Financial Regulation Weekly Bulletin 17 August 2017 / Issue 924 Major UK and European regulatory developments of interest to banks, insurers and reinsurers, asset managers and other market participants Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Insurance Enforcement Selected Headlines Brexit (1) Future customs arrangements and (2) Northern Ireland and the Republic of Ireland DExEU publishes papers EEA workers in the labour market MAC publishes call for evidence and briefing paper Preparing for Brexit interview with ECB s Sabine Lautenschläger and short piece on the bank authorisation process Banking and Finance CRR Amending Commission Implementing Regulation on supervisory reporting following IFRS 9 published in the Official Journal The Bank of England s proposed policy on valuation capabilities to support resolvability consultation paper published PPI complaints FCA provides update on supervisory approach 9.1 2.1 3.1 5.1 6.1 8.1 If you have any comments or questions, please contact Elizabeth Prentice. Slaughter and May also produces a periodical Insurance Newsletter. If you would like to go on the distribution list, please contact Beth Dobson. Securities and Markets Corporate bond markets IOSCO consults on recommendations to improve transparency MiFIR - European Commission publishes draft Delegated Regulation with regard to package orders Insurance IDD Commission Delegated Regulation on the standardised presentation format for the insurance product information document published in the Official Journal 12.1 14.1 17.1
General 1. Financial Ombudsman Service 1.1 Ombudsman News 141 published by FOS 15 August 2017 The Financial Ombudsman Service (FOS) has published issue 141 of Ombudsman News. It includes complaints data for the first quarter of the 2017/2018 tax year, an item on complaints about consumer credit, and the latest update on payment protection insurance. Issue 141 of Ombudsman News is available here. See also the Banking and Finance section below for an item on the FCA providing an update on its supervisory approach to PPI complaints. Brexit 2. Department for Exiting the European Union 2.1 (1) Future customs arrangements and (2) Northern Ireland and the Republic of Ireland DExEU publishes papers 15 & 16 August 2017 The Department for Exiting the European Union (DExEU) has published: Future customs arrangements: a future partnership paper, which outlines the government s goals for the customs arrangements between the UK and the EU after Brexit; and Northern Ireland and Ireland - a position paper, setting out the UK s proposals on the unique relationship between the UK and the Republic of Ireland, and the importance of the peace process in Northern Ireland. The customs paper is here. The holding page for the customs paper is here. The press release for the customs paper is here. The Northern Ireland position paper is here. Data on the Common Travel Area is here. The holding page for the Northern Ireland position paper is here. The press release for the Northern Ireland position paper is here. 3. Migration Advisory Committee 3.1 EEA workers in the labour market MAC publishes call for evidence and briefing paper 4 August 2017 The Migration Advisory Committee (MAC), an independent public body, has published a call for evidence and a briefing paper. In July 2017, the MAC was asked to advise the government on the economic and social impacts of the UK s exit from the European Union, and how the UK s immigration system should be aligned with a modern industrial strategy. Financial Regulation / 17 August 2017 / Issue 924 2
The call for evidence identifies the sort of information that the MAC will find most helpful to receive during the initial phase of its consideration, and details of how to submit evidence. This includes information on: EEA migration trends; recruitment practices, training and skills; and economic, social and fiscal impacts, but the MAC indicates that respondents may provide it with other relevant information. The briefing paper does not make any policy recommendations, but outlines some preliminary analysis of the UK labour market, and other countries migration systems. The MAC will consider clarificatory questions submitted by 12 September 2017. The call for evidence closes on 27 October 2017. The call for evidence is here. The briefing note is here. The holding page is here. 4. European Parliament 4.1 Legal implications of Brexit - European Parliament publishes study 9 August 2017 - The European Parliament's Directorate-General for Internal Policies has published a study (written in June 2017) for the Committee on Internal Market and Consumer Protection (IMCO) on the legal implications of the UK withdrawing from the EU (with or without a withdrawal agreement). The study considers the legal