BREXIT

FCA speech and new webpage on approach to Brexit

On 19 July, the FCA published a speech given by Nausicaa Delfas, FCA Executive Director of International, on the FCA's approach to Brexit. Points of interest in the speech include discussion of: (i) “cliff edge” risks relating to contract continuity; (ii) amendments to FCA Rulebook to reflect changes in UK legislation; (iii) TPR for EEA firms and funds using a UK passport; and (iv) the FCA's expectations of firms. The FCA has also published a new webpage for firms preparing for Brexit.

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EC adopts Communication on increasing preparedness

On 19 July, the EC published a Communication on preparing for the UK's withdrawal from the EU. The Communication notes that the UK's withdrawal on 30 March 2019 will have consequences for citizens, businesses and administrations in both the UK and the EU. According to the EC, preparing for Brexit needs to be a joint effort at the EU, national, and regional levels, and should also include private actors, business operators, and professionals. As such, it calls on all those affected to increase their preparedness for the various possible outcomes of the negotiations. Stakeholders are advised to prepare for two main possible scenarios: (i) if the Withdrawal Agreement is ratified before 30 March 2019, EU law will stop applying to the UK after the agreed transition period of 21 months, that is on 1 January 2021; and (ii) if the Withdrawal Agreement is not ratified before 30 March 2019, there will be no transition period and EU law will stop applying to the UK on 30 March 2019. The Communication continues by summarising possible preparedness challenges and actions in the sectors of transport, customs, financial services, food safety, pharmaceuticals, personal data and professional qualifications. It also reminds stakeholders that the EC has been publishing more detailed preparedness notices on the consequences of Brexit for operators in specific sectors.  

Brexit: EC publishes Communication on preparing for the UK's withdrawal from the EU

EC, Seven things businesses in the EU27 need to know in order to prepare for Brexit (19 July 2018)

Draft Financial Regulators' Powers (Technical Standards) (Amendment etc) (EU Exit) Regulations 2018 published

On 16 July, an updated draft version of the Financial Regulators' Powers (Technical Standards) (Amendment etc.) (EU Exit) Regulations 2018 was published, together with a draft explanatory memorandum. This draft version updates the previous draft published by the UK Government in April. It appears that only minor changes have been made to the April version of the Regulations. These changes include: (i) clarifications on the scenarios that trigger a requirement for a regulator to be consulted on an EU Exit instrument that another regulator intends to make; and (ii) additions to the lists of RTS and ITS in the Schedule to reflect technical standards that have been published in the OJ since April. The Schedule contains a list of technical standards and allocates them to one or more of the regulators for the purposes of making EU Exit Instruments. The Regulations will come into force on the day after the day they are made.

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Draft Consumer Credit (Amendment) (EU Exit) Regulations 2018 published

On 16 July, HMT published a draft version of the Consumer Credit (Amendment) (EU Exit) Regulations 2018, together with a draft explanatory memorandum. The draft Regulations have been made under section 8 of the EU (Withdrawal) Act 2018. The purpose of the draft Regulations is to address deficiencies relating to consumer credit legislation arising from the UK's withdrawal from the EU. The draft Regulations make only minor and technical amendments and will have no substantive impact on the operation of the consumer credit regime. In particular, they: (i) amend references to an "EU obligation" within the CCA; (ii) amend references to "Standard European Consumer Credit Information", "European Consumer Credit Information” and “Member State” within the Consumer Credit (Disclosure of Information) Regulations 2010, as they will be deficient once the UK leaves the EU; and (iii) omit the reference to powers of intervention against incoming passporting EEA firms within the Financial Services Act 2012 (Consumer Credit) Order 2013. This reference will be deficient once the UK leaves the EU, as the EEA financial services passport will not be workable without a negotiated agreement with the EU. The draft Regulations will come into force on Exit Day. HMT has not consulted on the draft Regulations, but it has engaged extensively with the BoE and the FCA in drafting the text. An impact assessment will be published once an opinion from the Regulatory Policy Committee has been received. HMT has decided to publish the draft Regulations without a final impact assessment to ensure that the industry and regulators have as much time as possible to familiarise themselves with the regulatory changes.

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CAPITAL MARKETS

ESMA consults on periodic reporting by CRAs

On 19 July, ESMA published a consultation paper (ESMA33-9-252) on guidelines on the submission of periodic information by CRAs. ESMA explains that the consultation paper is the first step towards publishing a revised version of the guidelines. The proposed revised guidelines include the following proposals: (i) establishing reporting categorisations for CRAs; (ii) establishing reporting calendars based on reporting categorisation; (iii) standardising reporting templates; and (iv) providing additional reporting instructions in areas where ESMA has identified a supervisory need. The deadline for responding to the consultation is 26 September. ESMA intends to finalise the proposed revised guidelines and publish a final report in Q4 of this year.

