BREXIT
CRDV IV – EBA final draft RTS and ITS on authorisation of credit institutions
On 14 July, the EBA published a report setting out the following final draft technical standards: (i) Final draft RTS on the information applicants shall provide competent authorities when applying for authorisation as credit institutions (EBA/RTS/2017/08); and (ii) Final draft ITS related to the templates to be used for providing such information (EBA/ITS/2017/05). The RTS (found in chapter 3 of the report) set out a comprehensive list of the information to be provided. The RTS also set out requirements applicable to the proposed shareholders and members with qualifying holdings of the applicant. In addition, the RTS specify obstacles that could prevent the effective exercise of supervisory functions. The RTS have been developed in accordance with Article 8(2) of the CRD IV. The ITS (found in chapter 4 of the report) also set out the relevant procedures and requirements relating to the submission of the applications, and the approach to be taken when applications are incomplete. The ITS have been developed in accordance with Article 8(3) of the CRD IV. The EBA encourages the EC to adopt the RTS and ITS at the earliest possible opportunity to support the consistent, efficient and rigorous assessment of any applications for authorisation to be submitted by entities seeking to relocate in the context of the UK withdrawal from the EU.
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CAPITAL MARKETS AND MARKET INFRASTRUCTURE
EMIR – Council of the EU non objection to Delegated Regulation supplementing EMIR
On 19 July, the Council of the EU published the minutes of the meeting held in its configuration as the Agriculture and Fisheries Council on 17 and 18 July. At the meeting, the Council decided not to object to the EC Delegated Regulation supplementing EMIR. Unless the EP objects the Regulation will enter into force 20 days after it’s publication in the OJ.
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CRAs – Joint Committee of ESAs consultation on revising ITS on mapping of ECAIs under CRR and Solvency II
On 18 July, the Joint Committee of the ESAs launched a consultation to amend the Implementing Regulations on the mapping of credit assessments of ECAIs for credit risk. The consultation consists of two consultation papers: (i) a consultation paper (JC/CP/2017/31) on draft ITS amending Implementing Regulation (EU) 2016/1799 on the mapping of ECAIs' credit assessments under Article 136(1) and (3) of CRR; and (ii) a consultation paper (JC/CO/2017/37) on draft ITS amending Implementing Regulation (EU) 2016/1800 on the allocation of credit assessments of ECAIs to an objective scale of credit quality steps in accordance with the Solvency II. Since the Implementing Regulations were adopted, ESMA has withdrawn the registration of one CRA and five additional CRAs have been recognised. As a result, the Implementing Regulations need to be amended to reflect the allocation of appropriate risk weights to the newly established ECAIs and to remove the references to the de-registered ECAI. The deadline for comments is 18 September. The Joint Committee plans to hold a public hearing on the draft ITS in London on 4 September.
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CRAs – EBA revises decision on unsolicited credit assessments of certain ECAIs
On 18 July, the EBA published a decision (EBA/DC/2017/195) amending the EBA decision (2016/C 266/05) confirming that the unsolicited credit assessments of certain ECAIs do not differ in quality from their solicited credit assessments. The EBA explains, in a related press release, that the revised decision will ensure regulatory harmonisation across the EU regarding the use of unsolicited credit ratings for determining institutions' own funds requirements. The revised decision states that it will enter into force twenty days after it has been published in the OJ.
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EC staff working document on conclusions of FICOD REFIT analysis
On 18 July, the EC published a staff working document (SWD (2017) 273 final) setting out the conclusions of its analysis of the Financial Conglomerates Directive (FICOD) under its Regulatory Fitness and Performance (REFIT) programme. A summary of the staff working document has also been published. Following its review, the EC has concluded that FICOD remains a useful supervisory tool. The staff working document outlines the EC’s analysis and highlights a number of ways in which the effectiveness, efficiency, relevance, coherence and EU added value of FICOD has evolved and changed since its adoption in 2002.
