Financial Regulation Weekly Bulletin - 19 July 2018

General

• Financial services consumers - FCA publishes papers on approach to consumers and duty of care
• Modernising consumer markets - CMA publishes response to government consultation

Brexit

• Preparing for Brexit - European Commission publishes communication
• FCA approach to Brexit - speech by FCA’s Executive Director of International
• UK’s exit from the EU – HM Treasury publishes draft Regulations
• Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 - HM Treasury publishes updated draft Regulations

Banking and Finance

• Infrastructure finance - FSB launches consultation
• Alternative rates for derivatives referencing IBORs - ISDA publishes consultation
• Liquidity coverage requirement - European Commission adopts Delegated Regulation
• CRD IV (Pillar 2 framework) - EBA publishes final guidance
• PSD2 - EBA publishes final fraud reporting guidelines
• Term SONIA reference rates – Bank of England working group publishes consultation paper
• Withdrawal of authorisation applications – Financial Regulators Complaints Commissioner publishes final report on FCA complaint
• The Financial Services (Banking Reform) Act 2013 (Commencement No.1) (England & Wales) Order 2018 (SI 2018/848)

Securities and Markets

• Crypto-asset markets - FSB report to G20
• UPI service providers - FSB publishes self-assessment questionnaire
• EU Benchmarks Regulation - European Commission adopts Delegated Regulations
• Prospectus Regulation – ESMA publishes two consultation papers
• Prospectus Regulation – ESMA publishes final draft regulatory technical standards
• MiFID II tick size regime - ESMA publishes consultation paper
• Securitisation Regulation – ESMA publishes draft technical standards
• EU Benchmarks Regulation - ESMA updates Q&As
• Credit Rating Agencies Regulation endorsement regime - ESMA publishes supplementary guidance
• CRA periodic reporting - ESMA launches consultation
• Financial market infrastructure administration – HM Treasury publishes rules

Asset Management

• EU Money Market Funds Regulation – Commission Delegated Regulation published in the Official Journal
• Investment Platforms Market Study - FCA publishes interim report

Insurance

• Solvency II - EIOPA publishes letter on amendments to ITS on reporting and disclosure
• Failure of insurance undertakings – EIOPA publishes report
• Consumer protection in travel insurance - EIOPA launches EU-wide thematic review
• Insurance Distribution Directive - EIOPA publishes Q&As
• PRA Policy Statement PS18/18: Solvency II - matching adjustment
• PRA Policy Statement PS19/18: Solvency II - modelling of the matching adjustment
• PRA Policy Statement PS20/18: Solvency II - internal models update
• Solvency II - PRA publishes letter to Chief Actuaries
• Pensions and inter-generational Issues - speech by the FCA’s Executive Director of Strategy and Competition
• Investment consultancy and fiduciary management market investigation - CMA publishes provisional decision

Financial Crime

• Money laundering and counter-terrorist financing controls in overseas jurisdictions - HM Treasury publishes high-risk list
• EURIBOR manipulation - Two former senior bankers convicted and sentenced