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ESMA finalises its supplementary guidance on assessing "as stringent as" requirements under the CRA Regulation endorsement regime

On 18 July, ESMA published a final report containing supplementary guidance on how to assess whether a requirement is "as stringent as" the requirements set out in the CRA Regulation for the purposes of the endorsement regime (ESMA33-9-246). In ESMA’s November 2017 guidelines on the application of the endorsement regime under Article 4(3), ESMA stated that a third-country CRA could establish internal requirements that were at least as stringent as the relevant endorsement provisions in the CRA Regulation as an alternative to fulfilling the CRA Regulation requirements. In the final report, ESMA sets out supplementary guidance intended to clarify the general principle that ESMA relies on when assessing whether alternative internal requirement can be considered as stringent as a CRA Regulation requirement. The supplementary guidance takes the form of a new section 5.3 to the November 2017 guidelines (at pages 48 to 51 of the report), which sets out a non-exhaustive list of alternative internal requirements that ESMA considers to be at least as stringent as a requirement set out in one of the relevant endorsement provisions of the CRA Regulation. The final report provides details of the changes ESMA has made to the guidance in response to the feedback it received on the draft version of the supplementary guidance in its March consultation. In particular, ESMA has highlighted that a CRA will only infringe Article 4(3)(b) where the reason for that infringement is within the CRA's knowledge or control. The consolidated final guidelines, including the new section 5.3, will apply to credit ratings issued on or after 1 January 2019 and to existing credit ratings reviewed after that date.

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ESMA publishes its final report on the draft RTS under the new Prospectus Regulation

On 17 July, ESMA published its final report on the draft RTS under the new Prospectus Regulation. The main changes to the draft RTS that ESMA published for consultation in December 2017 include: (i) removing the restriction on the number of voluntary additional line items or APMs that can be included in the key financial information in the summary; (ii) clarifying in which circumstances the requirements relating to advertisements apply to written advertisements; (iii) clarifying that where the issuer is under an obligation to include its outstanding profit forecast or otherwise includes a profit forecast in the prospectus, it should also produce a supplement when it withdraws a published profit forecast; and (iv) new articles setting out the technical arrangements for the notification portal to be used for passporting prospectuses. The draft RTS have been sent to the EC for endorsement.

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ESMA publishes: (i) a consultation paper on its draft technical advice on the minimum information content for prospectus exemption; and (ii) a consultation paper on its guidelines on the risk factors under the new Prospectus Regulation

On 13 July, ESMA published: (i) a consultation paper seeking views on its draft technical advice on the minimum information required for a document that is made available to the public under the prospectus exemption; and (ii) a consultation paper seeking views on its draft guidelines on the risk factors under the new Prospectus Regulation. ESMA is mandated under the regulation to develop guidelines to assist competent authorities in their review of the specificity and materiality of risk factors and of the presentation of risk factors across categories depending on their nature. ESMA states that competent authorities should incorporate the guidelines into their national legal or supervisory frameworks as appropriate and should consider them when carrying out their scrutiny of a prospectus in accordance with Article 20 of the regulation. ESMA also believes that in order to expedite the scrutiny and approval process of prospectuses, the persons responsible for a prospectus should consider these draft guidelines when carrying out their own assessment of the risk factors to be included. The deadline for comments on the consultation is 5 October. The deadline for comments on both consultations is 5 October. ESMA states that it will publish the final reports by 31 March 2019.

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CONDUCT

Please see the Consumer/Retail section for an update on the FCA’s discussion paper on a new duty of care for financial services firms.

CONSUMER/RETAIL

Please see the Brexit section for an update on the Draft Consumer Credit (Amendment) (EU Exit) Regulations 2018.

Please see the Fund Regulation section for an update on the FCA’s interim report on its investment platforms market study.

Joint Committee of ESAs publishes additional Q&As relating to KID requirements for PRIIPs

On 19 July, the Joint Committee of ESAs published additional Q&As on KID requirements for PRIIPs. The guidance seeks to promote common supervisory approaches and practices based on on-going work to monitor the implementation of the KID. It supplements material published last year prior to implementation. 

Additional Q&As

Updates to the Flow diagrams for the risk and reward calculations

EC to update European code of good conduct for microcredit provision

On 19 July, the EC published a press release announcing that it is updating the European code of good conduct for microcredit provision. The EC says that it will update the code to reflect evolving market realities and the diversity of the microfinance space. The process is expected to be carried out over the next 12 months. In principle, changes will be kept to a minimum to ensure continuity, and will be aimed at enabling practices rather than setting restrictions.

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FCA publishes: (i) its approach to consumers; and (ii) a discussion paper on a new duty of care for financial services firms

On 17 July, the FCA published: (i) a document setting out its approach to consumers following its consultation in November 2017. The document sets out the FCA's vision for well-functioning markets for consumers and the conditions it wants to see to achieve this. It also explains how the FCA uses its powers and tools to protect consumers; and (ii) a discussion paper (DP18/5) on a duty of care for financial services firms to enhance behaviour in the financial services market, and potential alternative approaches to consumers. It has published this to: (a) help the FCA better understand whether there is a gap in its regulatory and legal framework, or the way it applies it in practice, that could be addressed by introducing a new duty of care. In DP18/5, the FCA uses a "new duty" to cover all possible formulations of any new duty of care or fiduciary duty on firms; (b) better understand and consider possible alternative approaches that might address stakeholders' concerns raised in response to the FCA's consultation on its approach to consumers; (c) understand what a new duty for firms might do to enhance good conduct and culture in financial services, including how this could influence consumer outcomes, alongside the SMCR; and (d) assess whether change is desirable and, if so, consider what form it could take, how it would work in practice alongside the current framework and what consequences it would have for consumers, firms and the FCA. In DP18/5, the FCA also explains the various routes by which consumers can currently obtain redress when harm does occur. The FCA considers whether a new duty would provide an additional route by which consumers could secure redress, and whether that is needed. The deadline for comments on DP18/5 is 2 November. In early 2019, the FCA plans to consult on guidance for firms on the identification and treatment of vulnerable consumers to provide clarity on its expectations of firms and ensure good outcomes for consumers.

