News from Europe

United Kingdom

FCA releases feedback statement and policy statement as part of Smarter Consumer Communications initiative. The UK Financial Conduct Authority published a feedback statement that contains responses to its discussion paper on smarter consumer communications and identifies effective approaches to consumer communications adopted by some firms. The FCA also published apolicy statement that finalizes its proposal to remove rules and guidance concerning certain ineffective disclosures, including the Consumer-Friendly Principles and Practices of Financial Management, the Short report, the Initial Disclosure Document / Combined Initial Disclosure Document, and the Combined Initial Disclosure Document / Services and Costs Disclosure Document. (10/11/2016) FCA press release.

PRA publishes occasional consultation paper. The Prudential Regulation Authority requested comments on an occasional consultation paper that proposes changes to several sections of its rulebook, existing and new supervisory statements, and an administration instrument. The proposed changes relate to liquidity reporting in the PRA’s approach to branch supervision, market risk, ring-fenced bodies, and external audits, among other things. Comments on the administration instrument are due on or before October 25, 2016. Comments on changes related to ring-fenced bodies are due on or before December 12, 2016. Comments on all other changes are due on or before January 11, 2017. (10/11/2016) PRA press release. 

PRA supervisory statement on reporting instructions for non-Solvency II firms.The PRA published a supervisory statement that establishes the PRA’s expectations regarding the completion of the regulatory reporting requirements for insurance firms that are outside the scope of Solvency II and are not friendly societies, or non-Directive insurance firms. The supervisory statement includes guidance on completing required data items. (10/10/2016) PRA press release.

FCA data shows reduction in complaints against financial services firms. The FCA published new data on complaints against financial services firms between January and June 2016. The data reflected a 2.6% reduction in new complaints compared to the previous six months, with a total number of complaints of 2.05 million. (10/6/2016) FCA press release.

FCA proposes changes to disclosure of workplace pension transaction costs.The FCA requested comments on proposed changes to its rules and guidance on transaction costs in workplace pensions that would require asset managers to disclose aggregate transaction costs to pension schemes that invest in their funds and to break down transaction costs into categories of identifiable costs. Comments are due on or before January 4, 2017. (10/5/2016) FCA press release.

FCA consults on third set of proposals for the implementation of MiFID II. The FCA published its third consultation paper on the implementation of the revised Markets in Financial Instruments Directive. The consultation paper contains proposals on a wide range of conduct of business issues, including enhanced inducement and research rules, requirements for full disclosure of costs and charges, and guidance on the fair treatment of customers. Comments are due January 4, 2017. (9/29/2016) FCA press release.

PRA finalizes expectations of underwriting standards for buy-to-let contracts.The PRA published a policy statement that responds to feedback from its consultation on underwriting standards for buy-to-let mortgage contracts. The BOE also published a final supervisory statement that sets out the PRA’s expectations of the minimum standards that firms should use to underwrite buy-to-let mortgage contracts. The PRA set an implementation timeline of January 1, 2017, for certain straightforward changes and September 30, 2017, for the remaining changes. (9/29/2016) PRA press release.

FCA completes initial review of Senior Managers and Certification regime implementation. The FCA published the results of its supervisory review of the implementation of the Senior Managers and Certification regime (SM&CR). After examining the Statements of Responsibilities and management responsibilities maps submitted by UK banks, investment firms, building societies, credit unions, and branches of banks from within and outside the European Economic Area, the FCA concluded that most firms had considered how the SM&CR applied to them, while some firms did not comply with FCA rules and guidance. (9/28/2016) FCA press release.

FCA, PRA finalize rules on regulatory references. The FCA published a policy statement that establishes final rules on regulatory references under the SM&CR. Under the final rules, former employers will be required to disclose information regarding disciplinary actions, breaches of an individual conduct requirement, and findings that the individual was not fit and proper. The FCA will expect firms to comply fully with the final rules by March 7, 2017. (9/28/2016) FCA press release.The PRA published a separate policy statement containing its final rules for PRA-authorized firms as well as updated supervisory statements for banking andinsurance firms.

FCA proposal would apply conduct rules to all non-executive directors. The FCA requested comments on a consultation paper that would expand the application of its conduct rules, which currently apply only to directors who perform a Senior Manager role, to include standard non-executive directors in banks, building societies, insurance firms, credit unions and dual-regulated investment firms. Comments are due on or before January 9, 2017. (9/28/2016) FCA press release.

FCA launches discussion of the legal function under the Senior Managers regime. The FCA published a discussion paper that seeks to clarify the application of the Senior Managers regime, which requires a Senior Manager to have “overall responsibility” for all areas of the firm, to a firm’s legal function and responds to concerns about the legal function’s independence and ability to offer legally privileged and impartial advice if it falls under the regime. Comments are due on or before January 9, 2017. (9/28/2016) FCA press release.

FCA proposes guidance on the “duty of responsibility” under SM&CR. The FCA requested comments on proposed guidance on the FCA’s approach to enforcing the “duty of responsibility,” which allows the FCA and the PRA to take action against Senior Managers if they do not take reasonable steps to prevent violations of regulatory requirements by their firm in their areas of responsibility. Comments are due on or before January 9, 2017. (9/28/2016) FCA press release.