implications of Brexit in relation to the customs union, the internal market in goods, the internal market in services (excluding financial services), consumer protection law, and public procurement. It is based on a review of the available academic literature and materials produced for governments and Parliaments. The study is here. 5. European Central Bank 5.1 Preparing for Brexit interview with ECB s Sabine Lautenschläger and short piece on the bank authorisation process 16 August 2017 The European Central Bank (ECB) has published an interview with ECB Executive Board Member and Vice-Chair of the ECB s Supervisory Board, Sabine Lautenschläger, in which she suggests that banks preparations for Brexit are not as far advanced as the ECB would like. The ECB has also published a short piece for its supervisory newsletter: Brexit: How the authorisation process in the euro area works in practice. The interview is here. The piece on the bank authorisation process is here. Banking and Finance 6. Official Journal of the European Union 6.1 CRR Amending Commission Implementing Regulation on supervisory reporting following IFRS 9 published in the Official Journal 17 August 2017 Commission Implementing Regulation (EU) 2017/1443 of 29 June 2017 (the Regulation), amending Implementing Regulation (EU) No 680/2014 Financial Regulation / 17 August 2017 / Issue 924 3
laying down implementing technical standards with regards to supervisory reporting of institutions in accordance with the Capital Requirements Regulation (575/2013/EU) (CRR) has been published in the Official Journal of the European Union. The Regulation amends Implementing Regulation (EU) No 680/2014 in light of the adoption in the EU of International Financial Reporting Standards 9 (Financial Instruments) (IFRS 9). The Regulation enters into force on 6 September 2017, and applies from 1 January 2018. The Regulation is here. 7. European Banking Authority 7.1 G-SIIs - EBA updates data used for identification 11 August 2017 - The European Banking Authority (EBA) has published 12 indicators and underlying data from the 35 largest institutions in the EU, whose leverage ratio exposure measure exceeds 200 billion. This end-2016 data contributes to the internationally agreed basis on which a smaller subset of banks will be identified as global systemically important institutions (G-SIIs), following the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB) final assessments. The indicators were published by the EBA as required by Implementing Technical Standards under the Capital Requirements Directive (2013/36/EU) (CRD IV), and EBA Guidelines on disclosure of G-SIIs. The EBA webpage on G-SIIs, with links to their templates, is here. A summary and charts for the data disclosure exercise are here. The webpage for technical standards for the identification of G-SIIs is here. The press release is here. 8. Bank of England 8.1 The Bank of England s proposed policy on valuation capabilities to support resolvability consultation paper published August 2017 The Bank of England has published a consultation paper containing its preliminary views on a policy for the capabilities firms should have in place to ensure that an inability to produce timely and robust resolution valuations does not impede resolvability. The proposed policy applies to UK-based firms whose preferred resolution strategy involves the use of stabilisation powers, and to material UK subsidiaries of overseas-based banking groups. Section 6 of the consultation paper sets out seven principles that the Bank proposes firms would be expected to meet, and summarises the rationale underlying each principle. The principles cover: data and information; valuation models; valuation methodologies; valuation assumptions; governance; transparency; and assurance. The Bank advises firms whose intended resolution strategy involves the use of stabilisation powers in the UK to consult Appendix 1 when considering the practical implications of the Bank s proposed policy. It gives further detail on the valuations the Bank is required to obtain under section 6E and 48X of the Banking Act 2009 for UK resolutions. The Bank intends to survey those firms that are expected to be within scope of the proposed policy. The survey aims to give the Bank a better understanding of firms current capabilities and the costs of complying with the proposed policy. The survey is contained in Appendix 2. Financial Regulation / 17 August 2017 / Issue 924 4