General 1. Financial Conduct Authority 1.1 Financial services consumers - FCA publishes papers on approach to consumers and duty of care - 17 July 2018 - The FCA has published a paper entitled ‘Approach to Consumers’, following a consultation in November 2017, and discussion paper (DP18/5) on a potential duty of care requirement for financial services firms. The paper on the approach to consumers sets out the FCA’s expectations on financial services firms’ treatment of consumers; the circumstances in which the FCA will intervene; its powers to ensure consumer protection; and its vision for well-functioning markets. The discussion paper considers the need for a specific duty of care for financial services firms; whether such a duty could enhance conduct and culture alongside the Senior Managers and Certification Regime; the possible alternatives to a new duty to achieve similar consumer protections; and the impact of such changes on consumers, financial services firms and the FCA. The FCA also intends to consult in 2019 on the identification and treatment of vulnerable consumers. Comments on the discussion paper may be provided until 2 November 2018. The paper entitled ‘Approach to Consumers’ is here. The holding page is here. The discussion paper is here. The holding page for the discussion paper is here. 2. Competition and Markets Authority 2.1 Modernising consumer markets - CMA publishes response to government consultation - 17 July 2018 - The Competition and Markets Authority (CMA) has published its response to the Department for Business, Energy and Industrial Strategy’s (BEIS) green paper on modernising consumer markets. The CMA supports the government’s approach and considers that open and effective competition between businesses, supported by the effective enforcement of existing competition and consumer protection laws, will generally result in the best outcome for consumers and the economy. The CMA also suggests ways that the competition and consumer regimes can better address consumer detriment in the economy against the backdrop of ongoing digitalisation and the UK’s Financial Regulation / 19 July 2018 / Issue 971 3 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime exit from the EU. It highlights some of the CMA’s recent work in relation to open banking, digital markets and addressing the needs of vulnerable people. The report goes on to indicate that the CMA welcomes the introduction of civil penalty powers for breaches of consumer protection legislation. It also considers that one or more existing trading standards bodies should be given statutory status and that there are strong arguments for traders to offer alternative dispute resolution mechanisms to consumers in essential markets. The response is here. The webpage is here. See also the Brexit section for draft Regulations on UK regulators’ powers to, among other things, correct deficiencies in binding technical standards (BTS) and the Financial Services and Markets Act 2000 in anticipation of the UK’s exit from the EU. Brexit 3. European Commission 3.1 Preparing for Brexit - European Commission publishes communication - 19 July 2018 – The European Commission has published a Communication (COM(2018) 556 final) calling on Member States and businesses to step up preparations for the UK’s withdrawal from the EU, taking into account all possible outcomes. This follows a call of the European Council to intensify preparedness at all levels and encourage all stakeholders that may be affected by the UK’s withdrawal to take necessary preparedness actions now. The European Commission states that stakeholders need to prepare for two scenarios: (i) if the Withdrawal Agreement is ratified before 30 March 2019, EU law will cease to apply to and in the UK on 1 January 2021 (i.e. after a transition period of 21 months); and (ii) if the Withdrawal Agreement is not ratified before 30 March 2019, the UK will be a ‘third country’ and EU law will cease to apply to and in the UK from that date (the ‘no deal’ or ‘cliff-edge’ scenario). The Commission will review this situation after the European Council meets in October 2018. The Communication is here. An annex listing ‘Brexit preparedness notices’ (published by the Commission) is here. A factsheet entitled ‘Seven things businesses in the EU27 need to know in order to prepare for Brexit’ (published by the Commission, July 2018) is here. The press release is here. 4. Financial Conduct Authority 4.1 FCA approach to Brexit - speech by FCA’s Executive Director of International - 19 July 2018 - Nausicaa Delfas, the FCA’s Executive Director of International, has delivered a speech on the FCA’s preparations for the UK’s withdrawal from the EU. Ms Delfas sets out how the FCA is preparing for a possible transition period and what it expects from the firms it regulates. Ms Delfas states that: Financial Regulation / 19 July 2018 / Issue 971 4 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime  the FCA, alongside the Bank of England and the government, is developing safeguards and contingencies in the event of a ‘hard’ Brexit;  the FCA is concerned about contract continuity following the UK’s exit, particularly in relation to insurance contracts and derivatives. Without an implementation period, there is a risk that contracts may not be appropriately serviced: insurers may not be permitted to pay out on policy claims and derivative users may not be able to manage the risks of their positions; and  the FCA expects firms to take responsibility for their own plans to ensure a successful transition and should prepare for a range of exit scenarios, particularly with regards to the FCA’s threshold conditions. The FCA’s webpage entitled ‘Preparing your firm for Brexit’ is intended to help firms understand how they will be affected by Brexit. The FCA is reviewing its Handbook in light of legislative changes and aims to consult on these changes in autumn. The speech is here. The ‘Preparing your firm for Brexit’ webpage is here. 5. HM Treasury 5.1 UK’s exit from the EU – HM Treasury publishes draft Regulations – 16 and 17 July 2018 – HM Treasury has published two draft Regulations (under section 8 to the EU (Withdrawal) Act 2018) to address failures of retained EU legislation to operate effectively and other deficiencies arising from the UK’s exit from the EU. The draft Friendly Societies (Amendment) (EU Exit) Regulations 2018 amends (i) the Friendly Societies Act 1992 (c.40) and (ii) the Friendly Societies (Accounts and Related Provisions) Regulations 1994 (SI 1994/1983). Deficiencies being addressed by the Regulations include