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Benchmarks – ICE Benchmark Administration selected to be new administrator of LBMA Silver Price
On 14 July, Intercontinental Exchange published a press release announcing that ICE Benchmark Administration Limited (IBA) has been selected to take over as the new administrator of the LBMA Silver Price. IBA expects to assume responsibility in autumn 2017. The current administrators of the LBMA Silver Price are CME Group and Thomson Reuters. IBA took over responsibility for the LBMA Gold Price in March 2015.
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FMIs – IOSCO and CPMI report on fourth update to level 1 assessments of implementation of principles for FMIs
On 14 July, IOSCO and CPMI published a report providing their fourth update to the level 1 assessments of implementation monitoring of the principles for financial market infrastructures (PFMI). The level 1 assessments are based on self-assessments by individual jurisdictions of how they have adopted, within their regulatory and oversight frameworks, the PFMI's 24 principles for FMIs and four of the five responsibilities for authorities. Overall, the results show that participating jurisdictions have continued to make progress since the previous update in completing the process of adopting legislation, regulations and policies that will enable them to implement the PFMI. IOSCO and the CPMI advise that implementing the PFMI is key to fostering the safety, efficiency and resilience of FMIs. As a result, they urge jurisdictions to take the necessary steps to move towards full implementation as quickly as possible. The next update of the level 1 assessment will be carried out in 2018.
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CONDUCT
Please see our eAlert: Whistleblowing and career loss claims
CONSUMER/RETAIL
Office of the Complaints Commissioner – Annual report 2016/17 and FCA response
On 19 July, the Office of the Complaints Commissioner published its annual report for 2016/17 and the FCA published its response to the report. The report covers the period from 1 April 2016 to 31 March 2017. The Commissioner received 115 new complaints against, and 27 enquiries about, the UK financial services regulators. This represents an increase on the number of new complaints and enquiries received in 2015/16. The FCA attributes this increase in complaints principally to the growth in the FCA's remit since taking on the regulation of consumer credit on 1 April 2014, and a high volume of complaints relating to interest rate hedging products (IRHPs). The majority of complaints that the FCA deals with are resolved without the need for referral to the Commissioner.
Annual report
FCA response
FCA thematic review report on customers' understanding of products bought
On 17 July, the FCA published a thematic review report on customers' understanding of the products they bought (TR17/1). The FCA's review identified that firms have embedded, or are developing, systems and practices to assess customer understanding of particular products throughout the lifecycle of a product, that is, at the pre-sale, point of sale and post-sale stages. This includes advised and non-advised sales. The FCA further found that: (i) Firms are increasingly alert to the importance of assessing customer understanding and are developing practices to enhance this; (ii) Some firms have made good progress in developing practices to help ensure their customers have a reasonable opportunity to understand the products they have bought; (iii) A few firms continue to confuse customer understanding with customer satisfaction; (iv) The most developed systems and practices for checking customer understanding are undertaken post-sale, for example, through customer contact exercises; and (v) Practices appeared least developed in the area of online sales, but a number of firms are taking steps to develop this area further.
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FCA publishes terms of reference for investment platforms market study
On 17 July, the FCA published the terms of reference of its market study to examine the investment platform market (MS17/1.1). The FCA will explore whether platforms help investors make good investment decisions, and whether investment solutions offer investors value for money. The FCA will also look at how platforms and similar firms compete on the price and quality of the services and products they offer. The FCA will assess any reasons for competition not being fully effective. The FCA invites any feedback on the scope of the market study by 8 September and will aim to publish an interim report by summer 2018.
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PEPP – HMT memorandum on proposed Regulation on pan-European personal pension product
On 14 July, the Cabinet Office published a European memorandum (EM10654/17) on the EC’s proposal for a Regulation on a PEPP. The memorandum states that the government has reservations that the proposal would contribute to the objectives of the CMU (as argued by the EC). Also, the government does not agree that it can be justified on subsidiarity and proportionality grounds. The government plans to consult informally with stakeholders, including from the FCA and the pensions industry, to determine a "final position over the next few months". The memorandum also states that, although the UK government is supportive of a product (such as the PEPP) that complements, rather than harmonises, existing domestic pension regimes, there are clear difficulties that need to be overcome relating to determining the tax status of such a product and the potential risks around regulatory arbitrage.