FCA’s approach to consumers

FCA’s discussion paper on a new duty of care and potential alternative approaches

FINANCIAL CRIME

FCA publishes its enforcement annual performance report

On 19 July, the FCA published its enforcement annual performance report. The report provides an overview of the FCA’s enforcement activities during 2017/18, based on their commitment to strengthen financial markets and promote consumers protection and confidence. It complements the wider FCA Annual Report for 2017/18, alongside similar statements of the FCA’s priorities and functions over the last 12 months. The report contains information on competition, anti-money laundering and diversity and inclusion.

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FATF presidency objectives for 2018/19

On 19 July 2018, the FATF published a paper prepared by the incoming president, the United States, setting out the objectives for the FATF in 2018-19. The United States will serve as the President of the FATF from July of this year through to June 2019, and undertake the following priorities: (i) enhancing the work of the FATF in combating WMD proliferation financing; (ii) countering the financing of terrorism; (iii) clarifying how the FATF standards apply to virtual currency providers and related businesses; and (iv) continuing work on FinTech and RegTech and how they can help combat illicit finance, increase financial inclusion and potentially reduce compliance and supervisory costs. The FATF has agreed to draft guidance clarifying how the FATF standards apply in the context of digital identity. 

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FATF report on tackling money laundering

On 18 July, the FATF published its report to the July 2018 G20 Finance Ministers and Central Bank Governors' meeting. The report sets out FATF’s ongoing work to fight money laundering and terrorist financing, and in particular in the following areas: (i) FATF’s work programme on virtual currencies/crypto assets, including money laundering and terrorist financing risks of virtual currencies/crypto assets, the regulatory environment for virtual currencies/crypto assets, revision of global standards and guidance and improving operational capacity; (ii) countering the financing of proliferation of weapons of mass destruction; (iii) countering the financing of terrorism; (iv) improving transparency and the availability of beneficial ownership information; (v) improving the effectiveness of the criminal justice system: FATF engagement with judges and prosecutors; (vi) de-risking; and (vii) FinTech, RegTech: digital identity.

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FINTECH 

FSB publishes a report on crypto-asset framework

On 16 July, the FSB published a report on the work of the FSB, the CPMI, the IOSCO and the BCBS on crypto-assets in preparation for the meeting of the G20 finance ministers and central bank governors on 21-22 July. The organisations' current work concerns the following: (i) the FSB, in collaboration with CPMI, has developed a framework and identified metrics to monitor the financial stability implications of crypto-assets markets. As understanding develops and new sources of public data become available, the FSB, with the CPMI, will consider how improvements can be made; (ii) the CPMI has conducted significant work on applications of distributed ledger technology, and is conducting outreach, monitoring, and analysis of payment innovations. Possible areas for further exploration include legal issues around holding and transferring digital currencies and the cross-border implications of central bank digital currencies; (iii) the IOSCO has established an ICO consultation network to discuss experiences and concerns regarding ICOs. It is also developing a support framework to assist members in considering how to address domestic and cross-border issues stemming from ICOs that could impact investor protection. IOSCO is discussing other issues around crypto-assets, including regulatory issues around crypto-assets platforms; and (iv) the BCBS is quantifying the materiality of banks' direct and indirect exposures to crypto-assets, clarifying the prudential treatment of such exposures, and monitoring developments related to crypto-assets and FinTech for banks and supervisors. The FATF will report separately to the G20 on its work concerning the money laundering and terrorist financing risks relating to crypto-assets.

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FUND REGULATION

HoC European Scrutiny Committee considers progress of legislative proposals on cross-border distribution of collective investment funds

On 17 July, the HoC European Scrutiny Committee published its thirty-fifth report of the 2017-19 parliamentary session (dated 11 July). In section 4 of the report, the Committee considers the EC’s legislative proposals for a Regulation and a Directive on the cross-border distribution of collective investment funds that, among other things, contain amendments to the UCITS IV Directive and AIFMD. It is possible that the UCITS IV Directive and AIFMD (as amended by the legislative proposals) will have to be applied in the UK under the post-Brexit transitional arrangement. As a result of this, and given the continued uncertainty about the extent of regulatory alignment under any future financial services agreement with the EU, the Committee retains the proposals under scrutiny. Because of the changes to the legal texts that HMT secured, the Committee was "content" to grant the Minister a scrutiny waiver to support a general approach at the ECON meeting, which was held on 13 July. The Committee has also considered the implications of Brexit for the UK asset management sector more generally. It continues to take the view that the extent to which UK-based fund managers can continue serving EU clients on a cross-border basis after Brexit will largely depend on: (i) the nature of any UK and EU financial services agreement; (ii) whether the UK obtains equivalence under AIFMD; and (iii) whether the delegation of portfolio management from EU-based funds to UK-based asset managers could be restricted. The Committee notes that the Chancellor has dismissed equivalence as "piecemeal, unilateral and unpredictable". While it does not disagree with this assessment, it is not clear what other options the government considers are available.

