) asset-backed commercial paper (ABCP) programmes; and the securitisation capital framework introduced via the CRR Amendment Regulation ((EU) 2017/2401). The PRA is also proposing to amend Supervisory Statement SS31/15, ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)’, to reflect the new securitisation framework. Financial Regulation / 24 May 2018 / Issue 963 12 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The new Supervisory Statement and the amendments to SS31/15 would come into force on 1 January 2019, which is the application date of the Securitisation Regulation and the CRR Amendment Regulation. The PRA also proposes to clarify certain aspects of Supervisory Statement SS9/13 ‘Securitisation’ (which will be renamed ‘Securitisation: Significant Risk Transfer’). Those amendments would apply immediately after the publication of a related Policy Statement. The consultation closes on 22 August 2018. The PRA will keep the proposals under review to assess whether any amendments would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the EU take effect. CP12/18 is here. The holding page is here. Asset Management 19. Financial Conduct Authority 19.1 Review of automated investment services – FCA publishes findings – 21 May 2018 – The FCA has published a summary of its findings following a review of automated investment services. It looked at a sample of ten firms: seven offering automated online discretionary investment management (ODIM) and three providing retail investment advice exclusively through automated channels (auto advice). The FCA’s key conclusions were that: the service and fee-related disclosures at most of the ODIM firms in the FCA sample were unclear; many firms offering ODIM services did not properly evaluate in their suitability assessments clients’ knowledge and experience, investment objectives and capacity for loss; most firms were unable to show that they had adequate and up-to-date information about their clients; some firms providing auto advice services had difficulties identifying and supporting vulnerable consumers; and there was little consideration of auto advice-specific risks in firms’ governance processes, including the need for adequate stress testing and cyber security. The FCA has provided feedback to the firms that took part in its review, prompting many to make significant changes to their disclosures and suitability processes. Firms are encouraged to refer to the regulatory expectations highlighted in Finalised Guidance (FG17/8) on streamlined advice. The FCA states that it will continue to support firms through its existing units, referring to Project Innovate, the Regulatory Sandbox and the Advice Unit. It will continue to assess these markets and will be looking, in particular, at how firms are complying with requirements introduced by MiFID II and the PRIIPs Regulation ((EU) 1286/2014)). The summary is here. Financial Regulation / 24 May 2018 / Issue 963 13 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement FG17/8 is here. 20. City of London Law Society 20.1 Reducing barriers to the cross-border distribution of investment funds – CLLS responds to Commission’s proposals – 22 May 2018 – The Commission has published the City of London Law Society’s (CLLS) response to its March 2018 legislative proposals, comprising a Regulation (COM(2018) 110) and a Directive (COM(2018) 92) on facilitating the cross-border distribution of investment funds. In short, the CLLS opposes the alignment of the regulation of the distribution of alternative investment funds (AIFs) and of undertakings for the collective investments in transferable securities (UCITS). The CLLS expresses a number of other related concerns about the proposals, including: pre-marketing (article 2(2) of the draft Directive) – the proposed ‘safe harbour’ should be clarified and extended; cessation of marketing (article 2(5) of the draft Directive) – the new provisions are not appropriate for closed ended funds, which do not permit redemptions and repurchases or for funds which are not publicly marketed; marketing communications (article 2 of the draft Regulation) – different rules should be applied to the marketing of AIFs to professional investors and the marketing of UCITS; fees and charges (articles 6-9 of the draft Regulation) – the imposition of fees and charges by individual member states in relation to the exercise of a passport under the AIFMD ((EU) 2011/61) or UCITS Directive ((EU) 2014/91) seems contrary to the stated purpose of the new Regulation; and retail marketing (article 2(7) of the draft Directive) – the proposal to further restrict member states’ discretion to permit marketing to retail investors by imposing a new minimum requirement for the establishment of certain investor servicing facilities should not apply to limited retail offerings of AIFs to sophisticated or high-net-worth investors. The response can be found here. The proposed Regulation can be found here. The proposed Directive can be found here. Insurance 21. Official Journal of the European Union 21.1 Solvency II – Commission Implementing Regulation on calculations for reporting published in the Official Journal – 18 May 2018 - Commission Implementing Regulation (EU) 2018/730 of 4 May 2018 on technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 31 March 2018 until 29 June 2018, in accordance with Solvency II (2009/138/EC), has been published in the Official Journal of the EU. The Regulation entered into force on 19 May 2018 and applied from 31 March 2018. Financial Regulation / 24 May 2018 / Issue 963 14 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The Regulation is here. 22. European Insurance and Occupational Pensions Authority 22.1 Market and credit risk modelling – EIOPA publishes findings of comparative study – 22 May 2018 – EIOPA has published a report summarising its European-wide 2016/17 comparative study of market and credit risk in internal models. The results of the study, based on year-end 2015 data, showed significant variations in asset model outputs. According to EIOPA, this could be partly attributable to model specificities already known by the relevant national competent authorities, but indicates a need for further supervisory scrutiny. EIOPA will perform regular studies on market and credit risk modelling going forward. The report is here. The press release is here. See also the Brexit section for an item on EIOPA’s Opinion on the solvency position of insurance undertakings in light of the UK’s withdrawal from the EU. Financial Crime 23. HM Treasury and the Office of Financial Sanctions Implementation 23.1 Monetary penalties for breaches of financial sanctions – guidance updated by HM Treasury and OFSI – May 2018 – HM Treasury and the Office of Financial Sanctions Implementation (OFSI) have updated their guidance on monetary penalties for breaches of financial sanctions, now dated May 2018. This guidance will be reviewed again in March 2019. The guidance is here. The holding page is here. 24. UK Parliament 24.1 Bribery Act 2010 Committee – established by the House of Lords – 17 May 2018 - The House of Lords has appointed members to an ad hoc Committee that will consider the Bribery Act 2010. The Committee was established on the recommendation of the Liaison Committee and is expected to report on the Act by 31 March 2019. The Bribery Act 2010 Committee webpage is here. A list of Committee members is here. A report on the new ad hoc Committees in 2018-19 is here (see page 10 for the Bribery Act 2010 Committee). 