the Act’s references to Schedule 3 of the Financial Services and Markets Act 2000, which currently makes provision in UK law for the EEA financial services passport. The draft Consumer Credit (Amendment) (EU Exit) Regulations 2018 amend (i) the Consumer Credit Act 1974, (ii) the Consumer Credit (Disclosure of Information) Regulations 2010 (SI 2010/1013), (iii) the Consumer Credit (Green Deal) Regulations 2012 (SI 2012/2798) and (iv) the Financial Services Act 2012 (Consumer Credit) Order 2013 (SI 2013/1882). The draft Regulations make minor technical amendments and will not substantively impact the consumer credit regime’s operation. Both sets of draft Regulations will come into force on exit day. The draft Friendly Societies (Amendment) (EU Exit) Regulations 2018 are here. The explanatory memorandum is here. The webpage is here. Th Financial Regulation / 19 July 2018 / Issue 971 5 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime The explanatory memorandum is here. The webpage is here. 5.2 Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 - HM Treasury publishes updated draft Regulations - 17 July 2018 - HM Treasury has published an updated version of the draft Financial Regulators' Powers (Technical Standards) (Amendment etc.) (EU Exit) Regulations 2018, originally reported in this bulletin on 19 April 2018. The draft Regulations’ purpose is to ensure that binding technical standards (BTS) and rules made under the Financial Services and Markets Act 2000 (FSMA) continue to operate effectively after the UK’s exit from the EU. The Regulations set out the UK regulators’ powers to correct deficiencies in BTS and FSMA and to amend and/or make new BTS thereafter. The updated draft Regulations also make minor changes, such as:  in relation to the requirement under the Regulations that a regulator should be consulted on any EU exit instrument made by another regulator that applies to firms that it regulates, clarification on the circumstances that trigger that requirement; and  additions to the BTS listed in the Regulations’ schedule, to reflect those that have been published in the Official Journal of the EU since April 2018. The Regulations will come into force on the day after the day they were made. The draft Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 are here. The draft explanatory memorandum is here. Banking and Finance 6. Financial Stability Board 6.1 Infrastructure finance - FSB launches consultation - 18 July 2018 - The Financial Stability Board (FSB) has published a consultation report on the effects of the G20 financial regulatory reforms on infrastructure finance provided in the form of corporate and project debt financing. The report concludes that the effect of the implemented reforms is subsidiary to other factors, such as the macro-financial environment, government policy and institutional factors and has not had a material negative effect on the provision and cost of infrastructure finance. The consultation period ends on 22 August 2018. The final report will be published around the time of the G20 Summit at the end of November 2018. The consultation report is here. The webpage is here. The press release is here. Financial Regulation / 19 July 2018 / Issue 971 6 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime 7. International Swaps and Derivatives Association 7.1 Alternative rates for derivatives referencing IBORs - ISDA publishes consultation - 12 July 2018 - The International Swaps and Derivatives Association (ISDA) has published a consultation paper on technical issues related to the new alternative risk-free fallback rates (RFRs) for derivatives contracts that currently reference certain inter-bank offered rates (IBORs). The consultation sets out RFR adjustment options to ensure that legacy derivatives contracts continue to function as intended once a fallback provision takes effect. The adjustments reflect certain differences between the proposed RFRs and IBORS, including that RFRs only have an overnight tenor (IBORs are available in multiple tenors) and do not include a credit risk premium (as IBORs do). ISDA will decide the style of approach to implement based on the responses to this consultation. Before implementing any changes to its standard documentation, ISDA will publish details of the final approach for review and comment. The consultation period closes on 12 October 2018. The consultation paper is here. The webpage is here. The press release is here. 8. European Commission 8.1 Liquidity coverage requirement - European Commission adopts Delegated Regulation - 13 July 2018 - The European Commission has adopted Delegated Regulation (C(2018) 4404 final) amending Commission Delegated Regulation (EU) 2015/61 on the liquidity coverage requirement for credit institutions, supplementing the Capital Requirements Regulation ((EU) 575/2013). The Delegated Regulation will now be subject to scrutiny by the European Parliament and the Council of the European Union. The Delegated Regulation is here. 9. European Banking Authority 9.1 CRD IV (Pillar 2 framework) - EBA publishes final guidance - 19 July 2018 - In accordance with its Pillar 2 Roadmap, the European Banking Authority (EBA) has published:  a final report on the guidelines on the revised common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing (SREP Guidelines) – the revised SREP Guidelines are applicable from 1 January 2019;  revised final guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines) – applicable from 30 June 2019, with transitional arrangements for specific provisions until 31 December 2019;  revised final guidelines on institutions' stress testing – applicable from 1 January 2019. Financial Regulation / 19 July 2018 / Issue 971 7 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime The EBA has also published a consolidated version of the revised SREP Guidelines. The revised SREP Guidelines are here. The consolidated version is here. The revised IRRBB Guidelines are here. The revised guidelines on institutions' stress testing are here. The press release is here. 9.2 PSD2 - EBA publishes final fraud reporting guidelines - 18 July 2018 - The EBA has published its final guidelines on fraud reporting under the revised Payment Services Directive ((EU) 2015/2366) (PSD2) following its consultation paper from August 2017. The guidelines, developed in close cooperation with the European Central Bank (ECB), require payment service providers (PSPs) to collect and report data on payment transactions and fraudulent payment transactions. The national competent authorities (NCAs) must then provide