Brexit - EU (Withdrawal) Bill published
On 13 July, the DExEU published the European Union (Withdrawal) Bill (Bill), which: (i) repeals the ECA 1972; (ii) converts EU law into UK law where appropriate; and (iii) creates temporary powers to correct the laws that no longer operate appropriately so that the legal system in the UK continues to function outside the EU.
Brexit – ESMA produces more detailed opinions to support supervisory convergence in EU27 in context of UK withdrawing from EU
On 13 July, ESMA published the following opinions to support supervisory convergence in the context of the UK leaving the EU: (i) opinion on investment firms (ESMA35-43-762); (ii) opinion on investment management (ESMA34-45-344); and (iii) opinion on secondary markets (ESMA70-154-270). In the opinions, ESMA has assumed that the UK will become a third country after its withdrawal from the EU. However, the opinions are without prejudice to any specific arrangements that may be agreed between the UK and the EU27, and to any future ESMA opinions or other convergence tools. In a related press release, ESMA explains that the opinions set out sector-specific principles, and build on the general cross-sectoral opinion that ESMA published in May 2017. The opinions are designed to be practical tools to support supervisory convergence in the context of requests from UK financial market participants seeking to relocate to the EU27. In particular, the opinions provide guidance aimed at ensuring a consistent interpretation of the requirements relating to authorisation, supervision and enforcement, with a view to avoiding the development of regulatory and supervisory arbitrage risks.
Brexit – UK publishes Brexit position papers on ongoing Union judicial and administrative proceedings and privileges and immunities
On 13 July, the DExEU published position papers outlining the UK's position on the following issues: (i) judicial and administrative proceedings that are ongoing at the point of exit from the EU. The UK's judicial and administrative proceedings position paper reaffirms the government's position that leaving the EU will end the jurisdiction of the CJEU in the UK. It also acknowledges the importance of having a clear position on the status of UK legal cases and administrative procedures that have not concluded on the day the UK leaves the EU; and (ii) privileges and immunities as the UK negotiates its exit from, and new partnership with, the EU. The UK's privileges and immunities position paper notes that the EU may have property, funds, assets and operations in the UK after the withdrawal date, and recognises the need for certain privileges and immunities to apply for a limited period after exit to give the EU a reasonable time in which to wind up its current operations in the UK. It also briefly addresses privileges and immunities in the context of a future UK-EU relationship.
Brexit - FMLC paper on issues of uncertainty arising from Brexit regarding third-country regimes
On 13 July, the FMLC published a report on issues of legal uncertainty arising in the context of the UK withdrawal from the EU. The report focuses on issues of legal uncertainty specific to the application of EU legislation to UK-based financial services providers in the event that the UK withdraws from the EU without retaining access to the single market. In it, the FMLC identifies and considers various issues of legal uncertainty related to the future classification of the UK as a third country with regards to EU law. It also examines the manner in which these issues affect the specific industry sectors that constitute the wholesale financial markets. In particular, the FMLC analyses legal complexity related to: (i) the scope of third-country regimes, including the range of market activities for which there is no concept of equivalence; (ii) the conditions that the UK and British regulators will have to satisfy so that an equivalence determination might be made; (iii) the timescale within which the UK might be able to secure a positive determination on access; and (iv) the impact of losing access rights, and further uncertainties that arise from this. The FMLC's analysis draws attention to the partial, complex and uncertain nature of third-country regimes, and to the market disruption that may potentially arise at the point when the UK withdraws from the EU, if no additional provision is made. The case studies in the report illustrate the associated risks.
Brexit – ESMA publishes letter inviting EC to widen scope of proposal to strengthen EU third-country equivalence regime for market infrastructures and key market players
On 10 July, ESMA published a letter (ESMA70-151-573) (dated 7 July) from Steve Maijoor, ESMA Chair, to Valdis Dombrovskis, EC's Vice President, on third country regimes within ESMA's remit. In the letter, Mr Maijoor refers to the EC's recent suggested improvements in the way the EU deals with third countries in the financial services sector. Areas of improvement include: (i) access to information, and (ii) timely identification of changes in third-country legal and regulatory frameworks, practices or infrastructures and supervisory approaches. ESMA agrees with the EC's that these areas should be strengthened to avoid uneven playing fields and regulatory arbitrage, and to ensure financial stability and investor protection in the EU. ESMA believes that enhancing the implementation and monitoring of the equivalence decisions on third-country regimes (by giving the EC the ability to set specific conditions, and ESMA carrying out regular monitoring of the relevant third-country regulatory and supervisory framework), as suggested in the EC's proposal, represents a significant improvement. Depending on the risks posed by third-country entities, ESMA considers that it is important to have the possibility of EU-level supervision, to ensure efficient and effective supervision, and that investor protection and financial stability objectives are met. ESMA is ready to provide technical advice to the EC to help define in more detail the criteria to determine the different risk categories for each type of entity, and the corresponding regime for each category.
CAPITAL MARKETS AND MARKET INFRASTRUCTURE
Please see our eAlert: Capital Markets Union and securitisation regulatory reform: Staying the course
Listing Rules - FCA publishes consultation paper on a new category of premium listing for sovereign controlled companies
On 13 July, the FCA published a consultation paper entitled "Proposal to create a new premium listing category for sovereign controlled companies" (CP17/21). The proposal aims to enable companies which may the subject of major privatisation transactions to choose the higher standards of premium listing, rather than standard listing. The FCA seeks views on its proposal to introduce new Chapter 21 into the Listing Rules to create a fourth category of premium listing that would only be available to commercial companies that have a sovereign controlling shareholder. The FCA asks for responses to the questions raised in the consultation paper by 13 October.
CPPs - DExEU confirms UK position on EC's proposals for enhanced supervision of third-country CCPs
On 13 July, the Department for DExEU published a memorandum (dated 11 July) on the EC's proposed Regulation amending the ESMA Regulation and EMIR as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs. The memorandum states that the government does not support the inclusion of location requirements for substantially significant third-country CCPs. It also states that the location policy is inconsistent with the G20 commitments to reform OTC derivatives markets, which require a global approach to CCP regulation and supervision, since the proposal would risk fragmenting global derivatives markets. Market fragmentation would increase trading and clearing costs and could discourage hedging of risk using derivatives. The government believes that systemic risk brought about by central clearing should be addressed by heightened supervision, deep co-operation and clear co-ordination.
