Selected Headlines General Operational resilience in financial services – speech by Lyndon Nelson, Deputy CEO of the PRA 2.1 Brexit European system of financial supervision – HM Treasury publishes letter on UK representation in the ESAs and reforms 3.1 Regulation on cross-border payments in the EU – House of Commons European Scrutiny Committee retains proposal for scrutiny and makes Brexit-related comments 4.1 Banking and Finance Global resolution regimes – speech by FSB Secretary General, Dietrich Domanski 5.1 PSD2 – EBA publishes draft Guidelines and Opinion on RTS on strong customer authentication and common and secure communications 7.2 MREL – Bank of England publishes Statement of Policy and Policy Statement 9.1 PRA Policy Statement PS11/18 – Resolution planning: MREL reporting 10.1 Securities and Markets EMIR 2 – adopted by the European Parliament 13.1 Asset Management Outsourcing of portfolio management – FCA publishes list of cooperation agreements with supervisory authorities in third countries 17.1 The EU Money Market Funds Regulation and the Money Markets Funds Regulations 2018 18.1 Financial Crime Cryptoassets and financial crime – FCA publishes “Dear CEO” letter 20.1 Quick Links Financial Regulation / 14 June 2018 / Issue 966 2 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement General 1. UK government 1.1 Social impact investing – government publishes response to report – June 2018 – The government has published its response to an independent report, published in November 2017, on how to grow a culture of social impact investment in the UK. Among other things, the government states that it intends to: help the financial services industry to build social impact capabilities among investment professionals; explore how it can increase consideration of the wider impacts of pension investments; work with regulators and statutory bodies to ensure that social impact is considered in regulatory frameworks; and consult on changes to regulation in order to: (i) allow for consideration of broader financial risks and opportunities (including those related to environmental, social and governance issues); (ii) strengthen the ability of pension schemes to consider member concerns about investments; and (iii) clarify the ways pension schemes should engage with the firms in which they invest. The government will provide a progress update on this work in late 2018. The government’s response is here. The November 2017 report is here. The press release is here. 2. Bank of England 2.1 Operational resilience in financial services – speech by Lyndon Nelson, Deputy CEO of the PRA – 13 June 2018 – Lyndon Nelson, Deputy CEO of the Prudential Regulation Authority (PRA) and Executive Director for Supervisory Risk Specialists and Regulatory Operations, has delivered a speech in which he discusses the importance of operational resilience in the financial services industry. Among other things, Mr Nelson states that regulators must set out clear expectations of firms in respect of their operational resilience, using a common framework. This framework will allow the regulators to build their own tolerances, expectations and approaches under the umbrella of the Financial Policy Committee’s overall tolerance. A Discussion Paper on this topic (produced jointly with the Financial Conduct Authority (FCA)) will be published, where industry and fellow regulators will be invited to give their views. The speech is here. Financial Regulation / 14 June 2018 / Issue 966 3 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Brexit 3. HM Treasury 3.1 European system of financial supervision – HM Treasury publishes letter on UK representation in the ESAs and reforms – 13 June 2018 – HM Treasury has published a letter from its Economic Secretary, John Glen, to Sir William Cash, Chair of the House of Commons European Scrutiny Committee, regarding the UK’s representation in the European Supervisory Authorities (ESAs) during the post-Brexit implementation period, and the proposed reforms to the European System of Financial Supervision. Mr Glen states that article 123(5) of the draft Withdrawal Agreement sets out when the UK would be able to participate in meetings of the ESAs during the implementation period. The UK may upon invitation attend meetings where: the discussion concerns individual acts to be addressed during the implementation period to the UK or to natural or legal persons residing or established in the UK; or the presence of the UK is necessary and in the interest of the EU, in particular for the effective implementation of EU law during the implementation period. The UK’s presence at these meetings would be limited to the specific agenda items that fulfil one of the two conditions and it would have no voting rights. Mr Glen states that the exact nature of the UK’s engagement with the ESAs during the implementation period is a matter