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FINANCIAL CRIME
Please see our eAlert: Italy: The entry into force of the new Italian Anti-Money Laundering (AML) legislation: Legislative Decree 90/2017.
MLD4 - House of Lords Secondary Legislation Scrutiny Committee corresponds with HMT on Parliamentary scrutiny of set of regulations transposing MLD4 in UK
On 20 July, the House of Lords Secondary Legislation Scrutiny Committee published its third report of the session 2017-19. The committee recently drew attention to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (2017 MLRs) and the other two sets of regulations transposing MLD4 in its second report of the session 2017-19. The committee comments that no figures on the likely cost of the 2017 MLRs were included in the accompanying explanatory memorandum and that HMT only published the final impact assessment more than two weeks after the 2017 MLRs were laid before Parliament. In the committee's view, this showed a lack of appropriate concern by the government over the Parliamentary scrutiny of secondary legislation. Lord Trefgarne, committee chair, has therefore written to Stephen Barclay, Economic Secretary to HM Treasury, to seek his comments.
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FINTECH
AFME: Consultation response: FCA distributed Ledger Consultation Paper
On 20 July, the AFME published their response to the FCA consultation paper on Distributed Ledger Technology (DP17/3). The consultation closed on 17 July and the FCA is currently considering responses.
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FUND REGULATION
FCA: Review of property funds and liquidity risks
On 20 July, the FCA published its review into fund suspensions and pricing adjustments following the vote to leave the EU. The review shows that property funds should take external events into account as part of their planning in order to deal with potential liquidity risks. By pooling contributions from investors, property funds play an important role in offering investors the ability to gain exposure to an asset class that might otherwise be too expensive, or simply impractical, for investors to invest in separately. The FCA plans to consider its findings in tandem with the responses to its illiquid assets and open-ended investment funds discussion paper (DP 17/1).
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ESMA opinion on asset segregation and applying depositary delegation rules to CSDs
On 20 July, ESMA has published an opinion on asset segregation and application depositary delegation rules to CSDs (ESMA34-45-277). ESMA suggests defining a regime that ensures assets are clearly identifiable as belonging to the alternative investment fund or UCITS, consistent with any reuse (where this is permitted by the applicable legislation). The regime should also ensure that investors receive adequately robust protection, by avoiding the ownership of the assets being called into question in the event of the insolvency of any of the entities in the custody chain.
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INSURANCE
EC consults on Delegated Regulation supplementing IDD on distribution of insurance-based investment products
On 20 July, the EC published for consultation a draft Delegated Regulation supplementing the IDD with regard to information requirements and conduct of business rules applicable to the distribution of insurance-based investment products. The deadline for comments on the DR is 17 August. Comments should be provided via the feedback link on the DR's dedicated webpage. The DR will enter into force 20 days after its publication in the OJ. It will apply from 23 February 2018.
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Final draft regulations implementing new regulatory and tax framework for insurance linked securities
On 20 July, HMT published a press release confirming it has finalised the new regulatory and tax framework for ILS. The press release links to the following final draft regulations that, when made, will implement the new ILS framework: (i) The Risk Transformation Regulations 2017. These regulations will come into force on 31 October 2017; and (ii) The Risk Transformation (Tax) Regulations 2017. These regulations will come into force on the day after the day on which they are made. In broad terms, the regulations set out how to establish ISPVs to issue ILS, the legal framework for ILS, and the associated tax treatment. The regulations also provide for a tailored and proportionate approach to the authorisation and supervision of ISPVs.
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Solvency II – Council of the EU non objection to Delegated Regulation on calculation of regulatory capital requirements for certain categories of assets
On 19 July, the Council of the EU published the minutes of the meeting held in its configuration as the Agriculture and Fisheries Council on 17 and 18 July. At the meeting, the Council decided not to object to the EC Delegated Regulation amending the Solvency II concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates). The EC adopted this Delegated Regulation in June. The Delegated Regulations will enter into force the day after it is published in the OJ unless the EP objects.