the EBA and the ECB with this data in an aggregated form. The changes introduced by the guidelines include:  semi-annual reporting of a uniform set of data is now required, rather than the previous quarterly reporting of high-level data, with a more detailed set on a yearly basis;  the geographical scope of data has been reduced in size and complexity, with country-bycountry data breakdowns no longer required and a uniform geographical breakdown replacing three alternatives; and  fraudulent transactions where the payer is the fraudster are no longer in the scope of the guidelines. NCAs must report on whether they comply with the guidelines two months after the publication of the translated versions. The guidelines will apply from 1 January 2019. The guidelines are here. The press release is here. 10. Bank of England 10.1 Term SONIA reference rates – Bank of England working group publishes consultation paper - 17 July 2018 - The Bank of England’s working group on sterling risk-free reference rates has published a consultation paper on the development of Term Sterling Overnight Index Average (SONIA) reference rates (TSRRs). The overall objective of the working group is to stimulate the transition from the sterling London Interbank Offered Rate (LIBOR) to the selected risk-free rate, SONIA, by the end of 2021, when the FCA will cease to support LIBOR production. The working group considers that a TSRR could be available by mid-late 2019. The consultation requests feedback on a number of issues, including: Financial Regulation / 19 July 2018 / Issue 971 8 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime  sources of potential demand for TSRRs across different use cases;  SONIA derivatives markets which could be used as the basis for TSRR price discovery;  potential data sources and methodologies which could be used to construct TSRRs; and  the next steps for market participants in order to progress the development of TSRRs. The consultation period closes on 30 September 2018. The consultation paper is here. The webpage is here. 11. Financial Regulators Complaints Commissioner 11.1 Withdrawal of authorisation applications – Financial Regulators Complaints Commissioner publishes final report on FCA complaint - 17 July 2018 - The Financial Regulators Complaints Commissioner has published a final report dated 28 June 2018 which considers a complaint made by a debt management business in relation to FCA’s authorisation process and recommends that: (i) the FCA considers revising the wording of its ‘Minded to Refuse’ (MTR) letters to provide greater clarity to authorisation applicants; and (ii) in reviewing the information given to firms about withdrawing an application, takes into account the impact on consumers. The FCA has accepted the Commissioner’s recommendation to review the content of the MTR letters and has noted the suggestion on withdrawal information. The final report is here. The webpage is here. The FCA’s response is here. 12. New Legislation 12.1 The Financial Services (Banking Reform) Act 2013 (Commencement No.1) (England & Wales) Order 2018 (SI 2018/848) was made on 12 July 2018. The Order amends provisions of the Financial Services (Banking Reform) Act 2013 (BR Act) relating to infrastructure companies. The Order commences section 112 (interpretation of infrastructure companies), section 121 (conduct of administration and transfer schemes) insofar as not already in force, and all other provisions of Part 6 of the BR Act. The Order came into force on 13 July 2018. The Order is here. See also the Brexit section for draft Regulations amending legislation, such as the consumer credit legislation, in anticipation of the UK’s exit from the EU. Financial Regulation / 19 July 2018 / Issue 971 9 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Securities and Markets 13. Financial Stability Board 13.1 Crypto-asset markets - FSB report to G20 - 16 July 2018 - The Financial Stability Board (FSB) has published a report to the G20 Finance Ministers and Central Bank Governors on the work of the FSB, the Committee on Payments and Market Infrastructure (CPMI), the International Organization of Securities Commission (IOSCO) and the Basel Committee on Banking Supervision (BCBS) on crypto-assets markets. The FSB has developed a framework in collaboration with the CPMI and identified metrics in order to monitor crypto-asset markets and to identify any emerging financial stability concerns in a timely manner. The FSB does not believe that crypto-assets currently pose a material risk to global financial stability, although vigilant monitoring will be necessary due to the pace of market change. The FSB also provided updates on the work of (i) the CPMI on distributed ledger technology applications; (ii) IOSCO on an initial coin offering consultation network; and (iii) the BCBS on its assessment of the materiality of banks’ crypto-assets exposure. The report is here. The press release is here. 13.2 UPI service providers - FSB publishes self-assessment questionnaire - 16 July 2018 - The FSB has published a self-assessment questionnaire for entities that wish to be designated as a unique identifier (UPI) service provider in relation to OTC derivatives transactions. The primary purpose of the UPI is to identify the product that is the subject of an OTC derivatives transaction. The questionnaire follows the CPMI and IOSCO September 2017 technical guidance and the FSB’s two consultations on governance arrangements (published in October 2017 and April 2018). Each prospective UPI service provider is asked to present a business and self-governance plan that explains how they would: (i) comply with the UPI technical guidance; and (ii) meet the key governance criteria and provide for the relevant governance functions. Any such designation will continue indefinitely, subject to the UPI service provider performing their functions in a manner consistent with the technical guidance and the key governance criteria. The self-assessment must be completed by 4 September 2018. The FSB expects to reach conclusions on UPI governance arrangements and to designate one or more UPI service provider(s) by mid-2019. The self-assessment questionnaire is here. The explanatory note is here. The webpage is here. The press release is here. Financial Regulation / 19 July 2018 / Issue 971 10 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime 14. European Commission 14.1 EU Benchmarks Regulation - European Commission adopts Delegated Regulations - 13 July 2018 - The European Commission has adopted several Delegated Regulations setting out a number