for further discussion with the European Commission (Commission). Mr Glen also summarises the European Central Bank’s (ECB) April 2018 Opinion on the Commission’s proposed reforms to the European System of Financial Supervision, which comprises the European Systemic Risk Board (ESRB) and the ESAs. He states that this Opinion is broadly in line with the government’s position on the proposals, though the government does not agree that creating a central data repository at the European Banking Authority (EBA) would increase efficiency. Mr Glen states that the proposed measures are provisionally on the agenda for the ECOFIN meeting on 22 June 2018. The letter is here. The draft Withdrawal Agreement is here. The ECB’s April 2018 Opinion, which sets out the full details of the proposals, is here. 4. UK Parliament 4.1 Regulation on cross-border payments in the EU – House of Commons European Scrutiny Committee retains proposal for scrutiny and makes Brexit-related comments – 12 June 2018 – During its meeting on 6 June 2018, the House of Commons European Scrutiny Committee did not clear from scrutiny, and requested further information on, the proposed Regulation (COM(2018) 163), amending the Single European Payments Area (SEPA) Migration Regulation ((EU) 2009/924), in relation to cross-border payments in the EU and currency conversion charges. The objective of the proposal is to bring the benefits of the SEPA Migration Regulation to people and businesses in member states that do not use the euro, and to stop high-cost intra-EU cross-border transactions conducted in euros. The Regulation is set to apply from 1 January 2019. Financial Regulation / 14 June 2018 / Issue 966 4 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The Committee asks the government to set out in writing the annual volumes and value of payments in euros into and out of the UK, to and from other EEA countries, and what proportion of the estimated €900 million in annual savings for consumers and businesses resulting from the proposed Regulation would relate to payments involving a counterparty in the UK. It also asks the government to explain: whether it agrees that the UK’s exit from the single market will lead to the end of its current membership of SEPA at the end of the transition period, and what it estimates the cost of that would be for UK businesses and consumers; if it does agree, whether it is the government’s intention to ensure that the UK’s membership of SEPA is preserved beyond that point; in what way the measures within the proposed Regulation would apply to the UK if it remained in SEPA after leaving the single market without the direct applicability of the proposed Regulation; and whether it will use the process of converting the SEPA Migration Regulation into domestic UK law to require UK banks to treat euro transfers or payments with a counterparty in the EEA as if they were denominated in sterling. The report is here. The procedure file for the Regulation is here. Banking and Finance 5. Financial Stability Board 5.1 Global resolution regimes – speech by FSB Secretary General, Dietrich Domanski – 12 June 2018 – The Financial Stability Board (FSB) has published a speech by its Secretary General, Dietrich Domanski, regarding the development of effective global resolution regimes and the progress made, and further work needed, by FSB jurisdictions to implement the FSB’s paper ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’, adopted in October 2011. The speech addresses a number of areas, including: the implementation of the total loss-absorbing capacity (TLAC) standard and the FSB’s call for public feedback made in early June 2018, as part of its review of its technical implementation of TLAC; bail-in execution and the FSB’s paper ‘Principles on Bail-in Execution’ consulted on in November 2017 and the final version of which will be published in the coming weeks; funding in resolution and the FSB’s guidance to assist global systemically important banks’ (G0SIBs) development of resolution funding strategies, also consulted on in November 2017 and the final version of which will also be published in the coming weeks; and FSB’s analysis of authorities’ approaches in two areas of their resolution planning work, namely: (i) conducting a comparison of FSB jurisdictions’ approaches to public disclosure of information on resolution planning and resolvability, and (ii) taking stock of FSB jurisdictions’ Financial Regulation / 14 June 2018 / Issue 966 5 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement approaches to the wind-down of trading book activity and some of the operational aspects of an effective wind-down plan. The FSB will report its findings on these two aspects later in 2018. The speech is here. The Key Attributes paper is here. 6. Council of the European Union 6.1 European deposit insurance scheme – Council of the EU publishes