CMU – Council of the EU conclusions on EC's communication on action plan mid-term review
On 11 July, the Council of the EU published a press release setting out its conclusions on the EC's communication on the mid-term review of the CMU action plan. A related press release explains that the conclusions were adopted at a meeting of the ECOFIN. Generally, the Council welcomes the EC's communication, and underlines its continued strong commitment to the CMU.
EMIR – ESMA final report on technical standards on data to be made publicly available by TRs
On 11 July, ESMA published its final report (ESMA70-151-370) setting out draft RTS on data to be made publicly available by TRs under Article 81 of EMIR. This final report summarises the feedback ESMA received to its December 2016 consultation and outlines its amendments to the RTS in EC Delegated Regulation (EU) 151/2013. ESMA sets out several additional requirements to better specify and enhance the data made publicly available by TRs and to allow the publication of certain aggregate figures for market participants that are required by EU regulations, such as the MiFID II, the MiFIR and the Benchmarks Regulation. Amongst other things, the final RTS cover the following issues: (i) to ensure that the end users are able to aggregate and compare the aggregate position data published by TRs, ESMA's RTS establish general rules; and (ii) further clarifications related to the publication of data by TRs. The draft RTS are set out in Annex II of the final report. ESMA has submitted the draft amendments to the RTS to the EC. The EC has three months to decide whether to endorse them.
CSDR – ESMA publishes guidelines on co-operation between authorities under CSDR
On 11 July, ESMA published guidelines (ESMA70-151-435) on co-operation between authorities under Articles 17 and 23 of the CSDR. The aim of the guidelines is to ensure consistent, efficient and effective supervisory practices within the EU in respect of co-operation arrangements between supervisory authorities for: (i) the consultation of authorities involved in the procedure for granting authorisation to an applicant CSD under Article 17; and (ii) the communication between the home and host authorities in the context of the procedure set out in Article 23 (3) to (7) relating to a CSD wishing to provide services within the territory of another member state for the first time, or to change the range of services provided. The guidelines will apply from the date that is two months after their publication on ESMA's website in all EU official languages. Supervisory authorities to whom the guidelines apply must notify ESMA whether or not they plan to comply with the guidelines (with reasons for non-compliance), by the application date.
CSDR – ESMA publishes consultation paper on guidelines on internalised settlement reporting
On 10 July, ESMA published a consultation paper (ESMA70-151-457) on guidelines on internalised settlement reporting under Article 9 of the Regulation on improving securities settlement and regulating CSDR. ESMA has decided to issue guidelines on internalised settlement reporting and on the exchange of information between the competent authorities and ESMA regarding internalised settlement to ensure the common, uniform and consistent application of Article 9. The proposed guidelines are set out in section 3 of the consultation paper. To ensure the relevant provisions of EC Delegated Regulation (EU) 2017/391 are implemented consistently, the guidelines clarify the scope of the data to be reported by settlement internalisers and the types of transactions and operations that should or should not be included. Competent authorities and financial market participants must make every effort to comply with guidelines by incorporating them into their supervisory practices. Competent authorities must notify ESMA whether they comply or intend to comply with these guidelines, with reasons for non-compliance, within two months of the date of the guidelines' publication on ESMA's website in all EU official languages. In the absence of a response by this deadline, competent authorities will be considered as non-compliant. Settlement internalisers are not required to report whether they comply with the guidelines. The deadline for comments is 14 September. ESMA will consider the feedback it receives with a view to finalising the guidelines by Q1 2018.
EONIA - EEMI publishes guidelines for EONIA review exercise
On 7 July, EMMI published guidelines of its EONIA review data exercise. The guidelines outline the data exercise's objectives, its timeline and a description of the analysis that EMMI will perform with the data contributed by participating banks. The results of the data exercise will provide the basis for EMMI to decide on eventual enhancements and clarifications to the benchmark methodology.
Benchmarks Regulation - FCA publishes statement on ESMA Q&As on transitional provisions under Benchmarks Regulation
On 7 July, the FCA published a statement on the ESMA Q&As relating to the transitional provisions under the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Benchmarks Regulation). The FCA states that this is an important clarification for industry and will inform decisions on when to apply for authorisation or registration during the period January 2018 to December 2019. The FCA can approve applications from index providers and send information to the ESMA Registry from January 2018.
Short selling – ESMA publishes consultation paper on evaluation of Short Selling Regulation
On 7 July, ESMA published a consultation paper (ESMA70-145-127) on the evaluation of certain elements of the SSR. The consultation is intended to help ESMA provide technical advice to the EC in respect of three main aspects of the SSR: (i) the scope and functioning of the exemption for market making activities; (ii) the procedure for imposing a short term ban on short selling where there is a significant fall in price of a financial instrument; and (iii) the transparency of net short positions, and related reporting and disclosure requirements. ESMA states that its final report, which is to be delivered by 31 December, should contribute to the follow-up actions announced by the EC in its November 2016 communication on the call for evidence on the EU regulatory framework for financial services. The deadline for comments is 4 September.
SMR - BSB publishes consultation on draft guidance to help firms assess fitness and propriety of staff under certification regime
On 13 July, the BSB published a consultation paper on draft guidance on certification risks and issues. The draft guidance has been published separately (as Annex A to the consultation paper). The draft guidance is intended to help firms and individual making certification decisions, especially in cases where the issues are not clear-cut. The draft guidance includes: (i) factors to consider when evaluating the evidence used in assessing F&P; (ii) an overview of the options available to firms in making certification decisions; (iii) examples of dealing with certification risks and issues; and (iv) good practice in recording the outcomes of an F&P assessment. The deadline for comments is 29 September. Following the consultation, the BSB will publish the final version of the guidance to help member firms, and the sector more widely. The BSB explains that its "good practice" guidance is developed in partnership with its member firms, and represents a pooling of knowledge and experience. The guidance does not impose any legal or regulatory obligations, but gives firms an idea of what "good" looks like when they are considering their own policies and procedures.