The consultation period closes on 17 November 2017. The Bank envisages that, once a Statement of Policy has been released, firms will be given around 18 months to implement the changes necessary to comply with the policy. Once a Statement of Policy is in place, the Bank will engage with firms on the specific aspects of their valuation capabilities to ensure ongoing compliance with the principles and to support the firm s overall resolvability. Engagement could occur directly with the Resolution Directorate of the Bank, or, where relevant, be integrated into the PRA s solvent wind-down exercises. In cases where firms did not adequately address areas of non-compliance, the Bank would consider using its power of direction under section 3A of the Banking Act 2009 (which gives the Bank the power to direct a firm to take measures which, in the Bank s opinion, are required to address impediments to the effective exercise of statutory stabilisation powers or winding-up of that firm). The consultation paper is here. The Bank s webpage on resolution planning is here. 9. Financial Conduct Authority 9.1 PPI complaints FCA provides update on supervisory approach 16 August 2017 - The FCA has published a new webpage on its supervisory approach to payment protection insurance (PPI). The FCA outlines the improvements it has asked 18 banks and other providers to make to the way in which people can complain to them about PPI. The FCA expects these improvements to be made prior to its launch, on 29 August 2017, of a campaign to inform the public of the 29 August 2019 deadline to complain about PPI. The FCA indicates that it will provide further updates about its supervisory activity during the campaign, with an interim report after one year, and a final report after the PPI complaints deadline. The FCA has also published a timeline which outlines the history of PPI regulation. The new webpage is here. The timeline is here. 10. Payment Systems Regulator 10.1 PSR Consultation CP17/30: PSR regulatory fees 2018/19 August 2017 Together with the FCA, the Payment Systems Regulator (PSR) has published a Consultation Paper (CP17/30) on its approach to allocating and collecting regulatory fees for 2018/19 and subsequent years for its functions under the Financial Services (Banking Reform) Act 2013, the Payment Card Interchange Fee Regulations 2015 and the Payment Services Regulations 2017. The proposals consider: collecting PSR fees directly from fee payers, rather than collecting them indirectly via operators of payment systems; consulting on whether the PSR should revise its approach to allocating PSR fees, for example, by using each fee payer s transaction volumes and values; and Financial Regulation / 17 August 2017 / Issue 924 5
how the PSR intends to treat payment service providers that are implementing ringfencing, and how the PSR intends to allocate fees in relation to the revised Payment Services Directive (EU) 2015/2366 (PSD2). The consultation period closes on 28 September 2017. The PSR intends to consult on fee rates for 2018/19 in November 2017 and March 2018, and publish confirmation of the PSR fee rates in June 2018. CP17/30 is here. The PSR s consultation webpage is here. The FCA s consultation webpage is here. The press release is here. 11. Competition and Markets Authority 11.1 Retail Banking Market Investigation Order 2017 CMA issues directions to the Co-operative Bank on the MMC for unarranged overdrafts 14 August 2017 - The Competition and Markets Authority (CMA) has published directions to the Co-operative Bank in order to ensure that it complies with Part 7 of the Retail Banking Market Investigation Order 2017 by 5 January 2018, and compensates any of its customers who have been negatively impacted by its failure to do so. The Order requires that, from 2 August 2017, providers of personal current accounts must specify a monthly maximum charge (MMC) that any customer could be charged for using (or attempting to use) their unarranged overdraft. The Co-operative Bank has been applying a quarterly maximum charge. The directions are here. The holding page is here. See also the General section above for an item on Ombudsman News 141, which includes items on consumer credit complaints and PPI. See also the Brexit section above for an item on preparing for Brexit, and an interview with the ECB s Sabine Lautenschläger and a short piece on the bank authorisation process. Securities and Markets 12. International Organization of Securities Commissions 12.1 Corporate bond markets IOSCO consults on recommendations to improve transparency 14 August 2017 - The International Organization of Securities Commissions (IOSCO) is consulting on seven recommendations for increasing transparency and the information on secondary corporate bond markets available to both regulators and the public. The consultation closes on 16 October 2017. The consultation report, Regulatory reporting and public transparency in the secondary corporate bond markets, is here. Financial Regulation / 17 August 2017 / Issue 924 6