progress report – 14 June 2018 – The Council of the European Union has published a progress report (dated 12 June 2018) on the Commission’s work to strengthen the Banking Union and, in particular, the European deposit insurance scheme (EDIS). The report primarily discusses the proposed Regulation (2015/0270 (COD)) amending the SRM Regulation (806/2014/EU) to establish the EDIS and focuses on: (i) technical elements related to the two alternatives for the initial EDIS model; and (ii) risk-based contributions and related technical issues. The report also briefly discusses the Commission’s proposed risk reduction measures, comprising the risk reduction legislative proposals and measures to tackle non-performing loans. The report is here. 7. European Banking Authority 7.1 Supervisory reporting – EBA publishes revised list of ITS validation rules – 11 June 2018 – The EBA has published a revised list of validation rules in its implementing technical standards (ITS) on supervisory reporting. The revised list can be found here. 7.2 PSD2 – EBA publishes draft Guidelines and Opinion on RTS on strong customer authentication and common and secure communications – 13 June 2018 – The EBA has published a Consultation Paper on its draft Guidelines in relation to the regulatory technical standards (RTS) on strong customer authentication and common and secure communication, found in Commission Delegated Regulation (EU) 2018/389. The EBA has also published an Opinion on the implementation of the RTS which should be read alongside the draft Guidelines. Article 33(6) of the RTS sets out the conditions that account servicing payment service providers (ASPSPs) wishing to provide access via a dedicated interface must meet in order to be eligible for the exemption from the obligation to have contingency measures in place. Competent authorities must consult with the EBA before granting this exemption. The draft Guidelines explain what factors authorities should consider when determining whether or not an ASPSP qualifies for the article 33(6) exemption. The EBA will hold a public hearing on the draft Guidelines on 25 July 2018. The consultation closes on 13 August 2018. The RTS will apply from 14 September 2019. The Consultation Paper on the draft Guidelines is here and the holding page is here. Financial Regulation / 14 June 2018 / Issue 966 6 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The Opinion is here. Commission Delegated Regulation (EU) 2018/389 is here. The press release is here. 8. European Central Bank 8.1 Internal models – ECB publishes letter to significant institutions on submitting internal model requests – 7 June 2018 – The ECB has published a letter to significant institutions on submitting requests relating to internal models to the ECB. The letter informs institutions about the set of documents and processes they should use when applying for: (i) initial internal model approvals, (ii) material model changes and extensions, (iii) reversions to less sophisticated approaches, or (iv) modifications to the scope of assets for which permanent partial use of the standardised approach is permitted. The letter also contains links to the set of documents to be used when communicating any non-material model changes or extensions to the ECB. All significant institutions should use the forms referred to in the letter from 1 July 2018. The letter is here. The ECB’s webpage on internal models is here. 9. Bank of England 9.1 MREL – Bank of England publishes Statement of Policy and Policy Statement – June 2018 – The Bank of England has published a Statement of Policy which sets out how the Bank expects to use its power (under section 3A(4) of the Banking Act 2009) to direct firms to maintain a minimum requirement for own funds and eligible liabilities (MREL). The Bank has also published a Policy Statement which outlines its feedback on the issues raised in response to its October 2017 consultation on its approach to setting MREL within groups. It also provides an overview of the Bank’s final policy on this topic. The Bank’s Statement of Policy addresses: the background and statutory framework for setting MREL (section 1); the framework the Bank uses to inform the calibration of an institution’s MREL (section 3); additional adjustments which may be made on the basis of the preferred resolution strategy for an institution (section 4); additional criteria which liabilities must meet in order to qualify as external MREL resources (section 5); the Bank’s principles for setting MRELs within groups (section 6); internal MREL scope and calibration (section 7); internal MREL instrument eligibility (section 8); and Financial Regulation / 14 June 2018 / Issue 966 7 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement the Bank’s approach to the transition to final (end-state) MRELs, including interim requirements (section 9). Interim