CAPITAL MARKETS AND MARKET INFRASTRUCTURE
Euro repo market – EMMI consults on new reference index for euro repo market
On 15 June, the EMMI published a consultation paper on a new reference index for the euro repo money market. In the consultation paper, EMMI sets out, and seeks views on, its proposal for a pan-European transaction-based repo benchmark. The two key areas covered are the new repo index’s calculation methodology and its definition. Other matters, such as those relating to the governance, publication, or potential or future licensing of the new repo index are not covered in the consultation. In developing its proposal, EMMI focused on four design principles: (i) the new repo index should measure pan-European secured funding rates based on security-financed euro repo transactions; (ii) the new index must be an accurate representation of the underlying interest it seeks to measure; (iii) the source data for the new index should be sufficient to reliably measure this underlying interest; (iv) the benchmark design should capture the majority of all eligible euro repo transactions. The consultation paper summarises EMMI’s work towards the development of a new repo index that satisfies these four principles, which are in line with regulatory best practice, such as the IOSCO principles for financial benchmarks and the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds. The consultation closes to responses on 14 July. EMMI expects to obtain a reliable indication of the market’s interest in, and need for, the proposed new repo index. It is aiming to provide the market with a credible and robust index that is aligned with regulatory requirements and fills the gap left by the discontinuation, in January 2015, of Eurepo.
FX global code - Summary of panel debate hosted by GFMA on FX global code of conduct launch
On 15 June, the Global Financial Markets Association published a summary of a panel debate on the launch of the FX global code of conduct. The code comprises a set of global principles of good practice in the FX market. The panel debate took place on 25 May 2017, the date on which the code was launched. The panel included Guy Debelle, Chair of the BIS FX working group, which developed the code, and Chris Salmon, BoE Executive Director for Markets. Mr Salmon is Chair of the new GFXC which, among other things, has responsibility for promoting, maintaining and updating the code on a regular basis. Issues discussed during the panel session included: (i) how does the code fit with the SMR?; (ii) when will the GFXC report back on its consultation on "last look" practices (Principle 17 of the code)?; (iii) how should disclosure statements reflect the code?; (iv) what is the purpose of the statement of commitment?; and (v) are there any plans for central banks or regulators to audit firms' compliance with the code?
Market infrastructure – BoE speech on new financial markets codes of practice
On 14 June, the BoE published a speech by Sarah John, Head of the BoE's Sterling Markets Division, on the new financial markets codes of practice. Ms John made her speech to the Association of Corporate Treasurers (ACT) on 13 June. The focus of Ms John's speech is on embedding and adhering to the recently launched UK money markets code, FX global code, and global precious metals code. Points of interest include: appropriate infrastructures must be in place to support financial markets; BoE’s working group will consider how best to promote SONIA's use in sterling markets, through active outreach to market participants; the BoE's non-investment products (NIPs) code, securities borrowing and lending code, and gilt repo code had all become out-dated and obsolete. The three new financial markets codes of practice establish reformed guidance on conduct and market practice for participants active in the relevant markets. They also provide mechanisms to encourage and increase adherence to those standards; the three new codes are intended to promote robust, fair, liquid, open and appropriately transparent markets, supported by effective infrastructures; trust will only be rebuilt if the new codes are actively used and widely adopted by market participants, to drive a market-wide shift in culture and attitudes; and a tailored statement of commitment has been developed for each code and the BoE encourages all market participants to use them.
EMIR – EC proposes Regulation amending supervisory regime for EU and third-country CCPs
On 13 June, the EC published a proposed Regulation amending the ESMA Regulation (Regulation 1095/2010/EU) and EMIR as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs. An Annex to the proposed Regulation has also been published. Alongside the proposed Regulation and Annex, the Commission has published: an impact assessment (SWD(2017) 246 final) and an executive summary of the impact assessment (SWD(2017) 247 final); and a fact sheet with questions and answers on the proposed Regulation. Under the proposed Regulation, the EC seeks to introduce a more pan-European approach to the supervision of EU CCPs, to ensure further supervisory convergence and accelerate certain procedures. To achieve closer co-operation between supervisory authorities and central banks responsible for EU currencies, a newly-created supervisory mechanism (known as the CCP Executive Session) will be established within ESMA. The CCP Executive Session will be responsible for ensuring a more coherent and consistent supervision of EU CCPs, together with more robust supervision of CCPs in third countries.