The press release is here. 13. Official Journal of the European Union 13.1 PRIIPs Delegated Regulation Corrigendum published in Official Journal 15 August 2017 A Corrigendum to Commission Delegated Regulation (EU) 2017/653 of 8 March 2017, supplementing the PRIIPS Regulation (1286/2014/EU) on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs), laying down regulatory technical standards (RTS) with regard to the presentation, content, review and revision of KIDs, has been published in the Official Journal of the European Union. The Corrigendum is here. 14. European Commission 14.1 MiFIR - European Commission publishes draft Delegated Regulation with regard to package orders 7 August 2017 - The European Commission has published a draft Commission Delegated Regulation (C(2017) 5611/1) supplementing the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR) and establishing a methodology for determining those package orders for which there is a liquid market. Once adopted, the Council of the EU and the European Parliament will consider the Delegated Regulation. If neither of them objects, it will come into force 20 days after its publication in the Official Journal of the EU. It will apply from 3 January 2018. The draft version of the Delegated Regulation is here. 15. European Securities and Markets Authority 15.1 MiFID II ESMA agrees first position limits 10 August 2017 - The European Securities and Markets Authority (ESMA) has published its first three opinions on position limits regarding commodity derivatives under the Markets in Financial Instruments Directive (2014/65/EU) and Regulation (600/2014/EU) (MiFID II/MIFIR). They relate to proposed position limits by the Autorité des Marchés Financiers (AMF) regarding rapeseed, corn and milling wheat. The opinion on position limits on the rapeseed contract is here. The opinion on the corn contract is here. The opinion on the milling wheat No. 2 contract is here. The press release is here. 15.2 MiFIR ESMA publishes responses to consultation on draft technical standards on the trading obligation for derivatives 10 August 2017 - ESMA has published the responses to its June 2017 consultation paper on draft technical standards on the trading obligation for derivatives under the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR). The responses, along with the consultation paper, can be found here. ESMA s press release is here. 15.3 CRA Regulation ESMA publishes responses to consultation on endorsement guidelines 16 August 2017 ESMA has published the responses to its April 2017 consultation on updating the Financial Regulation / 17 August 2017 / Issue 924 7
guidelines on the application of the endorsement regime under Article 4(3) of the CRA Regulation (1060/2009/EC). Endorsement is one of two regimes provided in the CRA Regulation that allow credit ratings issued in a third country to be used for regulatory purposes in the EU the other being equivalence/certification. ESMA intends to issue a final report in Q4 2017. The responses, and the consultation paper, can be found here. The press release is here. 16. Financial Conduct Authority 16.1 Circuit breakers FCA publishes an analysis of their role in UK equity markets 3 August 2017 The FCA has published an analysis of circuit breakers in UK equity markets. It includes an explanation of how circuit breakers work, and an analysis of a sample of events where a sudden, sharp decrease in the price of a security triggers a circuit breaker on the London Stock Exchange. The analysis sets out the FCA s assessment of how market quality changes before, during and after the triggering of a circuit breaker, and how different groups of market participants (including high-frequency traders) behave during these events. In summary, the FCA finds that market quality (as proxied by quoted depth and effective spreads) across all UK venues deteriorates just before and during trading halts. The analysis is here. 16.2 MiFID II FCA updates webpage on Legal Entity Identifier 10 August 2017 The FCA has updated its webpage, MiFID II Legal Entity Identifier (LEI) update, to clarify who has the obligation to renew the LEI under the transaction reporting regime. The FCA quotes section 5.5 of the ESMA Guidelines: "While executing Investment Firms should ensure that their LEI is renewed according to the terms of any of the accredited Local Operating Units for the Global Entity Identifier systems pursuant to Article 5(2) of the Commission Delegated Regulation (EU) 2017/590, there is no requirement under Article 13(3) to ensure that a LEI for a client or a counterparty has been renewed." The updated webpage is here. 16.3 FCA Consultation Paper CP17/31: Market infrastructure providers - 2017/18 fee rates August 2017 The FCA has published a consultation paper (CP17/31) on the setting of its 2017/18 periodic fee rates for market infrastructure providers (recognised investment exchanges, benchmark administrators, and data reporting service providers). Appendix 1 contains a draft Periodic Fees (2017/18) and Other Fees (No 2) Instrument 2017. The consultation closes on 16 October 2017. The FCA intends to publish the feedback from the consultation along with the final rules in its December 2017 Handbook Notice. CP17/31 is here. Financial Regulation / 17 August 2017 / Issue 924 8