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FCA publishes its interim report on its investment platforms market study

On 16 July, the FCA published its interim report on its market study to examine the investment platform market (MS17/1.1). The FCA interim report states that competition is working well for most consumers, but it has competition concerns about how investment platforms compete for particular customer groups.  The FCA's interim view is that: (i) there are barriers to switching an investment platform; (ii) it can be difficult for direct-to-consumer consumers to choose a platform based on price; (iii) investment risk labels can make comparison confusing; (iv) customers with large cash balances may be unaware of lost investment potential; and (v) orphan clients have limited ability to access and alter their investments. The FCA proposes monitoring market developments during the implementation of MiFID II, and potentially introducing new guidance, measures to improve transparency, measures to improve the feasibility, timing and cost of switching, and improve the monitoring of orphan clients.  The FCA will assess industry progress in these areas before deciding whether it should introduce additional remedies. The deadline for comments is 21 September. The FCA will publish its final conclusions in early 2019.

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Delegated Regulation on investment requirements under the MMF Regulation published in OJ

On 13 July, Commission Delegated Regulation (EU) 2018/990 amending and supplementing the MMF Regulation with regard to STS securitisations and ABCPs, requirements for assets received as part of reverse repurchase agreements and credit quality assessment methodologies was published in the OJ. The Delegated Regulation concerns MMF investment requirements and ensures coherence of those requirements by giving the people subject to them an overview and single point of access to them. The Delegated Regulation will enter into force on 2 August (that is, 20 days after publication in the OJ). It will apply from 21 July, with the exception of Article 1, which will apply from 1 January 2019.

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INSURANCE

New EIOPA Q&As on IDD published

On 19 July, EIOPA published its second set of Q&As on the IDD. The IDD had to be transposed by member states by 1 July, and it has to be applied to relevant firms by 1 October at the latest.

Q&A on insurance distribution

Q&A on information requirements and conduct of business rules applicable

Q&A on product oversight and governance requirements for insurance

Q&A on lists of regional governments, local authorities exposures

EIOPA examines the causes of insurers' failures and near misses

On 17 July, EIOPA published a report titled "Failures and near misses in insurance: Overview of the causes and early identification". The report examines the causes of failure in insurance. It is the first in a series of EIOPA reports aimed at enhancing supervisory knowledge of the prevention and management of insurance failures. The findings are based on information contained in EIOPA's database of failures and near misses, which covers the period from 1999 to 2016. It uses sample data of 180 affected insurance undertakings in 31 European countries. The first part of the report explains the framework underlying the concepts of "failure" and "near miss". It then goes on to look at the primary causes of (near) failure in insurance, as well as assessing the reported early identification signals. In particular, the report found that: (i) the financial crisis was the period that resulted in the largest amount of failures and near misses; (ii) the two most common general causes of failure and near miss reported in the EIOPA database are linked to underlying internal risks of the insurer. These are the risk that management or staff lack the necessary skills, experience or professional qualities, and the risk of inadequate or failed systems of corporate governance and overall control; and (iii) on early identification of failures and near misses in insurance, the most commonly reported early identification signal, by a significant margin, is the deteriorating capital strength and low solvency margin of the undertaking. This is followed by poor management, and then high expenses and low profitability. 

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EIOPA launches a thematic review on travel insurance consumer protection issues

On 17 July, EIOPA announced that it has launched an EU-wide thematic review on consumer protection issues in travel insurance. The aim of the review is to identify: (i) potential sources of consumer detriment in travel insurance; (ii) how new business models, in particular in distribution, impact consumers and the travel insurance industry; (iii) possible supervisory and regulatory actions needed to ensure consumer protection; and (iv) best practices to provide guidance to insurance undertakings in implementing national provisions of the IDD for the distribution of travel insurance, as well as other types of insurance products. As part of its review, EIOPA will pay special attention to cross-selling distribution practices as travel insurance is frequently sold this way as an ancillary product. EIOPA will conduct the thematic review in close co-operation with national competent authorities, who will identify and gather data from participating insurance companies. It intends to publish the key findings from its review in the first quarter of 2019.

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EIOPA submits its final draft ITS revising the Solvency II Delegated Regulations containing ITS on reporting and disclosure to the EC

On 16 July, EIOPA published a letter (EIOPA - 18/454) (dated 13 July) from Gabriel Bernardino, EIOPA Chair, to EC Vice President, Valdis Dombrovskis, regarding final draft ITS amending and correcting two Implementing Regulations under Solvency II that it has submitted to the EC. The annexes to the letter contain: (i) Draft Commission Implementing Regulation amending and correcting Commission Implementing Regulation (EU) 2015/2450 laying down ITS regarding the templates for the submission of information to the supervisory authorities in accordance with Solvency II (EIOPA-BoS-18/099) (dated 12 July); and (ii) Draft Commission Implementing Regulation amending and correcting Commission Implementing Regulation (EU) 2015/2452 laying down ITS regarding the procedures, formats and templates of the solvency and financial condition report in accordance with Solvency II (EIOPA-BoS-18/098) (dated 25 June). The amendments and corrections are designed to provide legal certainty and facilitate correct reporting as well as the disclosure process for insurers. The entire package of amendments and corrections, including the impact assessment, the feedback received during the March consultation and the final reporting taxonomy version 2.3.0, will be published on EIOPA’s website in due course. The EC will now consider the draft Implementing Regulations with a view to endorsing the ITS.