Please see the Pensions section for an update on consumers and pensions income market.
FCA publishes findings from its review of firms' handling of complaints about packaged bank accounts
On 7 July, the FCA published the findings from its review of how firms handle complaints about packaged bank accounts. The FCA reviewed complaints received by firms between March and May 2016. Its findings include: (i) customer outcomes; (ii) final response letters; and (iii) record keeping. The FCA will be communicating with firms that were not included in the review and will invite them to an industry-wide roundtable where the FCA will discuss its findings.
Financial reporting – ESMA updates Q&A on APM
On 12 July, ESMA published an updated Q&A on its guidelines on APM. In the Q&A, ESMA confirms that: (i) paragraph 31 of the APM guidelines (relating to reconciliation of APMs to the most directly reconcilable line item) applies to APMs related to quarterly financial statements included in ad hoc disclosures published by issuers in accordance with Article 17 (public disclosure of inside information) of the MAR, even where there is no requirement to publish such quarterly financial statement under the Transparency Directive; (ii) as the APM guidelines do not define the concept of "prominence", issuers should use their judgement when complying with the principle of prominence set out in paragraphs 35 and 36 of the APM guidelines; (iii) although issuers may use the compliance by reference principle set out in paragraph 45 of the APM guidelines to avoid repetition of information in regulated information documents (for example, ad hoc disclosures presented in accordance with Article 17 of MAR), the principle cannot be used when complying with the APM requirements relating to: comparatives (paragraph 46, APM guidelines); meaningful labels (paragraph 22); prominence and presentation (paragraphs 35 and 36); and consistency (paragraph 41, however the explanations required therein may be complied with by reference); and (iv) "Result of operating activities" is an APM for the purposes of the APM guidelines unless the applicable financial reporting framework defines or specifies "result of operating activities". ESMA welcomes feedback from market participants on these or other questions with a view to updating the Q&A where necessary.
Prospectus Regulation - Prospectus Rules (Miscellaneous Amendments) Instrument 2017
On 7 July, the FCA published Prospectus Rules (Miscellaneous Amendments) Instrument 2017 (FCA 2017/40). The instrument amends the FCA Handbook Glossary and the Prospectus Rules to reflect those provisions of the new Prospectus Regulation that are to apply from 20 July and to update the definition of ESMA Prospectus Q&As to refer to the most recent version of that document. The provisions of the Prospectus Regulation which apply from 20 July relate to the exemptions from the obligation to publish a prospectus on the admission to trading on a regulated market of certain types of transferable securities. The instrument comes into force on 20 July.
Please see our eAlert: New tax evasion facilitation offences in force 30 September 2017
MLD4 – HoL Secondary Legislation Scrutiny Committee raises concerns about lack of effective Parliamentary scrutiny of regulations that implemented MLD4
On 13 July, the HoL Secondary Legislation Scrutiny Committee published its second report of session 2017-19. In particular, the committee raises concerns about the three regulations that recently transposed the MLD4: (i) Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (2017 MLRs); (ii) Information about People with Significant Control (Amendment) Regulations 2017 (SI 2017/693); and (iii) Scottish Partnerships (Register of People with Significant Control) Regulations 2017 (SI 2017/694).
Criminal Finances Act (Commencement No. 1) Regulations 2017 published
On 12 July, the Criminal Finances Act (Commencement No. 1) Regulations 2017 (CFA) were published. The Regulations bring section 47 of the CFA into force on 17 July and Part 3 of the CFA, the corporate offence of failure to prevent facilitation of tax evasion, into force on 30 September.
MLD4 – EC cover note and Council of EU letter on new methodology for assessment of high-risk third countries
On 11 July, the Council of the EU published a cover note (11189/17) to which is attached a letter (dated 30 June) from Commissioner Vĕra Jourová, to the Presidency of the Council of the EU, concerning the assessment of high-risk third countries under MLD4. In the letter, Commissioner Jourová states that she is committed to delivering a new approach for identifying high-risk third countries by following a staged approach, focusing on priority third countries first. These priority countries will be chosen on the basis of their financial importance for the EU and their exposure to the risks of money laundering and terrorist financing. The EC's list of non-co-operative tax jurisdictions, which will be issued at the end of 2017 will also be taken into account. As an initial step, the EC services will start immediately to develop a methodology for the subsequent assessment process. For the assessment stage, the EC's starting point is that any third country that represents a risk to the international financial system, as identified by international fora, also represents a risk to the EU internal market. Further countries will be identified by the EC to add to this internationally agreed list, in line with the process proposed in the roadmap. Commissioner Jourová comments that the need for the EC to make its own assessment is both consistent with Article 9 of MLD4, and justified. However, the EC also wishes to build on, complement, and maintain coherence with the work of the FATF. In the letter, Commissioner Jourová states that the roadmap was communicated to the EP on 29 June.
CFT – G20 Leader's statement on countering terrorism: financial services aspects
On 8 July, the G20 published the Hambourg G20 Leaders' statement on countering terrorism (dated 7 July). Aspects of the statement that may be of particular interest to financial services include: (i) the G20 underlines its resolve to make the international financial system entirely hostile to terrorist financing; (ii) the G20 reaffirms its commitment to tackle all sources, techniques and channels of terrorist financing, and its call for swift and effective implementation of relevant UN Security Council Resolutions and the FATF standards worldwide; (iii) the G20 supports the ongoing work to strengthen the governance of the FATF, and the FATF's intention to further explore its transformation into a legal person; (iv) the G20 welcomes the fact that CTF remains the FATF's highest priority; (v) the G20 will advance the effective implementation of the FATF standards on transparency and the beneficial ownership of legal persons and arrangements for the purposes of countering terrorist finance; (vi) the G20 notes that low cost attacks by small cells and individuals funded by small amounts of money transferred through a wide range of payment means are an increasing challenge; and (vii) the G20 asks its finance ministers and central bank governors to work with the FATF, the FSB, the financial sector, financial intelligence units (FIUs), law enforcement and FinTech firms to develop new tools (such as guidance and indicators) to harness new technologies to better track terrorist finance transactions.