LIBOR - FCA consults on compulsion powers for LIBOR contributions
On 12 June, FCA published a consultation paper on its powers to require banks to contribute data for the LIBOR (CP17/15). In CP17/15, The FCA sets out its proposed approach for: (i) its approach to its compulsion powers; (ii) defining the relevant market; and (iii) establishing the list of candidate banks. The FCA sets out three pre-selection criteria (presence in the UK, credit quality and size) that will be used to determine the population of banks from whom it will seek further data. Appendix 4 to CP17/15 contains a draft rule, in a new section 8.4 of the FCA's Market Conduct sourcebook (MAR), that the FCA could use to compel banks to contribute to LIBOR using its FSMA powers. The FCA does not currently plan to make the rule except in circumstances where it thinks it necessary to do so. The FCA's proposals are intended to apply ESMA's methodological framework. They also reflect the discussion of compulsion powers in its December 2012 consultation on benchmarks (CP12/36). The deadline for responses is 12 August. The FCA intends to publish a policy statement in September. It also intends to consult separately "in the next few months" on Handbook changes required before the Benchmarks Regulation applies in full on 1 January 2018.
EU covered bond framework - EC impact assessment
On 12 June, the EC published an impact assessment and request for feedback on its initiative for an integrated EU covered bond framework. The impact assessment sets out options that the EC could take to put into place a common set of requirements for covered bonds in the EU. Currently, covered bonds are regulated at national level by each member state and the national regimes vary significantly. The options range from building on the current framework to fully harmonising all aspects of covered bond regulation. Full harmonisation would ensure that only covered bonds complying with detailed standards would qualify as covered bonds and receive preferential treatment in terms of capital requirements. The EC is seeking feedback on the impact assessment and intends to adopt a legislative proposal in the first quarter of 2018, as part of its CMU initiative.
EMIR – EC Delegated Regulation amending EMIR as regards list of exempted entities published in OJ
On 10 June, EC Delegated Regulation (EU) 2017/979 amending EMIR with regard to the list of exempted entities was published in the OJ. The Delegated Regulation will enter into force 20 days after it is published in the OJ (that is, 30 June).
Wholesale financial markets – IOSCO report on reducing misconduct risk
On 13 June, IOSCO published a report (FR07/2017) produced by its task force on wholesale market conduct. The report describes the tools and approaches that IOSCO members use to discourage, identify, prevent and sanction misconduct by individuals in wholesale markets. In particular, it identifies the tools used by market regulators to minimise misconduct risk arising from the particular characteristics of wholesale markets, such as a decentralised market structure, opacity, conflicts of interest involving market makers, size and organisational complexity of market participants, and increasing automation. The report also describes the regulatory requirements for market participants in wholesale markets, which are based on broad expectations of their market conduct, such as honesty, integrity and competence. These expectations are consistent with existing IOSCO principles, standards and other initiatives on conduct regulation. The aim of the report is to raise a broader awareness about the tools and approaches that IOSCO members use to regulate conduct in wholesale markets, and highlight examples of market conduct tools and approaches that are particularly relevant in the context of wholesale markets.
SIMR – PRA consultation on SIMR optimisations and SMR form changes
On 13 June, the PRA published a consultation paper on strengthening accountability in banking and insurance: optimisations to the SIMR and changes to SMR forms (CP8/17). In this consultation paper the PRA sets out proposed amendments and optimisations to the SIMR (see Chapter 2). It also includes a proposal to strengthen governance through requiring insurers to take steps to encourage board diversity (see Chapter 3). This CP also proposes consequential amendments to the SMR forms following Policy Statement (PS12/17) ‘strengthening individual accountability in banking and insurance: amendments and optimisations’ (see Chapter 4). The deadline for comments for Chapters 2 and 3 is 22 September and the deadline for Chapter 4 is 14 August.
Pensions – Findings from FCA review of life insurers’ pension lifestyle investment strategies
On 14 June, the FCA published a new webpage setting out its findings from a review of life insurers' pension lifestyle investment strategies. The FCA assessed the firms' approaches to, and plans for, lifestyle investment strategies based on the information provided. It did not systematically review the detail of firms' approaches (for example, the asset mix in default funds, or the content of all communications). The FCA found that firms use a number of different names for the various books of pension business they operate. As there was a pattern to when these books of business were written and the approach firms have or are taking to lifestyle investment strategies, the FCA has grouped its findings on this basis: (i) new business and post-2012 auto enrolment contracts; (ii) existing business likely written pre-2012; (iii) legacy business likely written pre-2001; (iv) bespoke lifestyle arrangements set up by advisers, trustees and employers. The FCA is following up with firms where it had concerns and will be inviting firms in the sector to a roundtable event in the coming weeks to discuss its findings.