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PRA publishes a letter to chief actuaries of life insurers on Solvency II expectations

On 13 July, the PRA published a letter sent by Sid Malik, PRA Head of Division, Life Insurance and Pensions Risk Division, to chief actuaries of life insurers relating to the first two and a half years of the regime under Solvency II. The aim of the letter is to share some of the PRA's learnings and observations from its regulatory activities under the Solvency II regime, and to reiterate some of the expectations the PRA has published during that time. There has been a significant focus on the MA, which is not surprising given the material benefit it provides to firms. The PRA considers this is an area where further embedding is necessary to streamline application processes and improve capital modelling in internal models. Internal models remain at the forefront of the PRA's attention, particularly in areas of longevity risk, credit risk and dependency modelling. The efficiency of the PRA's assessment of firms' internal model applications relies on the quality of the application, model validation and the internal model documentation. The PRA has also considered other aspects of Solvency II requirements, including observations from thematic reviews on the projection periods for calculating the technical provisions for unit linked products, and firms' approaches to stress testing in their ORSA. The PRA reminds chief actuaries that their role is a senior insurance management function within the SIMR. It expects them to keep up-to-date with their duties under the SIMR. The letter goes into more detail and outlines a number of initiatives the PRA is embarking on, including: (i) a review of its internal guidance to assess proxy models as part of firms' applications for internal model approval or changes to an existing internal model. As part of this, the PRA is carrying out a survey of firms that seeks to capture their approach to proxy modelling; and (ii) further developing its views on the modelling of less liquid assets, in particular the treatment of these assets and their associated MAs within firms' internal models. The PRA encourages chief actuaries to share the letter with their boards and others at their firms, as appropriate, and welcomes any feedback. 

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PRA publishes policy statements and a supervisory statements relating to (i) application of matching adjustment (“MA”) under Solvency II, (ii) the modelling of the MA under Solvency II and (iii) the internal model change process under Solvency II

On 13 July, the PRA published policy statements on (i) the application of the MA under Solvency II (PS18/18) providing feedback to its October 2017 consultation paper (CP21/17); (ii) on the modelling of the MA under Solvency II (PS19/18) providing feedback to its November 2017 consultation paper (CP24/17); and (iii) on the internal model change process under Solvency II (PS20/18) providing feedback to its December 2017 consultation paper (CP27/17).  It has also published the final versions of supervisory statements (a) Solvency II: MA (SS7/18), which set out the PRA's expectations in respect of firms seeking to apply the MA to an eligible portfolio of assets and liabilities and (b) Solvency II: internal models – modelling of the MA (SS8/18).  It has also published final revised versions of supervisory statements: (i) Solvency II: changes to internal models used by UK insurance firms (SS12/16); and (ii) Solvency II: internal models – assessment, model change and the role of non-executive directors (SS17/16). 

PRA’s policy statement on the application of the MA under Solvency II

PRA’s supervisory statement on MA

PRA’s policy statement on the modelling of the MA 

PRA’s supervisory statement on internal models – modelling of the MA

PRA’s supervisory statement on internal models – assessment, model of change and the role of non-executive directors

PRA’s policy statement on the internal model change process

PRA’s supervisory statement on changes to internal models used by UK insurance firms

MARKETS AND MARKETS INFRASTRUCTURE 

Please see the Other Developments section for an update on ECON’s draft report on the proposed reform of ESFS in respect of MiFID II.

HMT clarifies views on Regulation on European crowdfunding services providers

On 19 July, the UK government published a letter from John Glen, Economic Secretary to the Treasury, to Lord Boswell of Aynho, House of Lords European Union Committee Chair, relating to the EC’s legislative proposals for a Regulation on ECSPs and a Directive making consequential amendments to MiFID II. The letter clarifies some of the points made in HMT’s explanatory memorandum on the proposed Regulation, which it published in March of this year. Mr Glen explains that the government considers investment-based crowdfunding (“crowdfunding”) and loan-based crowdfunding (“peer-to-peer (‘P2P’) lending”) as different financial services, and as such are distinct activities that require different regulatory treatment. However, the EC has chosen to regulate these activities together because they see similarities between them as they both facilitate funding of businesses by retail investors. The government will continue to emphasise the benefits of having separate regimes tailored for these two distinct activities. The differences between crowdfunding and P2P lending are further explained in an annex to the letter. Mr Glen re-iterates the government's preference for NCAs to regulate firms that opt in to the Regulation, rather than ESMA. However, despite concerns about ESMA gaining supervisory oversight of UK platforms, the government recognises the desirability of being able to passport crowdfunding and P2P lending services across the EU.

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BoE publishes a consultation paper on term SONIA reference rates

On 17 July, the BoE issued a consultation paper, on behalf of its working group on sterling risk-free reference rates, on term SONIA reference rates (TSRRs). The consultation requests feedback on practical recommendations aimed at catalysing the development of TSRRs. The working group anticipates that a TSRR could be available in the second half of 2019. As part of the next steps, market participants, including venue operators, market makers and potential administrators, are encouraged to: (i) list and trade SONIA overnight indexed swaps on platforms with firm quotes and requisite transparency; and (ii) implement best practice benchmark design, controls and governance, including fallback arrangements. The deadline for comments on the consultation paper is 30 September. 

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ESMA updates its Q&As on the implementation of the BMR

On 17 July, ESMA published an updated version of its July 2017 Q&As on the implementation of the BMR (ESMA70-145-11, version 8). The Q&As have been updated to amend the definitions of calculation agent and regulated data benchmark.