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MTE – Society of Lloyd's report on measures to support syndicates following market-turning event
On 18 July, the Society of Lloyd's published a report setting out new measures to support syndicates following a market turning event (MTE). In a related press release, Lloyd's explains that the new measures are designed to help managing agents, syndicates and their policyholders. They aim to enhance and speed up the process of approving syndicate business plans in the aftermath of an MTE (that is, an insurable loss so significant it results in a rapid upturn in pricing). The report sets out six guiding principles explaining how Lloyd's would respond to an MTE, categorised into two areas: (i) crisis management, to ensure the market responds to a crisis effectively, pays claims as quickly as possible and remains solvent; (ii) and supporting the market so that it can take advantage of commercial opportunities following an MTE.
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Solvency II – EIOPA submits final amended draft ITS on reporting and disclosure under to EC
On 17 July, EIOPA published on its website amendments and corrections to the following ITS under the Solvency II: ITS on the templates for the submission of information to the supervisory authorities (ITS on reporting); and ITS with regard to the procedures, formats and templates of the solvency and financial condition report (SFCR) (ITS on disclosure). The revised draft ITS have been submitted to the EC for endorsement.
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MARKETS
MiFIR – Council of the EU non objection to Delegated Regulation regarding the exemption of certain third country central banks from pre- and post-trade transparency requirements
On 19 July, the Council of the EU published the minutes of the meeting held in its configuration as the Agriculture and Fisheries Council on 17 and 18 July. At the meeting, the Council decided not to object to the EC Delegated Regulation supplementing MiFIR regarding the exemption of certain third country central banks from pre- and post-trade transparency requirements. The EC adopted this Delegated Regulation in April. The Delegated Regulation can enter into force 20 days after it is published in the OJ unless the EP objects.
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MiFID II – FCA notification guide on ancillary activity exemption
On 19 July, the FCA updated its webpage on the introduction of the commodity derivatives position limits and reporting regime under the MiFID II. The FCA explains that, under the MiFID II, firms or individuals who trade in commodity derivatives on a professional basis may, under Article 2(1)(j) of the MiFID II, be able to make use of an exemption from authorisation (referred to as the "ancillary activity exemption"). Firms or individuals who rely on this exemption are required to notify the FCA annually through Connect. The notification form can be found on the Connect landing page. To help those firms and individuals with their notifications, the FCA has published a notification guide on the exemption. A notification lasts for 12 months from the date it was first made (or from 3 January 2018 for notifications made before that date). Notifications must be renewed before the end of that period using Connect.
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MiFID II – FCA new webpage on market data processor entity portal
On 18 July, the FCA published a new webpage on the MDP entity portal. The FCA explains that the market data processor (MDP) system will receive MiFID II market data from the UK financial industry, and also market data (where applicable) from non-UK EEA financial market participants. The MDP system will interface with ESMA's new financial instrument reference data system, including transparency calculations and double volume cap, and the existing transaction reporting exchange mechanism. The portal is designed to: offer access to the industry test environment (ITE) for connectivity and conformance testing; facilitate requests for transaction reporting sample data; and enable entities that have established connectivity to the MDP system to submit market data to monitor their own file submissions. The MDP entity portal is currently available for the ITE, and will be available for the production environment from 3 January 2018.
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MiFID II – FCA updates webpage on data reporting services providers
On 17 July, the FCA updated its webpage on data reporting services providers (DRSPs). The FCA notes that it is now able to accept formal applications from entities wishing to provide DRSs. For applications received from 3 July, it will determine an application for an authorisation or verification within six months, beginning from the date on which it receives the completed application. The webpage now contains a list of all the DRSP authorisation and supervision forms. While the application form to provide the service of a DRSP and the notification form for the list of members of a management body have already been published, the FCA notes that the remaining forms will be available from the fourth quarter of 2017.The FCA also confirms that the authorisation fee to operate a DRS is £5,000 for the first application and a discount of 50% for each additional DRS application. The discount applies whether the applications were made at the same time or later.