Credit card lending – UKCA and FLA new guidance on lending to vulnerable customers
On 14 June, the UK Cards Association (UKCA) and the Finance & Leasing Association (FLA) published a guide for lending to vulnerable customers, together with a related data report. The guide has been developed by the University of Bristol's Personal Finance Research Centre (PFRC) in partnership with UKCA and the FLA. It is designed to help finance providers identify and support customers in vulnerable situations when applying for credit, whether face-to-face, over the phone, online or through an intermediary. It primarily focuses on supporting customers with a mental capacity limitation that may affect their decision-making abilities, although the guide also recognises that customers can experience other forms of decision-making difficulty. A new protocol, BRUCE, has been designed to help staff look for clues in a customer's behaviour or speech that could indicate a problem with remembering, understanding, communicating or evaluating the credit options being discussed, and the customer making a decision about entering into a credit agreement. The guide, and the research that underpins it, aims to provide: practical detailed guidance that complements CONC; data on how often customers with decision-making limitations are encountered; and insights into perceived challenges and positive practices identified.
Digital lending – LSB report on findings of Standards Development Project
On 14 June, the LSB published a report (dated May 2017) setting out the findings of its Standards Development Project (SDP) on digital. The LSB carried out the SDP to identify any areas where the Standards of Lending Practice (Standards) and the LSB's information for practitioners may benefit from enhancements to ensure that the protections provided take account of the technological advancements available through digital channels throughout the customer journey. The LSB also sought to identify examples of good practice, which firms may wish to take into consideration when developing their digital capabilities. The SDP included credit card, loan and overdraft products. The LSB’s key findings include, amongst other things: change management frameworks have evolved to become more agile and responsive to changes in the digital landscape, taking a customer-centric approach to testing which puts development teams in direct contact with the end user; third parties are becoming more prevalent as suppliers of the technology required when providing a fully digital customer experience. Firms need to ensure sufficient controls and checks are in place for oversight of the third parties; and increasing numbers of customers are opting to receive their statements digitally. Alongside each of the LSB's findings, the report identifies recommended good practice for firms.
FOS annual review 2016/17
On 13 June, the FOS published its annual review for 2016/17. Points of interest include: in 2016/17, the FOS received 321,283 new complaints; PPI complaints dominated much of the FOS' activity in 2016/17, as in all recent years. The FOS received 168,769 PPI complaints in 2016/17 (compared to 188,712 in 2015/16), which amounts to 52.5% of all new complaints; waiting for the FCA's final rules and guidance following the Supreme Court's decision in Plevin v Paragon Personal Finance has had an impact on the FOS' progress with PPI complaints; the most striking development in 2016/17 is the rise in contact from people experiencing difficulties with credit; there has been a 64% rise in complaints about hire purchase agreements since 2015/16; complaints about packaged bank accounts fell by 54% in 2016/17; in 2016/17, the largest business groups continued to account for the majority of the complaints the FOS received; excluding PPI, 83% of complaints were resolved within three months and 96% of complaints were resolved within six months; 43% of all complaints were upheld in 2016/17, compared to 51% upheld in 2015/16; and increasingly, FOS users deal with a single person from their first point of contact, who will then investigate and answer their complaint.
ISSA updates financial crime compliance principles for securities custody and settlement
On 15 June, the International Securities Services Association (ISSA) published an updated version (dated May 2017) of its financial crime compliance principles for securities custody and settlement. ISSA has updated the principles to make minor technical amendments for consistency. The amendments were recommended by the ISSA board's financial crime compliance working group. The update does not represent a substantial review of the principles. In a related newsletter (dated June 2017), ISSA indicates that a full revision of the principles is planned for 2018. ISSA has also developed the following materials relating to the principles: (i) examples of draft contractual terms to support the implementation of the principles. This document (which is only available in the "closed user group" section of the ISSA website) provides initial guidance on the drafting of contractual terms between custodians and their regulated account holders. ISSA has made available a short introduction to the document; and (ii) financial crime compliance sample questionnaire. This questionnaire aims to provide custodians that require it with the guidance and information necessary to perform due diligence on their account holders. ISSA will make the questionnaire freely available on its website in due course. ISSA anticipates that cross-market adoption of the principles is achievable by the end of 2019. To support its members in reaching this goal, ISSA is establishing a new working group to develop best practice guidance on deploying securities-specific crime compliance due diligence programme. It will provide updates on progress in this area on its website.