of regulatory technical standards (RTS) under the EU Benchmarks Regulation (EU) 2016/1011. These include Delegated Regulation (C(2018) 4425 final) which sets out RTS specifying the governance and control requirements for supervised contributors; Delegated Regulation (C(2018) 4427 final) which sets out RTS determining the minimum content of cooperation arrangements with competent authorities of third countries whose legal framework and supervisory practices have been recognised as equivalent; and Delegated Regulation (C(2018) 4432 final) which sets out RTS specifying the criteria to be taken into account by competent authorities when assessing whether administrators of significant benchmarks should apply certain requirements. Delegated Regulation (C(2018) 4425 final) is here. Delegated Regulation (C(2018) 4426 final) is here. Delegated Regulation (C(2018) 4427 final) is here. Delegated Regulation (C(2018) 4430 final) is here. Delegated Regulation (C(2018) 4431 final) is here. Delegated Regulation (C(2018) 4432 final) is here. Delegated Regulation (C(2018) 4434 final) is here. Delegated Regulation (C(2018) 4435 final) is here. Delegated Regulation (C(2018) 4438 final) is here. Delegated Regulation (C(2018) 4439 final) is here. 15. European Securities and Markets Authority 15.1 Prospectus Regulation – ESMA publishes two consultation papers - 13 July 2018 - The European Securities and Markets Authority (ESMA) has published two consultation papers in relation to the EU Prospectus Regulation ((EU) (2017/1129) (Prospectus Regulation). The first consultation concerns its draft technical advice, which must be set out in delegated legislation, on the minimum information requirement for a document that is made available to the public under the Prospectus Regulation’s prospectus exemption. The exemption allows issuers to offer or admit securities connected with a takeover, merger or division without publishing a prospectus, provided a document is made available to the public describing the transaction and its impact on the issuer. The second consultation concerns draft guidelines for national competent authorities (NCAs) on risk factors under the Prospectus Regulation. The Prospectus Regulation provides that risk factor disclosure in prospectuses should be confined to those risks which are both material and specific to the issuer. The guidelines are intended to assist NCAs in their review of risk factor disclosure in prospectuses. ESMA requires the guidelines to be incorporated into NCAs’ national supervisory Financial Regulation / 19 July 2018 / Issue 971 11 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime frameworks as appropriate. In addition, ESMA expects financial markets’ participants to take account of the guidelines when preparing prospectuses. The consultation periods close on 5 October 2018. ESMA will deliver the technical advice to the European Commission and publish the consultation reports by 31 March 2019. The consultation paper on the draft technical advice is here. The feedback form is here. The press release is here. The consultation paper on the draft guidelines is here. The feedback form is here. The press release is here. 15.2 Prospectus Regulation – ESMA publishes final draft regulatory technical standards - 17 July 2018 - ESMA has published final draft RTS specifying the implementation of certain provisions in the Prospectus Regulation. These incorporate consultation feedback and have been provided to the European Commission for endorsement. The RTS cover a number of Prospectus Regulation provisions, including: (i) key financial information to be disclosed by issuers in the prospectus summary; (ii) prospectus clarification data and arrangements to ensure that data is machine-readable; (iii) advertisements to retail investors; and (iv) requirements to publish prospectus supplements. The final draft RTS are here. The webpage is here. 15.3 MiFID II tick size regime - ESMA publishes consultation paper - 13 July 2018 - ESMA has published a consultation paper on the tick size regime under the second Markets in Financial Instruments Directive (2014/65/EU) and specifically on proposed amendments to the Commission Delegated Regulation (EU) 2017/588 (RTS 11) to ensure that tick sizes that apply to third countries are adequate and appropriately calibrated. Under RTS 11, the minimum tick size that apply to shares and depository receipts is calibrated to the average daily number of transactions on the most liquid market. ESMA recognises this metric may not be as well suited to instruments where the main pool of liquidity is located outside the EU. It may be disadvantageous for non-EU trading venues and detrimental for investors trading on such venues and orderly EU market trading. ESMA proposes allowing relevant NCAs, with their main pool of liquidity outside the EU, to adjust the average daily number of transactions in order to take into account more comprehensive trading data, and ensure that trading is not unduly constrained and that it does not create disorderly trading conditions. Furthermore, ESMA also proposes a set of conditions governing how NCAs make adjustments based on numerical evidence of the most liquid trading venue’s location and a threshold for the minimum amount of daily transactions. Financial Regulation / 19 July 2018 / Issue 971 12 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime On the basis of consultation feedback received, ESMA will finalise its proposed amendments to RTS 11 and submit a final report to the European Commission for endorsement. The consultation period closes on 7 September 2018. The consultation paper is here. The press release is here. Commission Delegated Regulation (EU) 2017/588 is here. 15.4 Securitisation Regulation – ESMA publishes draft technical standards – 16 July 2018 – ESMA has published technical standards under the Securitisation Regulation ((EU) 2017/2402) (SR) containing draft RTS and implementing technical standards (ITS), following its consultation in December 2017. The published technical standards comprise:  draft RTS specifying the information that the originator, sponsor and special purpose vehicle must provide to ESMA in accordance with STS notification obligations;  draft ITS establishing the templates to be used when providing the requisite STS status notification; and  draft RTS specifying the application requirements for third party entities seeking authorisation as providers of STS verification services. ESMA has submitted the technical standards to the European Commission for endorsement. The press release, which contains links