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MiFID II – FCA new webpage on passporting forms
On 17 July, the FCA published a new webpage on passporting under the MiFID II. The webpage contains links to: (i) Notice of intention to establish a branch or change branch particulars in another EEA state (branch passport notification); (ii) Notice of intention to provide cross border services and activities in another EEA state (investment services and activities passport notification); (iii) Notice of intention to provide arrangements to facilitate the access to a MTF or an OTF from another EEA state; and (iv) Notice of intention to use a tied agent established in another EEA state or to amend the details of a tied agent established in another EEA state (tied agent passport notification). The FCA recommends that firms should: submit branch passport notifications as soon as possible after the MiFID II passporting gateway opens on 31 July; and submit services passport notifications by 2 December to help the FCA to assess notifications and send them to relevant EEA regulators before MiFID II takes effect on 3 January 2018. The FCA warns that if it receives a notification after 2 December it cannot guarantee that it be able to issue the relevant notification to the regulators concerned before 3 January 2018. Firms are required to make a passporting application under MiFID II if they will be conducting activities that have been implemented as new MiFID II activities or if they will become newly authorised under MiFID II and need to passport from 3 January 2018.
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PAYMENTS
PSD2 – HMT response to consultation on implementation of PSD2 and final implementing regulations
On 19 July, HMT has published its response to its consultation on implementing the revised PSD2. It consulted on the implementation of PSD2 in February. The statutory instrument that transposes PSD2, the Payment Services Regulations 2017 (SI 2017/752) (PSRs 2017) has also been published on legislation.gov.uk, together with an explanatory memorandum and transposition table. The majority of the PSRs 2017 come into force on 13 January 2018, with the remainder coming into force as stated in regulation 1.The document summarises the responses submitted to the consultation and outlines the government's response.
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Payment Services Regulations 2017
Explanatory memorandum
Transposition table
PSD2 – FCA statement on the use of the interbank rate in online currency converter tools
On 19 July, the FCA published a statement on the use of the interbank rate in online currency converter tools. The FCA is concerned that payment and e-money institutions may have used currency converter tools, relating to their currency transfer services, in a misleading way. Tools that convert currency at the interbank rate may be used in such a way as to give consumers the misleading impression that the rates shown are available to them, rather than the materially inferior rate that they are likely to achieve. Further, consumers may not become fully aware of the inferior rate they are likely to achieve until an advanced stage in the customer journey, commonly after a customer registration process has been undertaken. At that stage, consumers may be unlikely to shop around. The FCA is actively considering further investigations and action in this area. In doing so, it will have particular regard to any firms that do not take appropriate steps in the light of the statement.
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Payment systems – CMA publishes decision approving merger of Bacs, Faster Payments and Cheque & Credit clearing payment systems
On 19 July, the CMA published the full text of its decision to approve the anticipated merger of Bacs, FPS, and C&CC. The CMA announced its decision not to refer the merger for a Phase 2 investigation on 12 July. The CMA considered that the transaction satisfies the Enterprise Act 2002 share of supply test as the parties overlap in the supply of UK interbank payment services, and based on volume that combined share of supply is 27%. The CMA therefore considered that a relevant merger situation would be created. The CMA did not see any evidence to assess the transaction on an alternative counterfactual. Based on this evidence, the CMA considered the merger would not give rise to competition concerns, and would not give rise to a realistic prospect of a substantial lessening of competition.
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SEPA – EPC publishes new version of SEPA SCT Inst scheme interbank implementation guidelines
On 19 July, the EPC published version 1.1 of the SEPA instant credit transfer scheme interbank implementation guidelines. The guidelines set out the rules to be applied to the interbank credit transfer ISO 20022 XML message standards for implementing SEPA instant credit transfers as defined in the SEPA Instant Credit Transfer Scheme Rulebook. The EPC has also published SEPA XML schema definitions related to the guidelines. The guidelines come into effect on 21 November.
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RTGS system – now available for non-bank PSPs BoE settlement accounts
On 19 July, the BoE published an updated policy document on BoE settlement accounts. In the document, the BoE announces that a new generation of non-bank PSPs is now eligible to apply for a settlement account in the BoE's RTGS system. The two types of non-bank PSPs eligible for direct access are authorised e-money issuers and authorised payment institutions. Holding their own settlement account at the BoE enables these non-bank PSPs to apply, for the first time, for direct access to the UK's sterling payment systems that settle in sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa and, once live, the new digital cheque imaging system. These changes will enable non-bank PSPs to compete on a more level playing field with banks. In turn, reduced dependencies on bank competitors for access to payment systems will allow non-bank PSPs to offer a wider range of payment services.