MLD5 – EP plenary session
On 12 June, the EP updated its procedure file for the proposed MLD5. The procedure file indicates that the EP will consider MLD5 at its 23 to 26 October plenary session. The ECON and its Civil Liberties, Justice and Home Affairs Committee (LIBE) adopted their report on MLD5 in February. The report contains a draft EP legislative resolution, together with opinions from the Committee on Development (DEVE), the Committee on international trade (INTA) and the Committee on Legal Affairs (JURI).
FCA consults on amendments to DEPP and EG as result of implementing MLD4 and revised WTR
On 12 June, the FCA published a consultation paper on implementing the MLD4 and the revised WTR. In CP17/13, the FCA is consulting on amendments to its Decision Procedure and Penalties manual (DEPP) and its Enforcement Guide (EG) in the light of the new 2017 Regulations. The FCA proposes to apply its existing policy and procedure to the exercise of its enforcement powers under the new 2017 Regulations. This will mirror its current approach under the MLRs. The FCA also proposes to make some consequential amendments to DEPP and EG as a result of changes introduced by the new 2017 Regulations. The detail of the proposed amendments is set out in chapter 2 of CP17/13. The text of the proposed Handbook amendments are contained in a draft instrument, the Enforcement (Fourth Money Laundering Directive) Instrument 2017, which is set out in Appendix 1 to CP17/13. The deadline for comments is 7 July. Once it has considered the feedback received, the FCA plans to publish its final rules in a policy statement that it expects to publish in July.
AML and CTF – JMLSG consultation on revised version of electronic money guidance
On 10 June, the JMLSG published for consultation a revised version of its sectoral guidance on electronic money, which is contained in Part II of the JMLSG's AML and CTF guidance. On a related webpage, the JMLSG explains that it has revised the guidance in line with the proposed Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (which a number of bodies are referring to as the "Money Laundering Regulations 2017"). The proposed 2017 Regulations are designed to transpose the MLD4 and the revised WTR in the UK. The JMLSG advises that as the electronic money guidance is of limited interest across the financial services sector, and has only been revised to reflect the provisions of the proposed 2017 Regulations, there is a very short consultation period. The deadline for comments is 20 June.
Regulatory sandbox – FCA provides update on regulatory sandbox and announces third cohort application window
On 15 June, the FCA published an update on its regulatory sandbox. This latest update provides further detail about the second cohort of applicants. It explains that of the 31 applications that were accepted for testing in the second cohort, 24 firms are ready to begin testing shortly, having agreed testing parameters with the FCA that build in consumer safeguards. The remaining seven firms were not ready to begin testing and may form part of cohort three. The FCA lists the successful applicants for the second cohort of testing. This cohort is made up of firms from a range of sectors (from wholesale, general insurance, payments, retail banking and lending), and includes a diverse range of propositions (including DLT based payment services and AI software to observe client behaviour and better determine client preferences before financial advice is given). Firms in the second cohort also come from a wider geographical area than those in cohort one, with a higher proportion of regional firms. The FCA also provides an update on cohort one, explaining that the six month testing window for this cohort has now closed. Firms are now submitting final reports, which will be reviewed before they transition out of the sandbox. The FCA expects most of the firms to take forward their propositions to market. Finally, the FCA announces that the application window for its third sandbox phase is now open and firms have until 31 July to submit their applications in accordance with the criteria and process set out on its regulatory sandbox webpage. The FCA is encouraging applications from firms of all sizes, describing the sandbox as being available to "large firms, start-ups and everything in between".
FinTech - EBA responds to the EC public consultation on FinTech
On 15 June, the EBA submitted its response to the EC’s public consultation on FinTech: a more competitive and innovative European financial sector Document on Retail Financial Services. In the response, the EBA conveys its views on a subset of the Commission's questions, and focuses on the work the EBA has done so far on FinTech. Separately, the EBA is currently developing a discussion paper on FinTech issues that fall more into the EBA's remit and will publish its views in the coming months.