to the final reports on (i) the RTS and ITS on STS notification; and (ii) authorisation is here. 15.5 EU Benchmarks Regulation - ESMA updates Q&As - 17 July 2018 - ESMA has updated its Q&As on the EU Benchmarks Regulation ((EU) 2016/1011). The updated questions include a new question on calculation agents and on benchmarks qualifying as a ‘regulated-data benchmark’. The updated Q&As are here. The press release is here. 15.6 Credit Rating Agencies Regulation endorsement regime - ESMA publishes supplementary guidance - 18 July 2018 - ESMA has published its supplementary guidelines on the application of the endorsement regime for non-EU credit ratings under the Credit Rating Agencies Regulation ((EU) 462/2013) (CRAR). ESMA has added a new section to its 2017 Guidelines on Endorsement in order to assist EU credit rating agencies (CRAs) in determining whether a third country CRA’s ratings are ‘as stringent’ as those set out in the CRAR. ESMA has identified a series of nonexhaustive alternative requirements which it considers will pass the ‘as stringent’ test, including in relation to fees charged, analyst rotation, pre-publication of issuer notifications, certain rating disclosures and the treatment of inside information. The updated Guidelines take effect from 1 January 2019. Financial Regulation / 19 July 2018 / Issue 971 13 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime The supplementary guidelines are here. The press release is here. The Guidelines on Endorsement are here. 15.7 CRA periodic reporting - ESMA launches consultation - 19 July 2018 - ESMA has published a consultation paper in relation to revisions to its 2015 guidelines on the periodic information submitted by CRAs to ESMA. The main features of the revised guidelines are:  establishing reporting categorisations for CRAs;  establishing reporting calendars based on reporting categorisation;  standardising reporting templates; and  providing additional reporting instructions in areas where ESMA has identified a supervisory need. The consultation period ends on 26 September 2018. ESMA aims to publish the final report on the guidelines in the last quarter of 2018. The consultation paper is here. The response form is here. The press release is here. 16. HM Treasury 16.1 Financial market infrastructure administration – HM Treasury publishes rules – 10 and 16 July – HM Treasury has published the Financial Market Infrastructure Administration (England and Wales) Rules 2018 (SI 2018/833) (FMIA Rules), made on 10 July 2018 and the Financial Market Infrastructure Administration (Designation of VocaLink) Order 2018 (SI 2018/858) (FMIA (DoV) Order, made on 16 July 2018. The FMIA Rules set out a new special administration procedure for operators of financial market infrastructure systems under Part 6 of the Financial Services (Banking Reform) Act 2013 (BR Act). The FMIA (DoV) Order designates VocaLink Limited as a market infrastructure company for the purposes of Part 6 of the BR Act. The FMIA Rules come into force on 4 August 2018 and the FMIA (DoV) Order comes into force on 9 August 2018. The FMIA Rules are here. The explanatory memorandum is here. The FMIA (DoV) Order is here. The explanatory memorandum is here. Financial Regulation / 19 July 2018 / Issue 971 14 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Asset Management 17. European Commission 17.1 EU Money Market Funds Regulation – Commission Delegated Regulation published in the Official Journal - 13 July 2018 - Commission Delegated Regulation (EU) 2018/990 amending and supplementing the EU Money Market Funds Regulation ((EU) 2017/1131) in relation to simple, transparent and standardised securitisations, asset-backed commercial papers, requirements for assets received as part of reverse repurchase agreements and credit quality assessment methodologies, has been published in the Official Journal of the EU. The Delegated Regulation enters into force on 2 August 2018. It applies from 21 July 2018, with the exception of Article 1 which applies from 1 January 2019. The Delegated Regulation is here. 17.2 Investment Platforms Market Study - FCA publishes interim report - 16 July 2018 - The FCA has published an interim report as part of its Investment Platforms Market Study (MS17/1.2) setting out its interim findings, provisional remedies and next steps. Annexes to the report set out these findings in greater detail. The study considers how competition is developing in the growing investment platforms sector, particularly the extent to which platforms are competing to deliver benefits to the market. The FCA reports that the market appears to be working well in many respects: customer satisfaction is currently high and platforms are popular with investors. Platforms compete to provide services that consumers use and value. Their financial performance does not indicate any widespread competition concerns in the market. However, the FCA has identified areas where competition between platforms is not working well:  consumers who would benefit from switching between platforms can find it difficult to do so;  consumers who are price sensitive can find it difficult to shop around and choose a lowercost platform;  the risks and expected returns of model portfolios with similar risk labels are unclear. Consumers or their advisers looking for a particular risk level portfolio may have inaccurate information on the risk-return levels they face;  consumers with large cash balances on ‘direct to consumer’ platforms may be unaware of interest lost, charges incurred and other investment returns available;  so-called ‘orphan clients’ (those consumers who had, but no longer have, a financial adviser) face high charges and low service;  platforms employ commercial practices which may restrict fund managers’ incentives or ability to offer fund discounts to competitor platforms and this may reduce competition on such discounts; Financial Regulation / 19 July 2018 / Issue 971 15 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime  platforms could improve their presentation of fund charges to consumers and financial advisers at relevant points in the consumer decision-making process, which would strengthen competition between asset managers; and  there are potential areas of non-compliance with existing inducement rules, including provision of adviser education and training courses, bulk rebalancing and model portfolio management tools. The FCA has therefore set out a number of proposals to remedy each of the issues it has identified, including measures to help strengthen the extent to which platforms drive competition