AML measures – ISSA financial crime compliance sample questionnaire for custodians
On 7 July, the International Securities Services Association (ISSA) published a simplified financial crime compliance sample questionnaire, with explanatory notes. The questionnaire is intended for use by custodians performing due diligence on their account holders in cross-border securities relationships. In a related newsletter (dated July 2017), ISSA states that it should be used by custody account holders that have completed the Wolfsberg AML questionnaire. The ISSA questionnaire is intended to address those elements of a due diligence programme that are specific to securities custody and fund distribution. In the explanatory notes, ISSA states that it is developing a more comprehensive sample questionnaire for use by firms that are not required to complete the Wolfsberg AML questionnaire. It expects to make this questionnaire available in the first quarter of 2018.
Fintech - BoE publishes results of latest round of Fintech Accelerator proofs of concept
On 11 July, the BoE published the results of the latest round of proofs of concept (PoC) considered by its FinTech Accelerator, which it summarises in a related press release. The latest PoCs covered four important areas of the BoE's work: (i) MindBridge Analytics Inc: this big data anomaly detection tool complements the BoE's work analysing large-scale supervisory data sets; (ii) Ripple: this PoC allowed the BoE to consider how DLT could be used to model the synchronised movement of two different currencies across two different ledgers, as part of the BoE's wider research into the future of high-value payments; (iii) ENFORCD EDB: this cloud-based database of regulatory enforcement actions with commentary and analysis complements the BoE's work on identifying and applying cross-cutting legal themes from regulatory enforcement actions; and (iv) Experimentus: this PoC allowed the BoE to explore whether its existing test data were sufficient to carry out effective KPI reporting, and where further data collection might be needed.
Please see the Brexit section for ESMA’s sector specific opinions on investment firms, investment management and secondary markets.
AIFMD and UCITS – ESMA updates Q&A on application of AIFMD and UCITS
On 11 July, ESMA published an updated Q&A on the application of AIFMD and an updated Q&A on application of the UCITS. The AIFMD Q&A includes three new questions and answers on the reporting requirements for: (i) loans purchased on the secondary market; (ii) conversion of the total value of AUM; and (iii) currency of the NAV. The UCITS Q&A includes two new questions and answers on: (i) issuer concentration; and (ii) group links, and (iii) independence and cooling-off periods.
Solvency II – EIOPA publishes opinion on supervisory convergence in EU27 in context of UK withdrawing from EU
On 11 July, EIOPA published an opinion (EIOPA-BoS-17/141) on supervisory convergence in the light of the UK withdrawing from the EU. The opinion is addressed to the supervisors of the EU member states, in particular to the EU27 (and the EEA and EFTA members), and applies to authorisation and approval processes, governance and risk management, outsourcing and on-going supervision of UK-based insurers and reinsurers falling under the Solvency II. In the opinion, EIOPA: (i) assumes that when the UK leaves the EU it will become a third country for the purposes of applying the Solvency II framework. Until then, the EU legislative framework will remain in force in the UK; (ii) advises that the opinion is notwithstanding any specific arrangements that may be reached between the UK and the EU or, where applicable, existing national rules relating to market access or the effect of any equivalence decision; (iii) and as the UK is currently the most important EU financial centre, EIOPA advises that this unique situation requires a common effort at the EU level to ensure a consistent supervisory approach to the relocation of UK-based undertakings. Communication between the UK and EU supervisors is encouraged in this context. EIOPA has carried out on-site visits to certain supervisory authorities, and discussed the processes and resources in place to deal with potential relocations. It calls on supervisors to ensure a sound authorisation process, supported by adequate resources to deal with the increased amount of requests for authorisation within a short period of time. No automatic recognition of existing authorisations should be granted. EIOPA plans to monitor developments, applying a risk-based approach and using information collected from members. EIOPA will conduct its analysis and make use of its powers and oversight tools to support supervisory convergence through bilateral engagements with supervisory authorities, providing opinions and initiating investigations as the need arises.
MiFID II – ESMA publishes consultation paper on guidelines on MiFID II suitability requirements
On 13 July, ESMA published a consultation paper (ESMA35-43-748) on guidelines on certain aspects of the suitability requirements under the MiFID II. ESMA explains that the purpose of the draft guidelines is to enhance clarity and foster convergence in the implementation of certain aspects of the MiFID II suitability requirements. The new guidelines will replace the existing guidelines published by ESMA in July 2012. The consultative draft builds on the text of the 2012 guidelines, which have been mainly confirmed, but clarified and refined where ESMA has thought necessary. ESMA also aims to: (i) reflect recent technological developments in the advisory market, including the increasing use of robo-advice (that is, automated or semi-automated systems for the provision of investment advice or portfolio management); (ii) give relevance to the results of supervisory activities conducted by national competent authorities (NCAs) on the suitability requirements; (iii) incorporate some insights of studies in the area of behavioural finance; and (iv) provide additional details on some areas that were already covered under ESMA's 2012 guidelines. The deadline for comments is 13 October. ESMA will consider the responses it receives in the Q4 2017 or Q1 2018 and expects to publish a final report, together with final guidelines, in Q1 or Q2 2018.
MiFID and MiFID II -- EC adopts Delegated Regulation on RTS setting out list of information to be included by proposed acquirer of investment firm under
On 11 July, the EC adopted a Delegated Regulation with regard to RTS for an exhaustive list of information to be included by proposed acquirers in the notification of a proposed acquisition of a qualifying holding in an investment firm, supplementing the MiFID and the MiFID II. Article 12(8) of the MiFID II Directive contains an empowerment for ESMA to develop identical RTS to those referred to in MiFID. As a result, the draft RTS are applicable for the purposes of the MiFID II without needing further amendment. The next step will be for the Council and the EP to consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will be published in the OJ and enter into force twenty days after its publication in the OJ.