EuVECA and EuSEF Regulations – EP plenary session
On 12 June, the EP updated its procedure file on the EuVECA Regulation and the EuSEF Regulation. The procedure file indicates that the EP will consider the proposed Regulation during its plenary session to be held from 2 to 5 October. Previously, the procedure file had indicated the EP would consider the proposed Regulation during its plenary session to be held from 11 to 14 September.
Please see the Conduct section for an update on SIMR optimisations.
EIOPA speech - opportunities, challenges and regulatory developments
On 15 June, EIOPA published a speech (dated 8 June) by Gabriel Bernardino, Chairman of EIOPA. In the speech, Mr Bernardino discusses three main topics: (i) EIOPA’s approach towards consistent supervisory practices and common European supervisory culture to ensure a level playing field; (ii) the development of a successful industry in a challenging environment; and (iii) the international capital standards.
EIOPA and World Bank enter new memorandum of understanding
On 15 June, EIOPA published a new MoU it has signed with the International Bank for Reconstruction and Development (IBRD) and the International Development Association (together, the World Bank) (EIOPA-17/391). In a related press release, EIOPA explains that the MoU replaces a previous MoU signed in 2013. The purpose of the new MoU is to reinforce the co-operation between the parties. It provides a framework within which they can develop and undertake collaborative activities to pursue more effectively the following common objectives: (i) contribute to the process of promoting a more risk-based regulatory and supervisory framework, and to the dissemination of knowledge and policy experiences; (ii) foster efficient and effective supervision; (iii) promote consumer protection, financial literacy and education initiatives by competent authorities; and (iv) contribute to financial stability and identification of systemic risk. The areas of activity covered by the MoU include: (i) sharing knowledge, ideas, best practice and lessons learned on matters of interest; (ii) providing facilities for seminars, workshops or conferences, providing access to seminars organised by each party and sharing training material; and (iii) organising and providing speakers at events of mutual interest. The MoU is effective for three years from the date it was entered into (that is, from 15 June).
Solvency II – PRA consultation on half-yearly reporting of market risk sensitivities for Solvency II firms
On 12 June, the PRA published a consultation paper on the data collection of market risk sensitivities under the Solvency II Directive. In CP7/17, the PRA is consulting on a proposal to require Solvency II firms to submit half-yearly reports of sensitivities (to predetermined market stresses) relating to their solvency positions using a proposed template and instructions, which are set out in a draft supervisory statement. Any template for firms to use will be available on the PRA website via a link in the final supervisory statement, if this proposal goes ahead. The PRA takes a proportionate approach to regulatory reporting and welcomes suggestions, as part of this consultation, on more efficient or better ways to collect data to achieve its objectives. The timescales for submission of the reports would be two weeks after the formal submission of quarterly reporting templates for end-June and end-December, or following a significant change in the risk profile of the firm (for example, following a recalculation of the transitional measure on technical provisions or a merger or acquisition). The deadline for comments is 7 August.
MiFID II – Implementing Regulation on ITS on communications between competent authorities prior to authorisation published in OJ
On 12 June, EC Implementing Regulation (EU) 2017/981 laying down ITS with regard to standard forms, templates and procedures for the consultation of other competent authorities prior to granting an authorisation under the MiFID II was published in the OJ. The Implementing Regulation enters into force on 2 July (that is, 20 days after its publication in the OJ). It will apply from 3 January 2018.
MiFID II – EC Implementing Regulation laying down ITS on forms, templates and procedures for co-operation arrangements concerning certain trading venues published in OJ
On 12 June, the EC Implementing Regulation (EU) 2017/988 laying down ITS with regard to standard forms, templates and procedures for co-operation arrangements in respect of a trading venue whose operations are of substantial importance in a host member state, under the MiFID II was published in the OJ. The Implementing Regulation was made by the EC on 6 June. It will enter into force on 3 July (that is, 20 days after publication in the OJ) and will apply from 3 January 2018.