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PRUDENTIAL REGULATION
Please see the Brexit section for an update on the authorisation of credit institutions.
PRA policy statement on regulatory reporting: responses to CP6/17
On 20 July, the PRA published a policy statement on regulatory reporting: responses to CP6/17 (PS20/17). The PRA received one response to CP6/17, which agreed with its proposals. It is therefore making the final rules as consulted on, without any changes.
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PRA policy statement to February 2017 occasional paper
On 20 July, the PRA published a policy statement (PS19/17) setting out its response to feedback received on its February 2017 occasional paper (CP2/17). The PRA received responses for chapters 5 (Remuneration: committees and deferral periods) and 6 (Ring-fencing: residual reporting requirements for ring-fenced bodies) of CP2/17, as a result of which it has made minor adjustments. The PRA does not believe that the changes are significant or that they will have a differential impact on mutuals. The PRA explains that it is considering a response it received to its proposed changes set out in chapter 2 of CP2/17 (Credit risk mitigation: secured guarantees) and will provide feedback in a separate PRA publication.
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CRR – EBA decision confirming unsolicited credit assessments of certain ECAIs do not differ in quality from their solicited credit assessments
On 18 July, the EBA published a decision (EBA/DC/2017/195) amending the EBA decision (2016/C 266/05) confirming that the unsolicited credit assessments of certain ECAIs do not differ in quality from their solicited credit assessments. The EBA explains, in a related press release, that the revised decision will ensure regulatory harmonisation across the EU regarding the use of unsolicited credit ratings for determining institutions' own funds requirements. The revised decision states that it will enter into force twenty days after it has been published in the OJ.
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OTHER
FCA signs MoU with Hong Kong SFC
On 20 July, the FCA published a supervisory memorandum of understanding it has entered into with the Hong Kong Securities and Futures Commission (SFC). The undated MoU relates to the FCA's and Hong Kong SFC's commitment to co-operate with each other on supervisory matters in the interest of fulfilling their respective regulatory mandates. The MoU covers: (i) Scope of supervisory co-operation; (ii) Cross-border on-site visits; (iii) Execution of requests of assistance; and (iv) Permissible uses of non-public information obtained under the MoU, including the confidentiality and onward sharing of such information. The two authorities signed a co-operation agreement in May 2017 setting out a framework for co-operation and referrals between the innovation functions of each authority.
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Sustainable finance – EC questionnaire on issues affecting sustainable finance
On 18 July, the EC published a questionnaire produced by its HLEG on sustainable finance. The questionnaire relates to the HLEG's interim report on sustainable finance, which was published on 13 July. In the report, the HLEG set out its initial thoughts and recommendations on areas where EU policymakers could further align financial practices with sustainable policy objectives. The aim of the questionnaire is to gather targeted feedback on the analysis and reflections in the interim report, to inform the preparation of the final report, which the HLEG expects to publish by the end of 2017.The questionnaire can be completed and submitted until 20 September. However, the submission of responses before 6 September will facilitate processing and "early exploitation" by the HLEG. A public hearing into the interim report was held on 18 July.
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IFRS 9 – ESRB report on financial stability implications of IFRS 9
On 17 July, the ESRB published a report on the financial stability implications of IFRS 9.IFRS 9 (Financial Instruments) was adopted in the EU in November 2016 for mandatory application from 1 January 2018 onwards. In the report, the ESRB analyses two main aspects of IFRS 9 from a macro-prudential angle, focusing on the position of banks: the new approach to the classification and measurement of financial assets and the new ECL approach for measuring impairment allowances. The ESRB concludes that the classification of financial assets under IFRS 9 will, in principle, be clearer and sounder than under IAS 39 and should not generally lead to a significant increase in the use of fair value by EU banks. However, in section 4 of the report, it highlights potential detrimental effects on financial stability relating to: usage of fair value accounting; modelling risk; banks' lending behaviour; procyclicality; and less sophisticated banks using the standardised approach.
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