The consultation webpage is here. Insurance 17. Official Journal of the European Union 17.1 IDD Commission Delegated Regulation on the standardised presentation format for the insurance product information document published in the Official Journal 12 August 2017 Commission Implementing Regulation (EU) 2017/1469 of 11 August 2017 laying down a standardised presentation format for the insurance product information document under the Insurance Distribution Directive (EU) 2016/97 (IDD) has been published in the Official Journal of the EU. The Implementing Regulation will come into force on 1 September 2017. The Implementing Regulation is here. See also the Banking and Finance section above for an item on the FCA providing an update on its supervisory approach to PPI complaints. Enforcement See the Banking and Finance section above for an item on the FCA providing an update on its supervisory approach to PPI complaints. See further the Banking and Finance section above for an item on the CMA issuing directions to the Cooperative Bank under the Retail Banking Market Investigation Order 2017 relating to the maximum monthly charge for unarranged overdrafts. Financial Regulation / 17 August 2017 / Issue 924 9
This Bulletin is prepared by the Financial Regulation Group of Slaughter and May in London. The Group comprises a team of lawyers with expertise and experience across all sectors in which financial institutions operate. We advise on regulatory issues affecting firms across the financial services sector, including banks, investment firms, insurers and reinsurers, brokers, asset managers and funds, non-bank lenders, payment service providers, e-money issuers, exchanges and clearing systems. We also advise non-regulated businesses involved in financial regulatory matters. In addition, our leading financial regulatory investigations practice is regularly instructed by financial institutions requiring specialist knowledge of financial services regulation together with experience in high profile and complex investigations and contentious regulatory matters. Most of the projects that we advise on have an extensive international or cross-border element. We work in seamless integrated teams with leading independent law firms which offer many of the most highly regarded financial institutions lawyers in Europe, the US and Asia, as well as strong and constructive relationships with local regulators. Our Financial Regulation Group also produces occasional briefing papers and other client publications. The five most recent issues of this Bulletin and our most recent briefing papers and client publications appear on the Slaughter and May website here. The Group s recent work includes advising: A number of banking groups in relation to banking structural reforms, including the ring-fencing regime; UK Asset Resolution on the sale of a 13bn asset portfolio, and of NRAM plc, to Cerberus Capital Management; Värde Partners on the sale of NewDay to Cinven and CVC Capital Partners; esure Group plc and Gocompare.com Group plc in relation to a demerger of Gocompare.com through a separate listing on the main market of the London Stock Exchange; Deutsche Bank in relation to several simultaneous investigations in multiple jurisdictions relating to LIBOR and a global financial services institution on the investigation by a number of regulators into foreign exchange trading; Funds advised by Pollen Street Capital on the sale of Target Group to a wholly-owned subsidiary of Tech Mahindra Limited; A range of financial services clients on responding to the legal and structural implications of the UK s exit from the EU; and A number of multi-national clients in relation to the UK, EU, and US economic and trade sanctions regimes. If you would like to find out more about our Financial Regulation Group or require advice on a financial regulation matter, please contact one of the following or your usual Slaughter and May contact: Jan Putnis Ben Kingsley Nick Bonsall Slaughter and May 2017 jan.putnis@slaughterandmay.com ben.kingsley@slaughterandmay.com nick.bonsall@slaughterandmay.com This material is for general information only and is not intended to provide legal advice. For further information, please speak to your usual Slaughter and May contact. Financial Regulation / 17 August 2017 / Issue 924 10