internal MRELs are expected to apply from 1 January 2019 for material subsidiaries of global systemically important banks (G-SIBs) and from 1 January 2020 for other firms. The Bank expects to communicate to firms: in the second half of 2018, the interim internal MREL for relevant subsidiaries of G-SIBs, subject to an EU joint decision for relevant subsidiaries on the basis of the Bank’s Statement of Policy; and in early 2019, the interim internal MREL for relevant subsidiaries of non-G-SIBs, subject to an EU joint decision process for relevant subsidiaries on the basis of the Bank’s Statement of Policy. The Bank currently expects to direct institutions to comply with an end-state MRELs from 1 January 2022. It will, before the end of 2020, review the calibration of MREL, and the final compliance date, prior to setting end-state MRELs. When doing so, the Bank will have particular regard to any intervening changes in the UK regulatory framework as well as institutions’ experience in issuing liabilities to meet their interim MRELs. The Statement of Policy is here. The Policy Statement is here. The holding page is here. 9.2 Valuation capabilities to support resolvability – Bank of England publishes Statement of Policy – June 2018 – The Bank of England has published a Statement of Policy on the capabilities that relevant firms should have in place to ensure that an inability to produce timely and robust resolution valuations does not impede resolvability. It applies to all institutions that will be required by the Bank, as a home or host resolution authority, to carry out resolution-specific valuations (as defined in the Statement of Policy). In the same document, the Bank outlines its feedback on the main issues raised in response to its August 2017 consultation on this topic. Section 4 of the Statement of Policy sets out seven principles that firms are expected to meet, and summarises the rationale underlying each principle. The principles cover: data and information, valuation models, valuation methodologies, valuation assumptions, governance, documentation and assurance. The Bank expects firms to be compliant with this Statement of Policy by 1 January 2021. If the Bank decides to set a firm-specific compliance date, it expects to allow firms at least 18 months for compliance. The Statement of Policy and the feedback to the consultation are here. The holding page is here. Financial Regulation / 14 June 2018 / Issue 966 8 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement 10. Prudential Regulation Authority 10.1 PRA Policy Statement PS11/18 – Resolution planning: MREL reporting – June 2018 - The PRA has published a Policy Statement (PS11/18) which sets out its final expectations for reporting on MREL. The appendices to PS11/18 set out the updated Supervisory Statement SS19/13 ‘Resolution planning’ (Appendix 1) and the reporting templates and guidance (Appendix 2). PS11/18 also contains the PRA’s response to the feedback to Consultation Paper CP1/18 of the same title. The PRA states that PS11/18 is relevant to PRA-authorised UK banks, building societies, UK designated investment firms and their qualifying parent undertakings to which the Resolution Pack Part of the PRA Rulebook applies. In particular, PS11/18 is most relevant to: firms notified by the Bank of England that they are likely to be subject to external interim or end-state MREL in excess of regulatory capital requirements, as outlined in the Bank’s Statement of Policy on MREL (reported on earlier in this section); and firms notified by the Bank that they are likely to be subject to internal interim or end-state MREL in excess of regulatory capital requirements, as outlined in the Bank’s Statement of Policy on MREL. The updated Supervisory Statement will take effect from 1 January 2019. The PRA will keep the policy in PS11/18 under review to assess whether any changes will be required due to changes in the UK regulatory framework, including changes arising once any new arrangements with the European Union take effect. PS11/18 is here. The webpage for PS11/18, with links to the appendices, is here. The Bank’s webpage on MREL is here. 10.2 Annual Report 2018 – published by the Bank of England – June 2018 – The Bank of England has published its 2018 Annual Report and Accounts (1 March 2017 - 28 February 2018). It includes the Bank’s three-year strategic plan and a financial review of 2017/18. The Bank of England Annual Report is here, and the holding page is here. 11. Payment Systems Regulator 11.1 PSR Discussion Paper DP18/1: Data in the payments industry – June 2018 – The Payment Systems Regulator (PSR) has published a Discussion Paper (DP18/1) on how data is used in payment systems. The PSR has identified three key areas which could directly affect its objectives of promoting competition, innovation and the interests of service users in payment systems: consumer