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ESMA publishes draft technical standards on the Securitisation Regulation's STS notification requirements

On 16 July, ESMA published the draft technical standards under Articles 27(6), 27(7) and 28(4) of the Securitisation Regulation. The published standards comprise: (i) draft RTS specifying the information that the originator, sponsor and special purpose vehicle are required to provide to ESMA in compliance with the STS notification obligations; (ii) draft ITS establishing the templates to be used when providing the requisite notification on STS status. There are different templates for asset backed commercial paper ABCP securitisations, ABCP programmes and for non-ABCP transactions; and (iii) draft RTS specifying the application requirements for third party entities seeking to be authorised as providers of STS verification services. ESMA has submitted the published standards to the EC for endorsement. In respect to the finalisation of the joint ESA’s technical standards on the clearing obligation under the amendments to EMIR introduced by the Securitisation Regulation, ESMA states that the ESAs will not meet the 18 July deadline and expect to deliver the joint technical standards within Q3.  

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FSB publishes a self-assessment questionnaire for prospective UPI service providers

On 16 July, the FSB published a self-assessment questionnaire for prospective UPI service providers that wish to be designated by the FSB as a UPI service provider, together with an explanatory memorandum. The primary purpose of the UPI is to identify the product that is the subject of an OTC derivatives transaction. The FSB has been working closely with the CPMI and the IOSCO in the development of UPI arrangements. An accompanying press release to the questionnaire states that in response to the October 2017 and April consultations on aspects of the governance arrangements for the UP, it was recommended that the UPI governance arrangements should entail a public-private partnership. The FSB agrees that private sector participation in the governance of the UPI system is desirable, but it is also key that authorities maintain their oversight function. Each prospective UPI service provider respondent is asked to present a business and self-governance plan, which explains how it would meet the key governance criteria and provide for the relevant governance functions, and meet the technical guidance. The deadline for comments is 4 September. The FSB expects to reach conclusions on the UPI governance arrangements, and to designate one or more UPI service provider(s), by mid-2019.

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ESMA consults on changes to the tick size regime under MiFID II

On 13 July, ESMA published a consultation paper (ESMA70-156-357) on amendments to the tick size regime under MiFID II. RTS 11 calibrates the minimum tick size applicable to shares and depositary receipts to the average daily number of transactions (ADNT) on the most liquid market in the EU. ESMA recognises that this metric may not be well suited to instruments where the main pool of liquidity is located outside the EU (third-country instruments) as in these cases the mandatory tick size may be calculated based only on a subset of the overall trading activity. This means that EU trading venues might be subject to minimum tick sizes that are larger than those applicable on non-EU venues, which would put them at a competitive disadvantage. This might result in less liquidity being available on EU trading venues, which can be detrimental for investors trading on those venues as well as for orderly trading on EU markets. ESMA is therefore consulting on amendments to RTS 11 to ensure that the tick sizes applicable to third-country instruments are adequate and appropriately calibrated. The deadline for comments on the consultation is 7 September. ESMA will then finalise its proposed amendments to RTS 11 and submit a final report to the EC for endorsement.

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EC adopts Delegated Regulations setting out RTS under the BMR

On 13 July, the EC adopted ten Delegated Regulations setting out RTS under the BMR: (i) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS specifying further the contents of, and cases where updates are required to, the benchmark statement to be published by the administrator of a benchmark (C(2018) 4439 final); (ii) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS specifying further the criteria to be taken into account by competent authorities when assessing whether administrators of significant benchmarks should apply certain requirements (C(2018) 4432 final); (iii) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS specifying further how to ensure that input data is appropriate and verifiable, and the internal oversight and verification procedures of a contributor that the administrator of a critical or significant benchmark has to ensure are in place where the input data is contributed from a front office function (C(2018) 4431/final); (iv)  Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS for the procedures and characteristics of the oversight function (C(2018) 4430/final); (v) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS determining the minimum content of co-operation arrangements with competent authorities of third countries whose legal framework and supervisory practices have been recognised as equivalent (C(2018) 4427/final); (vi) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS specifying further the criteria to be taken into account by competent authorities when assessing whether administrators of significant benchmarks should apply certain requirements (C(2018) 4434/final); (vii) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS for the form and content of the application for recognition with the competent authority of the member state of reference and of the presentation of information in the notification to ESMA (C(2018) 4426/final); (viii) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS specifying further the governance and control requirements for supervised contributors (C(2018) 4425/final); (ix) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS specifying for the information to be provided in an application for authorisation and in an application for registration (C(2018) 4438/final), and annex; and (x) Commission Delegated Regulation (EU) No …/… supplementing the BMR with regard to RTS specifying further the information to be provided by administrators of critical or significant benchmarks on the methodology used to determine the benchmark, the internal review and approval of the methodology and on the procedures for making material changes in the methodology (C(2018)4435/final). The next step is for the Council of the EU and the EP to consider the Delegated Regulations. If neither of them objects, they will enter into force twenty days after they are published in the OJ.

Financial Services (Banking Reform) Act 2013 (Commencement No. 1) (England and Wales) Order 2018 published

On 13 July, the Financial Services (Banking Reform) Act 2013 (Commencement No. 1) (England and Wales) Order 2018 (SI 2018/848) was published. The Order was made on 12 July. The Order brings into force in England and Wales: (i) Section 112 of the Financial Services (Banking Reform) Act 2013 (Banking Reform Act) for all purposes; (ii) Section 121 of the Banking Reform Act, so far as not already in force; and (iii) all other provisions of Part 6 of the Banking Reform Act. Part 6 of, and Schedules 6 and 7 to, the Banking Reform Act, provide for the special administration of infrastructure companies. 