MiFID and MIFID II – EC adopts Implementing Regulation laying down ITS on forms, templates and procedures relating to notifications of proposed acquisition of investment firm
On 11 July, the EC adopted an Implementing Regulation laying down ITS with regard to standard forms, templates and procedures for the consultation process between relevant competent authorities relating to the notification of a proposed acquisition of a qualifying holding in an investment firm, in accordance with MiFID and the MiFID II. The Annexes to the Implementing Regulation have been published separately. As the empowerments under MiFID and the MiFID II are identical, the Implementing Regulation will continue to apply after 3 January 2018 without the need for further amendment. The Implementing Regulation will be published in the OJ and will enter into force twenty days after its publication in the OJ.
MiFID II – ESMA updates MiFID II Q&A on investor protection
On 10 July, ESMA published an updated version of its Q&As on investor protection topics under the MiFID II and MiFIR. ESMA has added two new Q&As covering: (i) best execution. Question 15 has been added: 'do the RTS 27 reporting requirements apply to SFTs?' and (ii) recording of telephone conversations and electronic communications. Question 12 has been added: 'do the record-keeping requirements set out in Article 16(7) of the MiFID II apply only when, through a given channel, the execution and transmission of the order is allowed in addition to the reception and transmission of the order?'.
MiFID II – ESMA updates Q&As on market structures, commodity derivatives and data reporting
On 7 July, ESMA published new Q&As providing guidance on implementation of the MiFID II and MiFIR. The new Q&As are included in updated versions of the following MiFID II Q&As (all dated 7 July): (i) Q&As on MiFID II and MiFIR market structures topics; (ii) Q&As on MiFID II and MiFIR commodity derivatives topics; and (iii) Q&As on MiFIR data reporting.
PSD2 - FCA publishes consultation paper on draft authorisation and reporting forms as part of PSD2 implementation
On 13 July 2017, the FCA published a consultation paper on draft authorisation and reporting forms as part of its implementation of the PSD2 (CP17/22). Publication of CP17/22 follows on from the FCA's April 2017 consultation (CP17/11) which covered the majority of changes necessary for the implementation of PSD2. CP17/22 is structured in the following chapters: (i) chapter 1 provides a summary of the consultation; (ii) chapter 2 sets out the proposals relating to reporting and record-keeping, which are relevant to PSPs and EMIs; and (iii) chapter 3 sets out the proposals relating to authorisation and registration forms, which are relevant to businesses seeking registration with the FCA to conduct payment services business or issue e-money as a small PI or small EMI, as well as existing PIs and EMIs. Amongst other things the FCA proposes to: (i) direct that PSPs follow the relevant EBA guidelines to notify the FCA of major operational or security incidents; (ii) update the capital returns for authorised PIs and EMIs to reflect the PSD2 requirements around how own funds can be met; and (iii) make rules requiring records to be kept by banks and building societies on their account information services and payment initiation services business. The proposed changes to the Handbook are set out in Appendix 1 in the draft FCA Payment Services Instrument 2017. The draft authorisation forms are set out in Appendix 2. The deadline for comments on the proposals in CP17/22 is 18 August. The FCA expects to make final forms available in September, before opening applications for authorisation and registration in October. The FCA will also publish a policy statement setting out its final reporting and record keeping rules, directions and guidance in the third quarter of 2017. The FCA will consider whether it needs to consult on any further changes to reflect EBA guidelines or RTS in the second half of 2017.
PSR – PSR welcomes CMA merger clearance decision
On 12 July, the PSR published a press release welcoming the decision by the CMA to clear the anticipated merger of the operators of Bacs Payment Schemes Ltd, Faster Payments Scheme Ltd, and Cheque & Credit Clearing Company Ltd. In the press release, Hannah Nixon, PSR Managing Director, states that the CMA's decision is a key milestone to ensure delivery of the NPSO by the end of 2017. The consolidation of the PSOs is in line with one of the PSR's key requirements to support increased choice of access and develop common participation models and rules. This should make it easier for banks, FinTech companies, and other PSPs to enter the market and compete effectively. In addition, Ms Nixon regards the consolidation as an important first step towards a generational change in UK payments. This is on the basis that it can help facilitate the safe and secure transition to, and management of a NPA, which the PSR believes could deliver more dynamic competition and innovation in payments. Consumers will also benefit from new entrants coming into the market and offering users of payment services new and innovative products.
PSD2 – EBA final guidelines on authorisation and registration under PSD2
On 11 July, the EBA published a final report (EBA/GL/2017/09) containing final guidelines on the information to be provided by applicants intending to obtain authorisation as a PI or e-money institution (EMI), or to register as an account information service provider (AISP), under the PSD2. The final guidelines specify the detailed information and documentation that applicants need to submit to national authorities for the purposes of the authorisation or registration process. The type of information requested from applicants varies depending on the type of service(s) an applicant intends to provide. The guidelines (which are set out in chapter 3 of the final report) are structured as four separate sets: (i) guidelines on the information required from applicants for authorisation as PIs for the provision of services 1 - 8 of Annex I to PSD2; (ii) guidelines on the information required from applicants for registration as AISPs for the provision of only service 8 of Annex I to PSD2 (that is, account information services); (iii) guidelines on the information required from applicants for authorisation as EMIs; and (iv) guidelines regarding the assessment of completeness of the application. Chapter 4.2 of the final report contains a feedback table in which the EBA sets out a summary of the responses received to the questions raised in the EBA's November 2016 consultation paper, together with EBA analysis and feedback on those responses, and any resulting amendments to the guidelines. The final guidelines will now be translated into the official languages of the EU. Competent authorities will have two months from the publication date of the translations to notify the EBA of whether or not they comply, or intend to comply with the guidelines, and if not, to provide reasons for non-compliance.