reluctance to share the data attached to their payments; providers of new services having limited access to data about transactions across a whole payment system, including data that may help develop new ways to fight fraud and other financial crime within the system; and Financial Regulation / 14 June 2018 / Issue 966 9 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement barriers that could stop consumers and businesses getting the benefits from additional ‘enhanced’ data attached to transactions. This data could make processing payments cheaper and more efficient, leading to cheaper services. The PSR is accepting industry and stakeholder views on its findings until 3 September 2018. The Discussion Paper is here. The holding page is here. The press release is here. 12. Competition and Markets Authority 12.1 Northern Ireland Personal Current Account Banking Market Investigation Order 2008 – CMA publishes letter to Ulster Bank regarding non-compliance – 11 June 2018 – The Competition and Markets Authority (CMA) has published a letter to Ulster Bank Limited (Ulster Bank) regarding the following breaches of the Northern Ireland Personal Current Account Banking Market Investigation Order 2008: failure to include a copy of the switching leaflet with the annual summary sent to customers who receive paper-written communications in September 2016 (breaching article 7(2)); and failing to issue the annual summary and the switching leaflet to customers in September 2017 (breaching article 7(1) and (2)). The letter outlines the action agreed between the CMA and Ulster Bank to remedy the breaches of the Order, which includes a written communication in June 2018 from Ulster Bank to all its customers enclosing a copy of the switching leaflet, an apology for missing the September 2017 mailing and notification to contact Ulster Bank if customers wish to discuss the matter or make a complaint. The letter is here. The holding page is here. See also the Brexit section for an item on comments made by the House of Commons European Scrutiny Committee in respect of the proposed Regulation which amends the SEPA Migration Regulation. Securities and Markets 13. European Parliament 13.1 EMIR 2 – adopted by the European Parliament – 12 June 2018 – The European Parliament has voted to adopt the proposed Regulation amending the European Market Infrastructure Regulation ((EU) 2012/648) (EMIR) following its refit review (COM(2017) 0208) (EMIR 2). The European Parliament states that EMIR 2 will simplify clearing rules for small and non-financial counterparties, allow the European Securities and Markets Authority (ESMA) to develop distinct clearing thresholds for financial and non-financial counterparties and extends a temporary exemption for pension funds from the mandatory clearing of OTC derivatives. The European Commission and the Council of the EU will begin to consider the Regulation in July 2018. Financial Regulation / 14 June 2018 / Issue 966 10 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The procedure file for EMIR 2 is here. The provisional version of the text adopted is here. The press release is here. 14. European Securities and Markets Authority 14.1 EMIR – ESMA publishes report on supervisory measures and penalties – 13 June 2018 - ESMA has published its first annual report regarding supervisory measures carried out and penalties imposed by national competent authorities (NCAs) under EMIR. The report focuses on the supervisory actions taken by NCAs in relation to: the clearing obligation for certain OTC derivatives (article 4); the reporting obligation of derivative transactions to trade repositories (article 9); requirements for non-financial counterparties (article 10); and risk mitigation techniques for non-cleared OTC derivatives (article 11). The report is here. The press release is here. 15. Financial Conduct Authority 15.1 FCA Policy Statement PS18/11: Sovereign controlled companies – June 2018 – The FCA has published a Policy Statement (PS18/11) which contains its final rules on the new category within its premium listing regime to cover sovereign-controlled companies. Issuers will be able to seek admission to the new category from 1 July 2018, when the rules establishing the new category come into force. PS18/11 also contains the FCA’s summary of the feedback it received to its Consultation Paper on this topic (CP17/21). PS18/11 is here. The webpage is here. The press release is here. 15.2 Periodic financial information and inside information – FCA launches Guidance Consultation 18/3 – June 2018 - The FCA has launched a consultation (GC18/3) on its proposed update to the technical note on periodic financial information and inside information (UKLA/TN/506.1), which concerns the delay in the disclosure of inside information under article 17(4) of the Market Abuse Regulation ((EU) 2014/596) (MAR). MAR requires an issuer