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The Financial Market Infrastructure Administration (England and Wales) Rules 2018 in force on 4 August 2018

On 13 July, the FMI Administration (England and Wales) Rules 2018 were published and will come into force on 4 August. The new rules bring into effect detailed operative provisions for an administration regime for "infrastructure companies". Only the Bank of England and the Secretary of State can seek an administration order for an infrastructure company. The Bank of England will have particular involvement in the administration process, which must be conducted to ensure that the relevant FMI systems operated by the company continue to be efficient and effective. This will involve a rescue of the infrastructure company or (if that is not reasonably practicable) a transfer of all or part of its undertaking as a going concern. 

The Financial Market Infrastructure Administration (England and Wales) Rules (SI 2018/833)

The Financial Market Infrastructure Administration (England and Wales) Rules (SI 2018/833) Explanatory Memorandum

The Financial Market Infrastructure Administration (Designation of VocaLink) Order (SI 2018/858)

The Financial Market Infrastructure Administration (Designation of VocaLink) Order (SI 2018/858) Explanatory Memorandum

PAYMENT SERVICES AND PAYMENT SYSTEMS 

PSR publishes Annual Report and Accounts 2017/18

On 19 July, the PSR published its Annual Report and Accounts for 2017/18, which reviews its activity over the past year. The report shows how: (i) greater access to payment systems has seen more players enter the market; (ii) the PSR is leading the fight against Authorised Push Payment (APP) scams; and (iii) the regulator is focused on ensuring that consumers continue to get widespread access to cash through free-to-use ATMs.

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Final EBA guidelines on fraud reporting under PSD2

On 19 July, the EBA published a final report (EBA/GL/2018/05) containing final guidelines on fraud reporting under Article 96(6) of PSD2. The guidelines, which have been developed in close co-operation with the ECB, require PSPs to collect and report data on payment transactions and fraudulent payment transactions using a consistent methodology, definitions and data breakdowns. 

Having considered the responses received to its August 2017 consultation paper, the EBA has made a number of changes to the guidelines and related annexes, including: (i) the requirements concerning the reporting frequency; (ii) the geographical area, which has been reduced to the same area for all the requirements in the guidelines (with no country‐by‐country data requirement); (iii) the number of categories of fraudulent transactions to be reported, which has been reduced from three to two, with fraudulent transactions where the payer is the fraudster no longer within the scope of the guidelines; and (iv) the fraud types, which have been aligned across the payment services and instruments. The other requirements proposed in the consultation paper remain unchanged, including the exclusion of AISPs from the fraud statistics reporting obligations. In addition, the EBA and the ECB have sought to align the guidelines with other similar reporting instruments identified in responses to the consultation paper, notably the ECB Regulation on Payment Statistics (ECB/2013/43) and the complementary ECB Recommendation on payment statistics (ECB/2013/44). The next step is for the guidelines to be translated into the official EU languages and published on the EBA website. The deadline for NCAs to report whether they intend to comply with the guidelines will be two months after publication of the translations. The guidelines will apply from 1 January 2019.

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PENSIONS

HoC European Scrutiny Committee considers progress of the EC’s proposed PEPP Regulation

On 17 July, the HoC European Scrutiny Committee published its thirty-fifth report of the 2017-19 parliamentary session (dated 11 July). In section 3 of the report, the Committee considers the EC’s proposed PEPP Regulation. The Committee remains concerned about the potential consumer protection implications of introducing the PEPP into the UK's well-developed pensions market, especially given the passporting provisions that will allow firms from outside the UK to offer the PEPP directly to UK consumers. However, the Committee welcomes the Council of the EU's amendment allowing a host country to ban a PEPP provider registered in another EU country, if necessary. As noted in the Committee's previous report on the PEPP, the exact implications of the proposal remain unclear. The government has said it expects demand for the PEPP in the UK to be low. Depending on the progress in the UK's negotiations on leaving the EU, and the timetable for adopting the PEPP Regulation, the legislation could take effect while the UK's post-Brexit transitional arrangement is still in operation. As a result, the Committee has retained the proposal under scrutiny, and asks the Minister to keep it informed of future developments in the trialogue negotiations with the EP. The Committee also voices concerns about the lack of clarity from the government on the details of its contingency planning in the event of a "no deal" Brexit, especially for cross-border pension and insurance provision, where the UK cannot unilaterally mitigate the consequences of leaving the single market and the customs union.

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UK Government consults on the ban of pensions cold-calling "imminently"

On 13 July, the UK Government announced that it will consult on regulations implementing the ban on pensions cold-calling "imminently". Following the consultation, it intends to lay the regulations under the affirmative procedure in the autumn and bring them into force "as soon as possible thereafter". 

The UK Government was required under section 21(6) of the Financial Guidance and Claims Act 2018 to make the regulations prohibiting pension cold-calling by the end of June, or publish a statement explaining why regulations have not been made and setting a timetable for making them. Explaining the delay, John Glen, Economic Secretary to the Treasury, said that cold-calling is the most common method to initiate pension scams which can have devastating consequences, and so the government has "taken the time to ensure the ban works for consumers".