PRA consults on several proposed amendments to SM&CR and SIMR. The PRA requested comments on a consultation paper that contains three sets of proposed amendments and optimizations to the SM&CR and the Senior Insurance Managers Regime. Among other things, the proposals set out the PRA’s expectations on the duty of responsibility, apply certain conduct rules to non-executive directors who are not approved persons under the SMR and SIMR, and create a new PRA Senior Management Function with overall responsibility for managing the internal operations, systems and technology of a firm. Comments are due on or before January 9, 2017. (9/28/2016) PRA press release.

FCA requests comments on proposal to extend whistleblowing requirements to UK branches of foreign banks. The FCA published a consultation paper that proposes to apply new whistleblowing requirements, which became effective for UK firms at the beginning of September, to UK branches of overseas banks. Comments are due on or before January 9, 2017. (9/28/2016) FCA press release.The PRA published a separate consultation paper containing a similar proposal that would apply to UK branches of non-EEA deposit-takers and both EEA and non-EEA insurers.

FCA, PRA consult on proposed guidance on remuneration policies. The FCA proposed amendments to its existing guidance and new non-Handbook guidance on its rules that apply to the remuneration policies and practices of firms subject to the Capital Requirements Directive. The proposals seek to align the FCA’s rules with the European Banking Authority’s Guidelines on sound remuneration policies. Comments are due on or before November 28, 2016. (9/28/2016) FCA press release. The PRA published a separate consultation paper containing proposed changes to its guidance on remuneration for Capital Requirements Regulation firms.

PRA finalizes rules for risk-based levies for the FSCS. The PRA published a policy statement that establishes final rules requiring the Financial Services Compensation Scheme to adjust compensation cost levies for the degree of risk incurred by a Deposit Guarantee Scheme member. The final rules will take effect from the 2017 levy cycle. The PRA also published a statement of policy that specifies the calculation methodology the PRA will use to calculate the risk-adjustment for DGS member contributions to the FSCS. (9/27/2016) PRA press release. 

FCA says feedback on Big Data in retail general insurance is generally positive. The FCA issued a feedback statement that summarizes the responses it received to its Call for Input on Big Data in retail general insurance. While consumer outcomes resulting from the use of Big Data were generally positive, the FCA found that changes to risk segmentation and an enhanced ability by firms to charge certain customers more created some risks to consumer outcomes. (9/21/2016) FCA press release.

PRA consults on expectations for handling market turning event in the general insurance sector. The PRA requested comments on a draft supervisory statement that establishes the PRA’s expectations for general insurance firms in planning for and handling significant general insurance loss events, which might affect firms’ solvency and future business plans. Comments are due on or before December 21, 2016. (9/21/2016) PRA press release.

European Union

ESMA issues new guidance on investor protection under MiFID II. The European Securities and Markets Authority published a question and answers document on the implementation of investor protection topics under MiFID II. The Q&A addresses, among other things, best execution, record keeping, investment advice on an independent basis, and underwriting and placement of a financial instrument. (10/11/2016) ESMA press release.

ESMA revises Q&A on CFDs and other speculative products. ESMA updated its Q&A on the application of MiFID to the marketing and sale of financial contracts for difference and other speculative products to retail clients to include information regarding the use of trading benefits when offering CFDs or other speculative products; the withdrawal of funds from trading accounts; the use of leverage when offering CFDs or other leveraged products to retail clients; and best execution obligations for firms offering CFDs or other speculative products to retail clients.(10/11/2016) ESMA press release.

ESMA issues final Guidelines on transaction reporting, order record keeping and clock synchronization under MiFID II. ESMA published final Guidelines that offer guidance on how to implement the transaction reporting, order record keeping and clock synchronization requirements under MiFID II. ESMA indicated that it would publish related technical documents on reporting instructions by the end of October 2016. (10/10/2016) ESMA press release.

EBA report on monitoring of AT1 instruments. The European Banking Authority published an updated report on the monitoring of Additional Tier 1 instruments and proposed standardized templates for AT1 instruments. The report includes new provisions on triggers; calls, repurchases, and redemptions; tax events and gross-up provisions; and conversion and write-down mechanisms. (10/10/2016) EBA press release.

ESMA publishes updated AIFMD Q&A. ESMA announced that it has published an updated Q&A document on the application of the Alternative Investment Fund Managers Directive. The Q&A includes one new question and answer on the commencement of periodical reporting pursuant to Article 13 of the Securities Financing Transactions Regulation for Alternative Investment Fund managers. (10/6/2016)

ESMA consults on MiFID II Guidelines regarding trading halts. ESMA announcedthat it has issued a public consultation regarding draft guidelines on trading halts under MiFID II. The proposed Guidelines intend to provide guidance on the calibration of trading halts; the dissemination of information regarding the activation of mechanisms to manage volatility on a specific trading venue; and the procedure and format to submit the reports on trading halts’ parameters from National Competent Authorities to ESMA. ESMA will consider the responses received to this consultation paper with a view to finalizing the guidelines and publishing a final report in Q1 2017. (10/6/2016)