between asset managers, measures to make it easier to switch platforms and tackling price discrimination between orphan and existing clients. Comments on the interim findings and the potential remedies can be made until 21 September 2018. The final report expected in the first quarter of 2019. The interim report is here. The annexes to the interim report can be found on the market study webpage here. The press release is here. See also Insurance section for item on an FCA speech which references, among other developments, its Asset Management Market Study. Insurance 18. European Insurance and Occupational Pensions Authority 18.1 Solvency II - EIOPA publishes letter on amendments to ITS on reporting and disclosure - 16 July 2018 - The European Insurance and Occupational Pensions Authority (EIOPA) has published a letter dated 13 July 2018 from Gabriel Bernadino, Chair of EIOPA, to Valdis Dombrovskis, European Commission Vice-President for the Euro and Social Dialogue, submitting for endorsement two draft Commission Implementing Regulations amending and correcting the following:  Commission Implementing Regulation (EU) 2015/2450 laying down implementing technical standards (ITS) with regard to the templates for the submission of information to the supervisory authorities in accordance with the Solvency II Directive (2009/138/EC); and  Commission Implementing Regulation (EU) 2015/2452 laying down ITS with regard to the procedures, formats and templates of the solvency and financial condition report in accordance with Solvency II. The letter is here. The draft amendment to Commission Implementing Regulation (EU) 2015/2450 is here. The draft amendment to Commission Implementing Regulation (EU) 2015/2452 is here. Financial Regulation / 19 July 2018 / Issue 971 16 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime 18.2 Failure of insurance undertakings – EIOPA publishes report - 17 July 2018 - EIOPA has published a report on insurers’ failures and ‘near misses’ against the backdrop of the financial crisis and the significant financial stress that a number of insurers incurred. Its report is its first in a series of papers aimed at providing a better understanding of the leading causes of those failures and enhancing supervisory knowledge on the prevention and management of such events. The report’s analysis is based on EIOPA’s database of 180 insurance undertakings in 31 European countries from 1999 to 2016. The report examines the leading causes of failure with the two most common causes being linked to the insurance undertaking’s internal risks, namely (i) the risk that management or staff lack the necessary skills, experience or professional qualities; and (ii) the risk of inadequate or failed systems of corporate governance and overall control. The report also assesses the effectiveness of early warning signs, of which the most common are deteriorating capital strength and/or low solvency margin of the insurance undertaking. The report is here. The press release is here. 18.3 Consumer protection in travel insurance - EIOPA launches EU-wide thematic review - 17 July 2018 - EIOPA has launched an EU-wide thematic review on consumer protection issues in travel insurance. The purpose of the review is to identify consumer protection issues and possible actions to ensure better consumer protection. In particular, the review seeks to identify: (i) potential sources of consumer detriment in travel insurance; (ii) how new business models affect 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 Insurance Distribution Directive ((EU) 2016/97) (IDD) for the distribution of travel insurance, as well as for other types of insurance products. The thematic review will be conducted in close cooperation with national competent authorities and participating insurance firms. EIOPA plans to publish the key findings from the review in the first quarter of 2019. The press release is here. 18.4 Insurance Distribution Directive - EIOPA publishes Q&As - 19 July 2018 - EIOPA has published its second set of Q&As on the IDD. These include Q&As on insurance distribution, the information requirements and conduct of business rules, product oversight and governance requirements. The Q&As on insurance distribution are here. The Q&As on information requirements and conduct of business rules are here. The Q&As on product oversight and governance requirements are here. The Q&As on regional authorities and local government exposures are here. Financial Regulation / 19 July 2018 / Issue 971 17 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime 19. Prudential Regulation Authority 19.1 PRA Policy Statement PS18/18: Solvency II - matching adjustment - 13 July 2018 - The PRA has published Policy Statement 18/18 (PS18/18), which provides feedback on responses to Consultation Paper 21/17 (CP21/17) and final Supervisory Statement 7/18 (SS7/18). SS7/18 sets out the PRA’s expectations in respect of firms seeking to apply the matching adjustment to an eligible portfolio of assets and liabilities. Following the consultation, the PRA has made small clarification changes, including in relation to asset and liability eligibility. It has also confirmed that differences in wording between the draft SS7/18 (published with the Consultation Paper) and previously published guidance do not materially change the PRA’s expectations of firms. SS7/18 came into effect on 13 July 2018. PS18/18 is here. SS7/18 is here. The PS18/18 holding page is here. The SS7/18 holding page is here. 19.2 PRA Policy Statement PS19/18: Solvency II - modelling of the matching adjustment - 13 July 2018 - The PRA has published Policy Statement 19/18 (PS19/18), which provides feedback on responses to Consultation Paper 24/17 (CP24/17), the final supervisory statement 8/18 (SS8/18) and updated Supervisory Statement 17/16 (SS17/16). SS8/18 sets out the PRA’s expectations on the modelling of the matching adjustment within the Solvency Capital Requirement (SCR) calculation. The PRA has made changes following the consultation feedback received, including on its interpretation of ‘stressed fundamental spread’; the impact of a one-year stress on the matching adjustment; maintaining compliance with the matching adjustment requirements in stress conditions; and validation of the amount of matching adjustment assumed in the SCR calculation. These expectations primarily apply to the risks arising from corporate bond assets in matching adjustment portfolios, but may also apply to other assets held in these portfolios. The PRA therefore expects firms to consider SS8/18 to have wide application, unless