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PRUDENTIAL REGULATION

Revised final EBA guidelines to strengthen Pillar 2 framework

On 19 July, the EBA published three final reports containing revised final guidelines to strengthen the Pillar 2 framework: (i) Final report on revised final guidelines on the revised common procedures and methodologies for SREP and supervisory stress testing (EBA/GL/2018/03); (ii) Final report on revised IRRBB guidelines (EBA/GL/2018/02); and (iii) Final report on revised final guidelines on institutions' stress testing (EBA/GL/2018/04). The revisions are in line with the EBA's Pillar 2 roadmap, published in April 2017.

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EC adopts a Delegated Regulation amending Commission Delegated Regulation on LCR

On 13 July, the EC published a Delegated Regulation it has adopted amending the LCR Delegated Regulation (C(2018) 4404 final). The LCR Delegated Regulation, which supplements the CRR, sets out detailed requirements relating to the LCR, including the specification of those assets that should be considered high quality liquid assets (HQLAs) and the calculation of expected cash outflows and inflows over a 30 day stressed period. The EC consulted on the proposed changes to the LCR Delegated Regulation in January. Some of the proposed changes have been removed as a result of feedback to the consultation, including the new definition on of retail deposits due to criticism of the introduction of the concept of "connected clients" into the definition. The Delegated Regulation states that it will enter into force twenty days after publication in the OJ, and will apply from the date 18 months after publication. The next step is for the Delegated Regulation to be considered by the EP and Council of the EU.

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OTHER DEVELOPMENTS 

FCA publishes Annual Report and Accounts 2017/18

On 19 July, the FCA published its Annual Report and Accounts, which looks back on the key pieces of work undertaken by the organisation throughout 2017/18. Highlights from this year include: (i) work to prepare for EU withdrawal; (ii) work to implement PSD2 and MiFID II; (iii) extending the SMCR to non-executive directors and preparing to extend it to all financial services firms; (iv) work on high cost credit and consumer debt; and (v) launching a campaign to alert PPI customers to the deadline for complaints about mis-selling.

Annual Report and Accounts 2017/18

Competition Annual Report

Diversity Annual Report​

Anti-Money Laundering Annual Report

Financial Regulators Complaints Commissioner publishes its annual report on how the financial services regulators consider complaints

On 19 July, the Complaints Commissioner published its annual report on how the financial services regulators consider complaints. In the report, the comer repeats the recommendations made to the FCA in the last Annual Report, particularly the need for prompt, empathetic responses, scrupulous candour, and the importance of the complaints team providing effective internal challenge.

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FSB publishes a consultation paper evaluating the effects of financial regulatory reforms on infrastructure finance

On 18 July, the FSB published a consultation paper on the evaluation of the effects of financial regulatory reforms on infrastructure finance. It is the first part of the first evaluation under the FSB framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms. The second part, due in 2019, involves an evaluation of the effects of reforms on the financing of small and medium-sized enterprises. The consultation forms part of a broader FSB examination of the effects of reforms on financial intermediation. It focuses on infrastructure finance that is provided in the form of corporate and project debt financing, for which the financial regulatory reforms are of immediate relevance. Reforms that are largely implemented and most relevant for the evaluation are the initial Basel III capital and liquidity requirements, and OTC derivatives reforms. The FSB's conclusions include: (i) recent financial regulation has not had a significant negative effect on the overall availability of infrastructure finance, with macro-economic financial conditions and government policies remaining the primary drivers; (ii) the overall amount of infrastructure finance has increased, following a brief dip in the wake of the global financial crisis; (iii) infrastructure lending spreads have fallen in years and loan maturities provided by bank lenders have shortened during this period; and (iv) new financing models and market participants have led to greater diversity in the sources of infrastructure finance, particularly in the later operational stage of projects. The FSB further found that the search for higher yields and a reduction in available public funding have played a role in the increased amount of infrastructure finance; whereas political, currency and tax issues continued to present the greatest concerns to providers of cross-border infrastructure finance. The deadline for comments on the consultation is 22 August. The FSB intends to publish the final report at the end of November.

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ECON publishes draft reports on: (i) the proposed Omnibus Regulation; (ii) and the proposed Regulation amending ESRB Regulation

On 16 July, ECON published: (i) a draft report (PE625.358v01-00) on the proposed Omnibus Regulation; and (ii) a draft report (PE625.360v01-00) on the proposed Regulation amending the ESRB Regulation. The draft reports have been produced by rapporteurs Burkhard Balz and Pervenche Beres and are both dated 10 July. They each contain a EP legislative resolution, which sets out suggested amendments to the proposed legislation. These legislative proposals form part of the EC’s package to reform the ESFS, which was published in September 2017. The EC has invited the EP and the Council of the EU to agree on the proposals as a matter of urgency, to ensure that they enter into force before the end of the current legislative term in 2019.

ECON’s draft report on the proposed Omnibus Regulation

ECON’s draft report on the proposed Regulation amending the ESRB Regulation

ECON publishes a draft report on the proposed reform of ESFS

On 12 July, ECON published a draft report (dated 10 July) on the proposal for an Omnibus Directive, which forms part of the EC’s September 2017 package of proposals to reform the ESFS. The draft report contains a EP legislative resolution, which suggests one minor amendment to the proposed Directive relating to an amendment to Article 93(1) of MiFID II. The amendment changes the EC’s text "Member States shall apply those measures from 3 January 2018" to "Member States shall apply those measures from [x]".

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