Brexit – ISDA position paper on, CCP location and legal uncertainty
On 21 August, ISDA published a position paper on Brexit, CCP location and legal uncertainty. The paper focuses on a possible location policy for euro-denominated swaps to be cleared in the EU and refers to the EC’s June proposed Regulation amending the EMIR supervisory regime for EU and third-country CCPs. In the paper, ISDA sets out the following reasons why an EU CCP location policy will increase costs for market participants and create a more fragmented and less secure clearing house landscape: price volatility and execution costs; increased systematic risk; and operational risk; cost of splitting netting sets; reduced CCP access; and G20 principles. ISDA also argues in the paper that UK and EU policy-makers need to remove any legal uncertainty over cross-border English law contracts by designing transitional arrangements to be put in place after the UK leaves the EU, until a proper system of mutual recognition is introduced.
Capital Markets and Infrastructure
ESMA final report on guidelines on transfer of data between trade repositories under EMIR
On 24 August, ESMA published a final report (ESMA70-151-552) setting out guidelines on the transfer of data between TRs under EMIR. The guidelines, which are set out in section 12 of the report, apply to TRs registered or recognised by ESMA. They aim to provide TRs with additional clarification on how to ensure compliance at all times with the following EMIR requirements: (i) Article 9(1), which requires counterparties and CCPs to ensure that the details of their derivative contracts are reported without duplication; (ii) Article 79(3), which requires a TR from which registration has been withdrawn to ensure orderly substitution, including the transfer of data to other TRs and the redirection of reporting flows to other TRs; and (iii) Article 80(3), which requires TRs to promptly record the information received under Article 9 and maintain it for at least 10 years following the termination of the relevant contracts. TRs must use timely and efficient record-keeping procedures to document changes to recorded information. In the report, ESMA comments on the responses received to its consultation on a draft version of the guidelines. The guidelines apply from 16 October.
CMU – EC consultation on removing barriers to efficient and resilient post-trade services
On 23 August, the EC published a consultation paper on post-trade in a CMU. In the consultation paper, the EC explains that post-trade services cover services related to the processing of a transaction between two parties (for example, clearing, settlement and collateral management) that are performed after execution of a trade. The EC notes that, on average, cross-border trades remain more expensive than domestic trades, and a more efficient post-trading environment could reduce these costs. As a result, it is looking to find the best solutions to remove all barriers to efficient and resilient post-trade services. Efficient and integrated post-trade markets are a prerequisite for efficient and integrated financial markets. The purpose of the consultation paper is to gather stakeholders' views about the current state of post-trade markets. In particular, the EC is seeking views on: the main trends and challenges faced by post-trade services providers and users; the existence and scale of remaining Giovannini or new barriers; the risks associated with the barriers; and the best ways to remove barriers, including through financial technology. The deadline for comments is 15 November. The results of the consultation will contribute to a EC communication on post-trade, which is planned for the end of 2017. They will also contribute to future legislative reviews.
Credit unions – PRA letters to directors of category 4 and 5 credit unions on findings of 2017 annual assessment
On 22 August, the PRA published the following letters it has sent to the directors of credit unions: Letter for category 5 credit unions with total assets of more than £15 million but less than £40 million; Letter for category 5 credit unions with total assets of less than £15 million; Letter for category 5 credit unions with total assets of less than £15 million, whose assets have grown by more than 30%, or whose members have grown by more than 50%, or both, in the last financial year; and Letter for category 4 credit unions, which category includes all credit unions with assets above £40 million, although there is supervisory discretion to include credit unions outside this range. The letters set out the findings from the PRA's 2017 annual assessments of the four credit union peer groups identified above. The category 5 assessments included consideration of governance, strategic planning, SCV and orderly resolution. The letter sent to the category 4 credit unions sets out good and poor practices identified relating to the PRA's review of governance and credit risk. The letter also sets out the PRA's thoughts on operational risk and resilience. The PRA makes it clear that it expects the directors to bear in mind the points set out in the relevant letter and act appropriately. It also advises that the letters have been shared with all UK trade bodies on an anonymous basis, so credit unions may wish to discuss the points the PRA has made with their trade bodies.
PRIIPS – Joint Committee of ESAs updates Q&A on PRIIPs KID
On 18 August, the Joint Committee of the ESAs published a press release announcing that it has published: updated Q&A (JC 2017 49) on the KID requirements for PRIIPs, as laid down in EC Delegated Regulation (EU) 2017/653; flow diagram for the risk and reward calculations in the PRIIPs KID (dated 16 August) setting out the calculation steps for the Summary Risk Indicator (market risk and credit risk assessment); and Performance Scenario calculations described in Delegated Regulation (EU) 2017/653. The updated Q&A document includes a new section covering "General topics" (which includes a Q&A on the categorisation of a retail investor) and new Q&As on: market risk assessment; methodology for assessing credit risk; summary risk indicator; and presentation of costs.
UK payment systems – BoE second annual review of MoUs
On 23 August, the BoE updated its news for FMIs webpage. The BoE, FCA, PRA and PSR have different mandates in relation to payment systems in the UK. In March 2015, they entered into a MoU. The MoU sets out a high-level framework for managing the risk that the actions of each of the authorities may have implications for the objectives of the others. The BoE's Deputy Governor for Financial Stability, the FCA Board, the PRA's Deputy Governor for Prudential Regulation and the PSR Board have reviewed how the MoU is working. They have considered the views of industry and their staff. They have concluded that co-operation and co-ordination under the MoU is working well. Building on the initiatives identified in the previous review, and implemented over the last year, the authorities have identified a number of areas to further improve co-operation and co-ordination. These improvements, which are largely procedural in nature, will be implemented over the coming year.
CMA publishes final versions of regulated payment systems appeals rules and guide
On 18 August, the CMA published the final version of its rules of procedure (CMA65) governing appeals made to it under section 79 of the Financial Services (Banking Reform) Act 2013 in respect of certain decisions made by the PSR under the Act. It has also published a guide (CMA66) to assist participants involved in such appeals. Under the rules, any person who wishes to make an application for permission to appeal a decision must send a notice, marked Notice of Payment Systems Appeal, to the CMA within two months following the date on which the appellant was notified of the decision or the date of publication of the decision, whichever is the earlier. In the final version of the rules, the CMA is now allowed to extend this time period if it is satisfied that the circumstances are exceptional. In the guide to the rules, the CMA has in particular expanded its explanation of the costs rules. The rules took effect on 18 August.
CRR – EC adopts Delegated Regulation on waiver of own funds requirements for certain covered bonds
On 21 August, the EC published the text of a Delegated Regulation amending the CRR as regards the waiver on own funds requirements for certain covered bonds (C(2017) 5562 final). The EC adopted the Delegated Regulation on 11 August. The next step will be for the Council of the EU and the EP to consider the Delegated Regulation. If neither the Council nor the EP object to the Delegated Regulation, it will be published in the OJ. It will enter into force 20 days after its publication in the OJ and will apply from 1 January 2018.
SSM – ECB amending Decision on SSM supervisory data reported to NCAs published in OJ
On 22 August, Decision (EU) 2017/1493 of the ECB (ECB/2017/23) amending Decision 2014/477/EU on the provision to the ECB of supervisory data reported to the NCAs by supervised entities pursuant to EC Implementing Regulation 680/2014 was published in the OJ. Decision (EU) 2017/1493 is addressed to the NCAs of member states participating in the SSM. It was adopted by the ECB on 3 August, and takes effect on the day of its notification to the NCAs.