MiFIR – EC adopts Delegated Regulation exempting certain third countries' central banks from pre- and post-trade transparency requirements
On 12 June, the EC adopted a Delegated Regulation (C(2017) 3890 final) supplementing MiFIR as regards the exemption of certain third countries' central banks in their performance of monetary, FX and financial stability policies from pre- and post-trade transparency requirements. This regulation covers Australia, Brazil, Canada, Hong Kong SAR, India, Japan, Mexico, Singapore, the Republic of Korea, Switzerland, Turkey, the United States, and the BIS), which, according to Article 1(9) of MiFIR, is to be considered as a third-country central bank for the purpose of that provision. (The EC notes that the People's Bank of China has not been included as China has not yet provided sufficient information relating to its trading activity in the EU for the EC to make an assessment). The next step is for the Council of the EU and the EP to consider the Delegated Regulation. If neither of them objects, it will enter into force 20 days after it is published in the OJ.
MiFIR – EC report on exemptions for third-country central banks and other entities from MiFIR pre- and post-trade transparency requirements
On 9 June, the EC published a report to the EP and the Council of the EU on exemptions for third-country central banks and other entities under the MiFIR. The report covers Australia, Brazil, Canada, Hong Kong SAR, India, Japan, Mexico, Singapore, the Republic of Korea, Switzerland, Turkey, the United States, and the Bank for BIS, which, according to Article 1(9) of MiFIR, is to be considered as a third-country central bank for the purpose of that provision. (The EC notes that the People's Bank of China has not been included as China has not yet provided sufficient information relating to its trading activity in the EU for the EC to make an assessment). A general overview of the Commission's assessment is provided in Annex 1 to the report, while section 4 of the report sets out a short summary of the analysis of the central banks in the individual jurisdictions. The EC has concluded that, in the light of their market and operational transparency frameworks, the jurisdictions covered have legal frameworks in place that allow for a sufficient level of transparency. In addition, the trading activity in the EU emanating from these jurisdictions is substantial enough to justify an extension of the exemption from MiFIR pre- and post-trade transparency requirements.
Please see the Financial Crime Section for an update on electronic money guidance.
Please see the Insurance section for an update on Solvency II.
Banking reforms – Council of EU progress report on banking reform legislative proposals
On 14 June, the Council of the EU published a report (9484/1/17) (dated 12 June) on the progress of the EC’s initiatives to strengthen the banking union and to establish risk-reduction measures. The Council has also published a note (10067/17) (dated 12 June) from its COREPER setting out recommended next steps for the Council on these initiatives. The report considers the progress of the EC’s banking reform legislative proposals that were adopted in November 2017: CRR II; CRD V; BRRD II; SRM II Regulation; and a Directive amending the BRRD in relation to the ranking of unsecured debt instruments in insolvency hierarchy (Insolvency Hierarchy Directive). The report also considers the Council's progress on the proposed Regulation establishing the European deposit insurance scheme (EDIS), which was adopted by the EC in November 2015. The report also reflects the decision of the EU authorities to split out certain provisions in the CRR II relating to the transitional period for mitigating the impact on own funds of the introduction of International Financial Reporting Standard 9 (IFRS 9) and the large exposures treatment of certain public sector exposures denominated in non-domestic currencies of member states. These provisions are now being considered in a separate legislative proposal for a Regulation amending the CRR (IFRS 9 Regulation).
EBA announces public hearing on possibility of developing new prudential regime for MiFID investment firms
On 13 June, the EBA published a press release announcing that it will hold a public hearing on the possibility of developing a new prudential regime for MiFID investment firms. The public hearing will be held on 3 July in London. At the hearing, the EBA will update all relevant stakeholders on the progress made so far on this initiative. In particular, it will present the preliminary results of its data collection and calibration of the underlying methodology. The EBA aims to use the public hearing to gather additional feedback, which it will take into account in finalising its response to the EC. It expects to submit its final advice to the EC in the course of September.
CRDV Directive and CRRII – EC letter responding to EBA comments on proposed CRD V Directive and CRR II Regulation
On 13 June, the EBA published a letter (dated 9 June) from Vice-President Dombrovskis, European Commissioner for Financial Stability, Financial Services and CMU, on the proposed Regulation amending the CRR (that is, the CRR II Regulation) and the proposed Directive amending the CRD IV (that is, the CRD V Directive). In the letter the Vice President responds to the EBA’s comments on legislative proposals relating to the CRR II and CRDV. In particular, the Commission comments on the following topics: net stable funding ratio (NSFR); leverage ratio; and remuneration. With regards to the NSFR, the EC follows the recommendations of the EBA. In relation to the leverage ratio, the letter raises three points: (i) the EC does not consider that complementing a definition in the CRR through a technical standard is the appropriate solution. The definition in the CRR should be sufficiently clear to be applicable immediately. To the extent that the EBA has suggestions on how the definition could be improved, it should forward them to the EC, the EP and the Council so that they can be examined and, where appropriate, incorporated in the text of the proposal; (ii) the EC believe that the latest version of the text circulated by the Maltese Presidency makes it clear as to which types of pass-through loans can be excluded from the leverage ratio exposure measure, namely those that do not entail any risk of loss for the credit institution passing the loans through the intermediation chain; and (iii) the EC is open to the idea of giving monitoring powers to the EBA, but would like to discuss the proposed drafting.