EBA consults on ICT risk. The EBA announced that it has launched a consultation on its draft guidelines on the assessment of the Information and Communication Technology (ICT) risk in the context of the Supervisory Review and Evaluation Process. These draft guidelines aim at promoting common procedures and methodologies for the assessment of ICT risk. The consultation runs until January 6, 2017. (10/6/2016)

ESMA consults on product governance guidelines to safeguard investors. ESMA announced that it has opened a consultation on product governance guidelines under MiFID II regarding the target market assessment by manufacturers and distributors of financial products. (10/5/2016) 

ESMA consults on requirements for the management of trading venues and reporting services providers. ESMA announced that it has issued a consultation paper on draft guidelines which will further detail the implementation of MIFID II. The ESMA consultation is open for comments through January 5, 2017 with a view to finalizing the guidelines and publishing a final report in the first half of 2017. (10/5/2016) 

ESMA issues positive opinion on short selling ban by Italian CONSOB. ESMAannounced that it has issued an opinion agreeing to extend an emergency short selling prohibition, for a period of 90 calendar days, by the Commissione Nazionale per le Società e la Borsa (CONSOB) on net short positions in Banca Monte dei Pascha di Siena spa shares under the Short Selling Regulation. The measure, which was expected to enter into force on October 6, 2016, will remain in place until January 5, 2017. It temporarily prohibits transactions in any shares, either directly or through related instruments and irrespectively of the venue or market in which the transactions leading to those positions are conducted. The measure does not apply to trading in index-related instruments. (10/4/2016)

ESMA reports on shadow banking, leverage and pro-cyclicality. ESMAannounced that it has issued a report on securities financing transactions (SFTs), leverage, and pro-cyclicality in the EU’s financial markets. This report evaluates whether the use of SFTs leads to the build-up of leverage that is not yet addressed by existing regulation, how to tackle such build-up, and whether there is a need to take further measures to reduce its pro-cyclicality. (10/4/2016) 

ESMA consults on consolidated tape for non-equity products. ESMA announcedthat it has issued a consultation paper on its draft regulatory technical standards regarding the creation of a consolidated tape for non-equity instruments which is required under MiFID II. The new MiFID II framework, which covers equity-like and non-equity instruments traded on trading venues, introduces provisions for establishing a central source of post-trade prices or consolidated tape. The consultation will close on December 5, 2016. (10/3/2016)

ESMA issues Q&As on the implementation of the double volume cap under MiFID II. ESMA announced that it has issued a Q&A document regarding the implementation of the double volume cap under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR). MiFID II introduces a so-called “double” volume cap mechanism which limits the use of reference price waivers and negotiated price waivers under the new transparency regime of MIFID II.(10/3/2016)

EBA publishes final Guidelines on implicit support for securitization transactions. The EBA announced that it published its final Guidelines on implicit support for securitization transactions. The objective of these Guidelines is to clarify what constitutes arm’s-length conditions and to specify when a transaction is not structured to provide support for securitizations. (10/3/2016)

ESMA issues final guidelines on commodity derivatives inside information test.ESMA announced that it has issued final guidelines clarifying one element of the definition of inside information in relation to commodity derivatives under the Market Abuse Regulation. (9/30/2016)

ESMA consults on future reporting rules for securities financing transactions.ESMA announced that it issued a consultation paper on draft technical standards implementing the Securities Financing Transaction Regulation, which aims to increase the transparency of shadow banking activities. Securities financing transactions are transactions where securities are used to borrow cash (or other higher investment-grade securities), or vice versa. The consultation is open for feedback until November 30, 2016 (9/30/2016)

ESMA updates list of recognized third-country CCPs. ESMA announced that it has updated its list of recognized central counterparties (CCPs) based in third countries. This update concerns the recognition of the US CCPs ICE Clear Credit LLC and the Minneapolis Grain Exchange Inc. (9/29/2016)

EBA publishes final guidelines on the remuneration of sales staff. The EBAannounced that it has published its final Guidelines on remuneration policies and practices related to the provision and sale of retail banking products and services. The Guidelines, which aim to protect consumers from related risks and to reduce conduct costs for financial institutions, will apply from January 18, 2018. (9/28/2016)

EBA harmonizes the definition of default across the EU. The EBA announcedthat it has published its final Guidelines specifying the application of the definition of default across the EU and its final draft Regulatory Technical Standards on the materiality threshold of past due credit obligations. The EBA also released the results of a quantitative and qualitative impact study (QIS) aimed at assessing the impact on the regulatory capital requirements of selected policy options to harmonize the definition of default used by EU institutions. Both the Guidelines and the final draft RTS will harmonize the definition of default across the EU, thereby contributing to improving consistency and comparability of capital requirements. (9/28/2016)

ECB, People’s Bank of China announce extension of bilateral currency swap arrangement. The ECB announced that it has reached an agreement with the People’s Bank of China to extend their bilateral currency swap arrangement for three years. The swap arrangement, which serves as a barrier to address potential liquidity shortages in Chinese renminbi for euro area banks, has a maximum size of 350 billion in renminbi and 45 billion in euro. (9/27/2016) ECB press release.