25. Financial Conduct Authority 25.1 Using technology to combat crime - speech by FCA Director of Supervision, Megan Butler – 22 May 2018 – The FCA has published a speech by its Director of Supervision – Investment, Wholesale and Specialists, Megan Butler, in which she discusses the use of technology by financial institutions to detect and disrupt criminal activity. Ms Butler made the following key points: Financial Regulation / 24 May 2018 / Issue 963 15 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement the efficacy of technology used to combat financial crime is critical; firms cite phishing and identity theft as the most widespread fraud risks they face; and the next big step is to use intelligent technologies, including artificial intelligence, natural language processing and machine learning, to spot suspicious transactions in real time from unstructured account and transaction data; The speech is here. 26. Joint Money Laundering Steering Group 26.1 AML and CTF – JMSLG publishes revised guidance on asset finance and syndicated lending – 17 May 2018 – The Joint Money Laundering Steering Group (JMLSG) has published updated versions of two of the sectors in Part II of its Guidance on the prevention of money laundering and the financing of terrorism for the UK financial services industry: sector 12 on asset finance and sector 17 on syndicated lending. The JMLSG consulted on the changes in March 2018. No changes have been made to the consultative version. The revised guidance can be found here. Enforcement 27. Financial Conduct Authority 27.1 Misappropriating client money – FCA publishes decision notice imposing prohibition order – 21 May 2018 – The FCA has published a decision notice (dated 21 March 2018) in respect of Darren Newton, a former director of debt management firm First Step Finance Limited (now dissolved) imposing a total prohibition order. Mr Newton has referred the matter to the Upper Tribunal, which has the power to dismiss the reference, or to remit the matter back to the FCA with directions. The FCA found that Mr Newton used customers’ money for the purchase of the debt management firm, First Step Finance Limited. This showed a serious lack of honesty and integrity and, as a result, the FCA has decided that he is not a fit and proper person. The decision notice is here. The press release is here. 28. Serious Fraud Office 28.1 Dismissal of SFO charges against Barclays – 21 May 2018 –The Crown Court has dismissed all charges brought by the Serious Fraud Office (SFO) against Barclays PLC and Barclays Bank PLC in relation to matters stemming from Barclays’ 2008 capital raisings in Qatar. The SFO’s press release is here. Barclays’ announcement is here. Financial Regulation / 24 May 2018 / Issue 963 16 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Document No This Bulletin is prepared by the Financial Regulation Group of Slaughter and May in London. The Group comprises a team of lawyers with expertise and experience across all sectors in which financial institutions operate. We advise on regulatory issues affecting firms across the financial services sector, including banks, investment firms, insurers and reinsurers, brokers, asset managers and funds, non-bank lenders, payment service providers, e-money issuers, exchanges and clearing systems. We also advise non-regulated businesses involved in financial regulatory matters. In addition, our leading financial regulatory investigations practice is regularly instructed by financial institutions requiring specialist knowledge of financial services regulation together with experience in high profile and complex investigations and contentious regulatory matters. Most of the projects that we advise on have an extensive international or cross-border element. We work in seamless integrated teams with leading independent law firms which offer many of the most highly regarded financial institutions lawyers in Europe, the US and Asia, as well as strong and constructive relationships with local regulators. Our Financial Regulation Group also produces occasional briefing papers and other client publications. The five most recent issues of this Bulletin and our most recent briefing papers and client publications appear on the Slaughter and May website here. The Group’s recent work includes advising: A number of global banks, insurance and asset management groups on their preparations for Brexit; A number of banking groups in relation to banking structural reform, including the UK ring-fencing regime; Prudential plc on the proposed demerger of its UK & Europe business (M&G Prudential) from Prudential plc, resulting in two separately-listed companies; Standard Life plc on the recommended all-share merger with Aberdeen Asset Management and the subsequent sale by Standard Life Aberdeen plc of its capital-intensive insurance business to Phoenix; UK Asset Resolution and Bradford & Bingley plc in relation to the disposal of legacy buy-to-let mortgage assets to Prudential plc and funds managed by Blackstone for a total consideration of £11.8bn; On the legal implications of developments across a broad Fintech waterfront for clients such as Euroclear, TreasurySpring, Bupa, TrueLayer, WorldRemit and Stripe, as well as other established businesses, challengers and start-ups; and A number of multi-national clients in relation to the UK, EU, and US economic and trade sanctions regimes. If you would like to find out more about our Financial Regulation Group or require advice on a financial regulation matter, please contact one of the following or your usual Slaughter and May contact: Jan Putnis [email protected] Ben Kingsley [email protected] Nick Bonsall [email protected] © Slaughter and May 2018 This material is for general information only and is not intended to provide legal advice. For further information, please speak to your usual Slaughter and May
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