to inform the public as soon as possible of any inside information which directly concerns that issuer, unless the circumstances to delay the disclosure of inside information set out in article 17(4) and (5) of MAR apply. One such circumstance is where immediate disclosure is likely to prejudice the legitimate interests of the issuer (article 17(4)(a) MAR). Financial Regulation / 14 June 2018 / Issue 966 11 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement In this updated technical note, the FCA outlines an example of a legitimate interest of an issuer which may exist where an issuer is in the process of preparing a periodic financial report and inside information emerges as part of that process and is to be included in the report. The FCA stresses, however, that this is a limited situation and issuers should not assume it will always be present. Issuers should assess the existence or otherwise of a legitimate interest which may be prejudiced by immediate disclosure of inside information on an ongoing and case-by-case basis. Issuers who decide to delay the disclosure of inside information do so on their own responsibility. The consultation closes on 23 July 2018. The updated technical note is here. Further information on the proposed update is here. The consultation webpage is here. ESMA’s guidelines on article 17(4) of MAR are here. Asset Management 16. Council of the European Union 16.1 Cross-border distribution of investment funds – Council of the EU publishes presidency compromise proposals – 1 June 2018 – The Council of the European Union has published the first presidency compromise proposals for a Directive (COM(2018) 92), amending the Alternative Investment Funds Directive ((EU) 2011/61) and the UCITS IV Directive ((EC) 2009/65) and a Regulation (COM(2018) 110), amending the European Venture Capital Funds Regulation ((EU) 2013/345) and the European Social Entrepreneurship Funds Regulation ((EU) 2013/346)) on the cross-border distribution of investment funds. The presidency compromise text for the Directive is here. The procedure file for the proposed Directive is here. The presidency compromise text for the proposed Regulation is here. The procedure file for the proposed Regulation is here. 17. Financial Conduct Authority 17.1 Outsourcing of portfolio management – FCA publishes list of cooperation agreements with supervisory authorities in third countries – 14 June 2018 – Article 32(1) of Commission Delegated Regulation (EU) 2017/565 (MiFID Org Regulation) states that, where an investment firm outsources functions related to the investment service of portfolio management provided to clients to a service provider located in a third country, it must ensure that there is an appropriate cooperation agreement between the competent authority of the investment firm and the supervisory authority of the service provider. The FCA has now published a list of the cooperation agreements it has with third country authorities, as required by article 32(3) of the MiFID Org Regulation. These cooperation agreements meet the requirements set out in article 32(2) of the MiFID Org Regulation. Financial Regulation / 14 June 2018 / Issue 966 12 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The FCA states that this list can be used by firms to assess their compliance with article 32(1) of the MiFID Org Regulation. It also advises firms to consider the outsourcing requirements set out at articles 30 and 31 of the MiFID Org Regulation, and in SYSC 8 of the FCA Handbook. The list is here. The MiFID Org Regulation is here. 18. New legislation 18.1 The EU Money Market Funds Regulation and the Money Market Funds Regulations 2018 – June 2018 – The EU Money Market Funds Regulation (EU 2017/1131) (EU MMF Regulation) applies in the UK from 21 July 2018. Although the EU MMF Regulation is directly applicable, UK legislative changes are required to give effect to it and ensure that the FCA is able to authorise money market funds (MMFs) and enforce the provisions of the Regulation from the day it comes into force. These legislative changes are being brought in by way of the Money Market Funds Regulations 2018 (SI2018/698) (MMF Regulations), which amends the Financial Services and Markets Act 2000 (FSMA) and relevant secondary legislation to enable applications to be made for funds to be FCAauthorised MMFs, and for the FCA to exercise its regulatory powers in respect of MMFs. More specifically: Regulation 2 amends FSMA to provide powers of authorisation and intervention for the FCA in relation to unit trust funds and contractual schemes, both of which may be types of MMF. Regulation 3 amends the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228) to allow funds which are open-ended investment companies to apply to become MMFs, or for funds which apply to be authorised as an open-ended investment company to be authorised as an