Regulatory reporting – PRA occasional paper
On 12 June, the PRA published an occasional consultation paper on regulatory reporting (CP6/17). In CP6/17, the PRA sets out proposals for: minor amendments to the templates and reporting instructions for PRA101 to PRA103 (Capital+) and PRA108 intended to correct errors and inconsistencies. These templates and reporting instructions are relevant to banks, building societies and PRA-authorised investment firms; the removal of the definition of "whole-firm liquidity modification" (WFLM) from the PRA Rulebook. This definition is relevant to non-EEA banks authorised to accept deposits through a branch in the UK; and Appendix 1 to CP6/17 contains a draft PRA Rulebook instrument, Regulatory Reporting Amendment (No X) Instrument 2017, making amendments to the Regulatory Reporting Part. Appendices 2 to 4 contain the proposed amendments to the templates and reporting instructions. The deadline for comments is 7 July. The PRA intends to implement the changes on 1 October. It will update Appendix 1 of its supervisory statement on guidelines for completing regulatory reports (SS34/15) when the final policy is published.
RECOVERY and RESOLUTION
Please see the Prudential Regulation section for an update on the EC’s banking reform legislative proposals.
BRRD – EP publishes answer regarding delay to EC review of continuing to allow support measures
On 13 June, the EP published an answer (dated 7 June), given by Vice-President Dombrovskis, European Commissioner for Financial Stability, Financial Services and CMU, to a written question relating to the BRRD. Under Article 32(4)(d)(iii) of the BRRD, the EC is required to carry out a review as to whether there is a continuing need for allowing the support measures under the BRRD by 31 December 2015 (that is, one year after the BRRD transposition deadline). However, many member states were late transposing the BRRD into their national laws. The last member states notified the Commission that it had transposed the BRRD only at the end of 2016. Although all member states have now transposed the BRRD, due to the late transposition, so far there is only a very short period of practical experience with its application. As a result, the Commission intends to carry out the review as soon as the necessary practical experience is available and, at the latest, will do so by 1 June 2018 as part of the review of implementation of the BRRD required under Article 129 of the BRRD.
FCA Speech on investigations – the evolving approach
On 15 June, the FCA published a speech by Jamie Symington, Director of Investigations at the FCA on the FCA’s evolving approach to investigations. Points of interest include: (i) the FCA’s approach to investigations is evolving in step with its Mission and general response to the challenges of the future; (ii) the FCA do not use investigations only as a precursor to contemplated enforcement action when something has gone wrong. But rather, investigation is a tool for finding out what has happened; (iii) the FCA is developing a greater range of responses following investigation; and the FCA sees culture change as the key aim of its work on individual accountability which is why the SMR for deposit takers and the forthcoming SM&CR for all other firms are key work streams in our Business Plan.
ESAs publish annual reports for 2016
On 15 June, the ESAs each published their annual reports outlining the relevant ESA's objectives, activities and key achievements in 2016. ESMA's annual report outlines the work carried out by ESMA in 2016 under each of the following activities: (i) assessing risks to investors, markets and financial stability; (ii) creating a single rulebook; (iii) promoting supervisory convergence; and (iv) supervising CRAs and trade repositories. The EBA's annual report outlines the EBA's work in 2016, which included: (i) completing the single rulebook applicable to the EU banking sector; (ii) supporting the finalisation of the Basel III package of measures and its implementation in the EU. (iii) enhancing its monitoring of different aspects of the single rulebook, including on own funds, remuneration practices and significant risk transfers in securitisations; (iv) improving its role in monitoring and assessing key risks in the banking sector across the EU; and (v) monitoring financial innovation, and contributing to secure and efficient retail payments in the EU. EIOPA's annual report outlines the EIOPA's work associated with the implementation of the Solvency II (2009/138/EC) on 1 January 2016, such as the secure collection and storage of data. Other areas of work included: (i) the calculation and publication of risk-free rates on a monthly basis; (ii) an EU-wide insurance stress test; (iii) development of a macro-prudential approach to the low interest rate environment in Solvency II; and (iv) advice to the EC on a number of issues, including the development of a pan-European PEPP and, within the context of the Joint Committee of the ESAs, on the key information documents for PRIIPs.