PSD2 – EBA publishes final guidelines on professional indemnity insurance
On 7 July, the EBA published a final report (EBA/GL/2017/08) setting out guidelines on the criteria on how to stipulate the minimum monetary amount of the professional PII or other comparable guarantee under the revised PSD2. PSD2 requires undertakings wishing to provide PIS and AIS to have in place PII cover or a comparable guarantee as a prerequisite to being granted authorisation. The EBA has introduced some changes and clarifications to the final guidelines after considering the feedback it received on its September 2016 public consultation. In particular, these include: (i) additional specifications on the scope of the PII and comparable guarantee; and (ii) reducing the percentages applied to the top tiers in the calculation of some of the indicators. The final guidelines require the minimum monetary amount of PII or comparable guarantee to be calculated by adding up the amounts that are reflective of the risk profile criterion, the type of activity criterion, and the size of activity criterion respectively. The guidelines will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply from 13 January 2018.
FCA publishes interim report on retirement outcomes review
On 12 July, the FCA published its interim report on its retirement outcomes review (MS16/1.2), which assesses how competition is developing in the retirement income market. The FCA has assessed how competition is evolving after the introduction of new pension freedoms in April 2015. In particular, it has looked at how firms and consumers (particularly those who have not taken regulated advice) have responded to the pension freedoms. The FCA has found that competition is not working well for those consumers who do not seek advice, and has concerns about whether a competitive market can develop in the future. It also has some concerns that consumers who move into drawdown may struggle with the complexity of the decisions they have to make, particularly where they have not taken advice. The FCA has identified a package of possible remedies to address some of the issues. It is considering additional protections for consumers who buy drawdown without advice, similar to protections already in place for automatic enrolment. It is also looking at measures to improve competition for consumers who buy drawdown without taking advice. In addition, the FCA is considering tools and services to help consumers make good choices, primarily by building on existing initiatives. The deadline for comments on its interim report and possible remedies is 15 September. The FCA is aiming to publish its final report in the first half of 2018.
CRR - EBA publishes consultation paper on draft guidance on uniform disclosure of IFRS 9 transitional arrangements
On 13 July, the EBA published a consultation paper (EBA/CP/2017/11) on guidelines on uniform disclosures as regards the transitional period for mitigating the impact on own funds of the introduction of IFRS 9. To ensure banks' pillar 3 disclosures regarding capital and leverage ratios are consistent across the EU during the transitional period, the EBA explains that it is crucial that a uniform format on the disclosure of these parameters is used. The proposed guidelines specify the uniform disclosure format that banks should apply for this purpose, also taking into account developments at the international level. The deadline for comments on the proposed guidelines is 13 September. The EBA plans to hold a public hearing on the draft guidelines on 7 September. The proposed guidelines have been developed in accordance with the proposed draft Article 473a(8) of the CRR. Once the final adopted version of the Regulation amending the CRR is published in the OJ, the EBA will make any necessary adjustments to the guidance, to align it with the final version of Article 473a(8).
CRR- EBA publishes report on results from second EBA impact assessment of IFRS 9
On 13 July, the EBA published a report setting out the results from the second EBA impact assessment of IFRS 9. The EBA's survey of 50 institutions across the EEA in February was based on banks' estimations as of 31 December 2016 or in fewer instances as of 30 September 2016, when most banks were in the building phase of preparation for the implementation of IFRS 9. In summary, the report shows: (i) qualitative results. Banks have made further progress on the implementation of IFRS 9 since the first exercise, but smaller banks are still lagging behind in their preparation compared with larger banks. The report also confirms that banks have reduced their plans for parallel runs of IFRS 9 and IAS 39. Banks will use various data, processes and models to estimate expected credit losses. This may affect comparability among banks which means that disclosures will be key; and (ii) quantitative results. The estimated impact of IFRS 9 is mainly driven by IFRS 9 impairment requirements. The estimated increase of provisions is on average 13% compared to the current levels of provisions under IAS 39. The CET1 ratios are expected to decrease on average by up to 45 basis points. Smaller banks, which mainly use the SA for measuring credit risk, estimated a larger impact on own funds ratios than larger banks of the sample. The EBA states that it will continue its dialogue with banks and auditors on the implementation issues observed in the report and encourages banks to continue their efforts towards the high-quality implementation of IFRS 9. The EBA will continue to be involved in discussions at the EU and international levels (i.e. with the BCBS) to explore what further changes may be necessary to the current regulatory framework to ensure a proper interaction of the capital framework with the expected credit loss model in accounting.
Pillar 2A – PRA publishes further consultation paper on Pillar 2 liquidity
On 13 July, the PRA published a consultation paper on Pillar 2 liquidity (CP13/17). The paper builds on the proposals in a May 2016 consultation paper, which amongst other things set out the objectives of the Pillar 2 framework and proposed a SoP on the PRA's approach to Pillar 2 risks (CP21/16). In CP13/17, the PRA: (i) sets out its proposals on a CFMR framework and other PRA methodologies for assessing firms' liquidity risk, under the Pillar 2 framework. The new liquidity reporting template, which will be named PRA110, will build on the EBA ML reporting template. The draft rules to introduce the collection of the PRA110 are set out in the Draft PRA Rulebook: CRR Firms: Regulatory Reporting PRA110 Amendment Instrument (in Appendix 4 to CP13/17); and Appendix 3 to CP13/17 contains the proposed PRA110 reporting template and associated reporting instructions: (i) template: PRA110 Cash flow mismatch; (ii) template: PRA110 Cash flow mismatch (colour coded); and (iii) template: PRA110 Cash flow mismatch (colour coded); (ii) proposes updates to the PRA's supervisory statement on its approach to supervising liquidity and funding risks (SS24/15) (see the proposed revisions in Appendix 2) and to its supervisory statement on guidelines for completing regulatory reports (SS34/15) (see the proposed revisions in Appendix 5), as well as draft reporting rule changes, and a draft reporting template and instructions relating to the CFMR; (iii) seeks comments on the draft SoP (in Appendix 1), which combines the proposals from CP13/17 with those from CP21/16; (iv) seeks early views on aspects of the calibration of overall liquidity requirements that will be consulted on in a third consultation paper; and (v) outlines how feedback on CP21/16 was taken into account in the proposals in CP13/7. The deadline for comments on the proposals in CP13/17 is 13 October. The PRA will then publish a full overview of the stakeholder responses to these proposals and to those in CP2116. A related press release states that the entry into force of the proposed survival guidance under the granular LCR stress will be linked to the implementation of the new PRA110 report proposed for 1 January 2019. The implementation of the new Pillar 2 methodologies is envisaged to commence in early 2018.