MMF at the same time. Regulation 4 amends the Alternative Investment Fund Managers Regulations 2013 (SI 2013/1773) to allow the FCA to direct the manner in which an application may be made for an alternative investment fund to be authorised as an MMF, and the process for intervention by the FCA in respect of such a fund. Regulation 5 amends the Financial Services and Markets Act 2000 (Qualifying European Union Provisions) Order 2013 (SI 2013/419) to enable the FCA to investigate and bring enforcement action against funds directly for breach of the MMF Regulations. The provisions of the MMF Regulations come into force 21 days after the day on which they are made, for the purposes of the exercise by the FCA of any power to make rules, give directions or give guidance under sections 137A(1)(a) and 139A(1) and of paragraph 23(1)(b) of schedule 1ZA to FSMA); and on 21 July 2018, for remaining purposes. The MMF Regulations are here. The explanatory memorandum is here. The EU MMF Regulation is here. Financial Regulation / 14 June 2018 / Issue 966 13 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Insurance 19. Council of the European Union 19.1 Pan-European Personal Pension Product – presidency compromise proposal published – 11, 13 June 2018 - The Presidency of the Council of the European Union has published its fourth and fifth presidency compromise proposals on the proposed Regulation on a pan-European Personal Pension Product (PEPP). The third proposal was published on 15 May 2018 and reported in this Bulletin on 17 May 2018. The first two proposals were published on 6 December 2017 and 23 April 2018 respectively and reported in this Bulletin on 26 April 2018. The fourth presidency compromise proposal is here and the fifth is here. The procedure file is here. Financial Crime 20. Financial Conduct Authority 20.1 Cryptoassets and financial crime – FCA publishes “Dear CEO” letter – 11 June 2018 – The FCA has published a ‘Dear CEO’ letter to banks regarding how they should deal with the financial crime risks posed by cryptoassets. The FCA states that, where banking services are offered to current or prospective clients who derive significant business activities or revenues from crypto-related activities, it may be necessary to enhance the scrutiny of these clients and their activities. These services may include advising on or arranging an initial coin offering (ICO); trading activities where the client’s source of wealth is derived from cryptoassets; or services to cryptoasset exchanges which effect conversions between fiat currency and cryptoassets and/or different cryptoassets. Appropriate actions may, subject to the circumstances and services being provided, include: developing staff knowledge of cryptoassets to help them identify clients or activities which pose a high risk of financial crime; ensuring that existing financial crime frameworks adequately reflect the crypto-related activities which the firm is involved in, and that they are capable of keeping pace with fastmoving developments; engaging with clients to understand the nature of their businesses and the risks they pose; carrying out due diligence on key individuals in the client business, including consideration of any adverse intelligence; in relation to clients offering forms of crypto-exchange services, assessing the adequacy of those clients’ own due diligence arrangements; and for clients which are involved in ICOs, considering the issuance’s investor base, organisers and the functionality of tokens (including intended use), and the jurisdiction in which the ICO takes place. Financial Regulation / 14 June 2018 / Issue 966 14 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The FCA also states that firms should assess the risks posed by a customer whose wealth or funds derive from the sale of cryptoassets (or other cryptoasset-related activities) using the same criteria that would be applied to other sources of wealth or funds. In the case of retail clients, this would be the criteria the regulator would apply to a property transaction, inheritance or sale of a valuable artwork or car. The FCA sees a client using a state-sponsored cryptoasset which is designed to evade international financial sanctions as a high-risk indicator. Retail customers contributing large sums to ICOs may be at a heightened risk of falling victim to investment fraud. The FCA encourages banks to consider the Financial Services Authority’s (FSA) 2012 review of how banks handled the risk of investment fraud, which includes discussions of good and poor practice. The FCA’s letter is here. The outcome of the FSA’s review of banks’ defences against investment fraud is here. Enforcement 21. Financial Conduct Authority See also the Banking and Finance section for an item on Ulster Bank’s breaches of the Northern Ireland Personal Current Account Banking Market Investigation Order 2008.