specifically stated otherwise. SS8/18 came into effect on 13 July 2018. See item directly below for information on updated SS17/16. PS19/18 is here. SS8/18 is here. The PS19/18 holding page is here. The SS8/18 holding page is here. Financial Regulation / 19 July 2018 / Issue 971 18 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime 19.3 PRA Policy Statement PS20/18: Solvency II - internal models update - 13 July 2018 - The PRA has published Policy Statement 20/18 (PS20/18), which provides feedback on responses to Consultation Paper 27/17 (CP27/17) and final Supervisory Statement 12/16 (SS12/16) and Supervisory Statement SS17/16 (SS17/16) which set out the PRA’s expectations in relation to the model change process and internal model change policies respectively. Following the consultation feedback, the PRA has made small clarification changes to the supervisory statements. The changes to the minor model change accumulation process and reporting processes came into effect on 13 July 2018. The changes to the model change policy are subject to supervisory approval, in accordance with the Solvency II Delegated Regulation ((EU) 2015/575)) and the PRA’s expectations of the procedure, as set out in paragraph 2.14 of SS12/16. PS20/18 is here. SS12/16 is here. SS17/16 is here. The PS20/18 holding page is here. The SS12/16 holding page is here. The SS17/16 holding page is here. 19.4 Solvency II - PRA publishes letter to Chief Actuaries - 13 July 2018 - The PRA has published a letter from Sid Mailk, Head of the Life Insurance and Pensions Risk Division at the PRA, to the Chief Actuaries of life insurers, in which Mr Malik discusses some of the PRA’s learning and observations from its regulatory activities under the Solvency II regime and reiterates some of the expectations it has published during that time. The letter is here. 20. Financial Conduct Authority 20.1 Pensions and inter-generational Issues - speech by the FCA’s Executive Director of Strategy and Competition - 16 July 2018 - Christopher Woolard, the FCA’s Executive Director of Strategy and Competition at the FCA, has delivered a speech to the Pensions Policy Institute discussing pensions, inter-generational issues that affect the FCA’s remit and how the FCA fulfils its duties and objectives in light of them. Mr Woolard indicates that an FCA paper on inter-generational issues will be published later in 2018 covering the challenges arising, the financial services market’s potential response to them and any barriers to market innovation and meeting changing consumer demand. Mr Woolard also touches on other FCA work being carried out to ensure the best consumer retirement outcomes, including the FCA’s Asset Management Market Study, the Retirement Outcomes Review and the Investment Platform Market Study (covered in the Asset Management section). The speech is here. Financial Regulation / 19 July 2018 / Issue 971 19 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime 21. Competition and Markets Authority 21.1 Investment consultancy and fiduciary management market investigation - CMA publishes provisional decision - 18 July 2018 - The Competition and Markets Authority (CMA) has published its provisional decision on its market investigation into the investment consultancy and fiduciary management services sector, both of which are used by UK institutional pension trustees. The CMA has found several competition issues in both sectors, including:  around half of pension schemes choose the same provider for fiduciary management that they use for investment consultancy, meaning companies which offer both services have an advantage over other firms;  only a third of trustees ask firms to compete for their business through a tender process, reducing the competitive pressure on their existing investment consultant or fiduciary manager to offer best terms or highest performance; and  pensions trustees often do not have sufficient information on the fees or quality of these services to be able to judge if they’re getting a good deal from their existing investment consultant or fiduciary manager, or if they could do better elsewhere. As a result, the CMA has proposed a number of changes, including:  pension trustees selecting their first fiduciary manager must run a competitive tender. Trustees who have already appointed a fiduciary manager without doing this must put the role out to tender within five years;  fiduciary management firms must provide clearer information on fees and how they have performed for other clients; and  recommendations for new guidance from the Pensions Regulator and for the government to broaden the FCA’s regulatory scope to ensure greater oversight of the industry. Comments on the provisional decision can be made until 24 August 2018. The final report will be published by 13 March 2019. The provisional decision is here. An overview of the provisional decision is here. The webpage is here. The press release is here. Financial Crime 22. HM Treasury 22.1 Money laundering and counter-terrorist financing controls in overseas jurisdictions - HM Treasury publishes high-risk list - 11 July 2018 - HM Treasury has published an advisory note setting out the Financial Action Task Force’s latest list of high-risk countries based on its assessment of their anti-money laundering and counter-terrorist financing regimes. This is intended to assist the UK regulated sector, which is required to apply enhanced due diligence to Financial Regulation / 19 July 2018 / Issue 971 20 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime high-risk countries under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (SI 2017/692). The advisory note is here. The webpage is here. 23. Serious Fraud Office 23.1 EURIBOR manipulation - Two former senior bankers convicted and sentenced - 12 July 2018 - The Serious Fraud Office (SFO) has announced that former Deutsche Bank traders Phillipe Moryoussef and Christian Bittar have been convicted of dishonestly manipulating EURIBOR between 2005 and 2009, after they were accused of submitting false or misleading EURIBOR submissions to benefit from their positions and change the published rate. They were sentenced on 19 July 2018 to eight years, and five years and four months, imprisonment respectively. The jury found former Deutsche Bank employee, Achim Kraemer, not guilty on 29 June 2018. However, the jury could not reach verdicts on former Barclays Bank employees, Carlo Palombo, Colin Bermingham and Sisse Bohart. The SFO will notify the court by 20 July 2018 if it intends to proceed with a retrial. The press release is here.