Council Register – progress on financial services legislative files
On 14 June, the Council of the European Union published its progress on key financial services' legislative files (dated June 2017).
BIS Speech – Is the post-crisis financial system more resilient? What remains to be done?
On 14 June, BIS published a speech by Mr Erkki Liikanen, Governor of the Bank of Finland on the resilience of the financial system post the global financial crisis in 2007. In the speech, Mr Liikanen discusses the changes that have been made to the financial system to help prevent the recurrence of another financial crisis, such as: the major changes in financial regulation and supervision; and how the banking union has strengthened supervision and crisis resolution in Europe. However, he states that risks to the financial system are changing. The financial industry is also undergoing change. The boundaries between banking and other corporate activity are blurring. In addition, banks are being challenged by new market participants harnessing the latest technology. Digitalisation will bring benefits. Benefits also include new risks, some of which are still hard to identify. There are already signs of a recovery in risk capital investments in Europe. He says it is vital we continue work to ensure that the expansion of promising new businesses do not face unnecessary barriers created by bottlenecks in financing.
SSM – ECB speech on priorities for supervising banks
On 13 June, the ECB published a speech, given by Sabine Lautenschlager, ECB Executive Board Member and Supervisory Board Vice-Chair, on four priorities for supervising banks. The four priorities are: (i) regulation is a global issue and needs a global approach (rules and their application); (ii) Brexit – the message here is banks need to get on with their licence applications and a suggestion that other entities “such as broker dealers or third country branches, setting up shop in the euro area” might be “supervised at European level”; (iii) NPLs and cleaning up banks balance sheets; and (iv) risk management and particularly internal models – harmonising the treatment of internal models and ensuring the results are “conservative”.
BoE speech on approach to operational resilience in financial services sector
On 13 June, the BoE published a speech, given by Charlotte Gerken, BoE Director, Supervisory Risk Specialists, on the BoE's approach to operational resilience. The BoE's approach to operational resilience is still developing. It is working collaboratively on this with financial services firms, other private and public stakeholders, and other regulators. It has a part to play to improve the resilience of the system, both in its function as a central bank whose operations provide critical functions for the economy, and in its function as supervisor of PRA-regulated firms and FMIs. The BoE’s aim is to improve the ability of the financial services sector to absorb the impact of an unexpected event. In its supervision of financial resilience, the BoE looks at individual firms as providers of financial services. The BoE's objectives in this area are to build the operational resilience of the sector through: proactive micro-supervisory intervention with firms, setting expectations and assessing firms against them; macro interventions, looking at the system level and intervening where vulnerabilities exist; working with firms to develop and share good practice, and running sector-wide; international engagement, learning from and sharing good practice with other supervisors; and using the elements listed above to form a sound base on which to build and contribute to the sector's response capabilities. Making sure the right mechanisms, both public and private sector, are ready to respond when failures happen, working in concert with other authorities. Ms Gerken also talks about cyber risk within the operational resilience agenda. Over the coming months, the BoE will articulate its tolerance for disruption in the sector. This will help to inform its firm-specific and sector-wide interventions, which will be targeted on the parts of the sector that could have the greatest impact on financial stability if they were to be disrupted. The BoE is also developing its micro-prudential, firm-level supervision approach, which will set clear expectations of firms and provide tools to assess firms' resilience.
FCA quarterly consultation 17
On 12 June, the FCA published its 17th quarterly consultation paper (CP17/14). In CP17/14, the FCA seeks views on the following changes to its rules and guidance: changes to the Training and Competence sourcebook (TC) list of appropriate qualifications. The detailed proposals are set out in chapter 2 of CP17/14; clarifying the application of the requirement to have a client assets report to loan-based crowdfunding platforms. The detailed proposals are set out in chapter 3 of CP17/14; and changes to reporting requirements in the Supervision manual (SUP). The detailed proposals are set out in chapter 4 of CP17/14. Comments on the proposal set out in chapters 2 and 3 can be made until 12 July 2017, and comments on the proposals in chapter 4 can be made until 12 August 2017.