Pillar 2A – PRA publishes consultation on Pillar 2A capital requirements and disclosure
On 12 July, the PRA published a consultation paper on Pillar 2A capital requirements and disclosure (CP12/17). CP12/17 is relevant to all banks, building societies and PRA-designated investment firms. It contains proposed adjustments to the PRA's Pillar 2A capital framework in order to set a clear market-wide expectation and provide a greater level of clarity, transparency and consistency. The PRA sets Pillar 2A capital for risks that are not captured, or not fully captured by the CRR. The PRA's is proposing to: (i) set Pillar 2A capital as a firm-specific capital requirement under section 55M of FSMA, rather than as individual guidance; (ii) introduce a revised disclosure policy in which the PRA expects firms to disclose their TCR or, where a Pillar 2A capital requirement has not yet been set, total Pillar 1 and Pillar 2A guidance; (iii) provide clarity on when and how individual (solo) Pillar 2 capital requirements may be set; (iv) implement these changes by amending supervisory statement 31/15 on the ICAAP and the SREP (SS31/15) and the statement of policy (SoP) on the PRA's methodologies for setting Pillar 2 capital; and (v) update some of the existing capital terminology. The deadline for comments is 12 October. The PRA proposes that the final policy will apply from 1 January 2018.
CRR – ECON adopts draft report on proposed amending Regulation on transitional period for mitigating impact on own funds of IFRS 9 introduction
On 11 July, the EP published a press release announcing that its ECON has voted to adopt its draft report on the proposed Regulation amending the CRR as regards the transitional period for mitigating the impact on own funds of the introduction of IFRS 9 and the large exposures treatment of certain public sector exposures denominated in non-domestic currencies of member states. Trialogue negotiations between the EP, the Council and the EC are planned for late September or early October.
NPLs – Council of EU agrees NPLLs action plan: financial services aspects
On 11 July, the Council of the EU published a press release setting out its conclusions on an action plan to tackle NPLs in the EU. The Council welcomes the NPL report (9854/17) of the sub-group of the Council's Financial Services Committee (dated 31 May). In the light of the report, the Council stresses the need for a comprehensive approach combining a mix of complementing policy actions, at national level and EU level, as the most effective way to address the existing stocks of NPLs as well as the emergence and accumulation of new NPLs on bank balance sheets. In its conclusions, the Council, amongst other things, invites the following actions: (i) the EC to issue, in summer 2017, an interpretation of existing supervisory powers with a view to clarifying their usability as regards banks' provisioning policies for NPLs under Article 16 of the SSM Regulation and under Article 104 of the CRD IV; (ii) the EBA, in consultation with the ESMA, and competent authorities to implement, by the end of 2018, enhanced disclosure requirements on asset quality and NPLs to all banks; and (iii) the ERSB to develop, by the end of 2018, macro-prudential approaches to prevent the emergence of system-wide NPL problems, while taking due consideration of procyclical effects of measures addressing NPLs' stocks and potential effects on financial stability. The Council agrees to revert to the issue regularly, to take stock of the evolution of NPLs in the EU and of actions taken.
NPLs – ESRB report on resolving NPLS in Europe
On 11 July, the ESRB published a report on resolving NPLs in the EU. This report has been prepared by the ESRB expert group on NPLs, which was mandated to identify macro-prudential policy-oriented issues related to NPLs and to develop ideas on possible macro-prudential responses to the current high levels of NPLs in the EU. The report concludes that more effort is urgently needed to reduce NPLs and recommends several policy actions. Chapter 3 of the report sets out general practical guidance for policymakers on the steps that need to be taken to design the overall response to the NPL issue. Chapter 4 of the report outlines the practical aspects of NPL resolution. The authorities should aim to improve banks' capacity to manage or dispose of their NPLs, while continuing to apply supervisory pressure to manage recoveries. Chapter 5 report sets out specific policy proposals for a range of measures involving various stakeholders at European and national level.
CRR – Delegated Regulation on RTS further specifying additional objective criteria relating to liquidity coverage for credit institutions published in OJ
On 8 July, Delegated Regulation (EU) 2017/1230 supplementing the CRR with regard to RTS further specifying the additional objective criteria for the application of a preferential liquidity outflow or inflow rate for cross-border undrawn credit or liquidity facilities within a group or an institutional protection scheme was published in the OJ. The Delegated Regulation enters into force on 28 July (that is, 20 days after its publication in the OJ).
RECOVERY and RESOLUTION
Single Resolution Board annual report 2017
On 11 July, the SRB published its annual report for 2016. 2016 was the second year of the SRB's operation and the first year in which it assumed full resolution powers, covering around 140 banks. In the report, the SRB sets out the progress made in developing resolution plans under the BRRD, establishing the SRF, and building co-operation within the banking union, the EU and internationally. It considers that it has achieved the main objectives identified in the 2016 SRB working priorities. Presenting the report to ECON at a public hearing, Elke König, SRB Chair, gave a speech in which, amongst other things, she highlights the SRB's priorities for the remainder of 2017. These include: (i) operationalising resolution plans; (ii) preparing for effective cross-border resolution; and (iii) developing binding targets for the MREL and addressing the quality of MREL.
BRRD – EBA publishes official language versions of EBA guidelines on Bail in
On 11 July, the EBA published the official EU language versions of the following guidelines under the BRRD: (i) guidelines on the rate of conversion of debt to equity in bail-in (EBA/GL/2017/03); (ii) guidelines on the treatment of shareholders in bail-in or the write-down and conversion of capital instruments (EBA/GL/2017/04); and (iii) guidelines concerning the interrelationship between the BRRD sequence of write-down and conversion and the CRR (EBA/GL/2017/02). The guidelines should be implemented by 11 January 2018.
Sustainable finance – EC expert group publishes interim report on sustainable finance
On 13 July, the EC published the interim report of its HLEG on sustainable finance. In the report, the HLEG sets out its initial thoughts and recommendations on areas where EU policymakers could further align financial practices with sustainable policy objectives. Its recommendations include: (i) establishing an EU classification of financial products that captures all acceptable definitions of "sustainable". The HLEG suggests that this could be finalised before the end of 2018 ahead of the review of PRIIPS Regulation; (ii) establishing a single set of principles for financial intermediaries' fiduciary duties that incorporates ESG factors. The HLEG suggests that the EC should use its forthcoming reviews of financial services sectoral legislation to address this issue; (iii) improving the disclosures made by firms and financial institutions on sustainability issues; (iv) developing a sustainability test to ensure that sustainability is embedded across all future EU financial regulations and policies; and (v) using the ongoing review of the ESAs to clarify and enhance the ESAs' roles on ESG issues. The HLEG also sets out policy areas relating to sustainable finance that it considers require further discussion. These include potential reforms relating to firms' governance, CRAs methodologies, financial reporting, benchmarks and the prudential requirements for banks and insurers. This Interim Report is intended to provide the basis for fruitful and constructive consultations as the HLEG engages in the next phase of its work. The HLEG welcomes comments, questions and discussions during the process of preparing its final report for publication in December.
FSCS publishes annual report and accounts and class statements for 2016/17
On 13 July, the FSCS published its annual report and accounts for 2016/17. Amongst other things, the report outlines some of the key figures and events of the 2016/17 period and the FSCS' strategy and performance over the past year. Alongside the annual report, the FSCS has published its annual report class statements for 2016/17 setting out its compensation costs, recoveries and levies. In the past, this statement was included in the annual report and is being published separately to aid transparency for the benefit of FSCS levy payers.
Lending Standard Board publishes business plan for 2017/20
On 13 July, the LSB published its business plan for 2017/20. In the business plan, the LSB provides details on how it plans to achieve its "2020 Vision". It notes that the three-year time horizon covered by the plan is challenging. However, the LSB believes that it has a unique role in setting high standards that complement the FCA's work, covering areas that the statutory protections do not reach. It explains that the business plan is more than a mere continuation of the last three-year plan, as the LSB seeks to make a stepped change in its development. The "important activities" detailed in the business plan include: (i) standards; (ii) growth in registered firms; (iii) increase in consumer protection; (iv) home of self-regulation; (v) working with stakeholders; (vi) governance, funding and resources; and (vii) profile.
DGSD – EBA publishes data on deposit guarantee schemes
On 11 July, the EBA announced that it has published data relating to available financial means and covered deposits under the DGSD. Every year, the EBA receives data from each EU member state on available financial means and covered deposits under Article 10 of the DGSD. The first set of data, with reference date as of 31 December 2015, was received in 2016. The second set of data with reference date as of 31 December 2016 was received in 2017. This data provides a point-in-time snapshot of the extent to which DGSs across the EU are building up funds to help cover the guarantee they offer to depositors. A webpage on the DGS data explains that the EBA has made the data publicly available in the interests of transparency and to further enhance policymaking in the area of deposit protection. The EBA has also made available additional information on the DGS data, which explains how DGSs operate. The EBA cautions that the data should be interpreted carefully given the national specificities that still exist. Data for different member states is not immediately comparable without taking these national specificities into account.
Council of EU Estonian Presidency work programme for 1 July to 31 December 2017: financial services aspects
On 11 July, the Estonian Presidency of the Council of the EU published its work programme for 1 July to 31 December for ECOFIN. The items of interest are: (i) the Presidency aims to reach a political agreement with the EP on the more urgent matters in the banking risk reduction package (ii) the Presidency considers it important to progress with the CMU and will continue with the discussions on the CMU legislative proposals; (iii) the Presidency will work on the proposals resulting from the review of EMIR; (iv) the Presidency will advance the negotiations on the regulation on restoring the financial position of CCPs and crisis resolution, and if possible, try to attain the mandate of the Council to start negotiations with the EP; (v) the Presidency will promote the negotiations on the Commission's legislative proposal on the PEPP as far as possible; and (vi) the Presidency will proceed with the proposals resulting from the review of micro and macro-prudential supervision. The Presidency also published a draft calendar of key meetings and events between July and December.
G20 leaders' publish communique and action plan from July 2017 summit: financial services aspects
On 8 July, the G20 published a communique and action plan following a meeting of finance ministers and central bank governors in Hamburg, Germany, on 7 and 8 July. On financial sector regulation and development, the G20, amongst other things: (i) reiterates its commitment to support the timely, full and consistent implementation and finalisation of the agreed G20 financial sector reform agenda; (ii) confirms its support for the Basel Committee on BCBS' work to finalise the Basel III framework; (iii) welcomes the FSB's review of the implementation and effects of the reforms to OTC derivatives markets and calls on its members to complete the full, timely and consistent implementation of the OTC derivatives reforms where they have not already done so, including by meeting their commitment to remove legal barriers to reporting and accessing trade repository data by mid-2018; and (iv) acknowledges that malicious use of ICT could endanger financial stability and asks the FSB to deliver a stock-take report by the G20 meeting in October on existing regulations and supervisory practices in the G20 jurisdictions, and existing international guidance.
ECB publishes response to EC consultation on operations of ESAs
On 7 July, the ECB published its response to the EC's consultation on the operations of the ESAs. The response discusses a number of issues, including: (i) the ECB reiterates its call for the creation of a single capital markets supervisor to ensure a strong CMU. It initially raised this issue in the Eurosystem response to the EC's green paper on the CMU in March 2015; (ii) the ECB calls for it to be given voting member status on the board of supervisors of the EBA and permanent membership and voting status on the management board. It also argues that it should have observer status on the ESMA board of supervisors; (iii) the ECB supports a stronger role for the ESAs in co-ordinating reporting requirements for firms. It also suggests that reporting requirements should be scaled to firms' size and complexity; and (iv) the ECB argues that EU-wide supervision of international ICSDs is premature. It suggests waiting until more experience has been gained of the supervisory framework established under the CSDR. It does, however, believe that ESMA's role in the supervision of pan-European investment fund schemes should be strengthened.