UK: Financial Regulatory Developments (FReD) - April 19, 2013

Last Updated: 17 May 2013


  • FSB reports on OTC derivatives reform
  • EP plenary backs CRD4 and PRA starts planning
  • IOSCO consults on benchmark principles

European Union and International

Financial Stability Board (FSB)

FSB publishes resolution regime review: FSB has published a peer review report on resolution regimes. The review shows some jurisdictions have significantly reformed their regimes in the light of the financial crisis and others are still progressing their programmes. FSB feels that legislation is necessary to align all regimes with its "Key Attributes for Effective Resolution Regimes for Financial Institutions". It is concerned many regulators still lack important powers and plans to issue further guidance later this year. (Source:FSB Publishes Resolution Plan Review)

Contact: Rosali Pretorius or Andrew Barber

FSB reports on OTC derivatives reform: FSB has published its fifth six-monthly report on how its members are progressing OTC derivatives regulatory reform. It is disappointed that, despite significant progress, no jurisdiction had fully implemented requirements by the end of 2012, and less than half of the FSB member jurisdictions currently have legislative and regulatory frameworks in place to implement the G20 commitments. It wants to see faster progress, and has asked jurisdictions to confirm their plans. It also notes key challenges the reforms should address, including:

  • applying the requirements in a cross-border context;
  • trade reporting and data access;
  • central clearing and incentives; and
  • organised platform trading.

FSB will publish a further progress report ahead of the G20 Leaders Summit in St Petersburg in September 2013 and welcomes comments on the current report by 15 May. (Source: FSB Reports on OTC Derivatives Reform)

Contact: Rosali Pretorius or James Brennan

European Commission

Commission to adopt bank accounts proposal: The Commission plans soon to adopt a proposal for a Directive on bank accounts. The Directive will focus on transparency and comparability of fees, switching and access to basic bank accounts. (Source: Commission to Adopt Bank Accounts Proposal)

Contact: Andrew Barber or Emma Radmore

Council of the European Union (Council)

New MiFIR compromise text tabled: The Presidency of the Council has tabled new compromise texts for the Markets in Financial Instruments Regulation (MiFIR) and recast Directive (MiFID 2). They introduce the following in MiFIR:

  • clarifications on the opt-out for smaller trading venues from requirements not to discriminate against central counterparties (CCPs) wishing to access and clear trades executed in the venue;
  • new mandates for ESMA to develop draft regulatory technical standards;
  • power for competent authorities to request information when setting transparency and trading obligations, and determining when a firm is a systematic internaliser;
  • obligation to trade shares admitted to trading on a regulated market, multilateral trading facility, organised trading facility or systematic internaliser, unless the trades are non-systematic or they take place between professional counterparties and do not contribute to price discovery. Until now, the trading obligation was part of MiFID 2, the recast Directive; and
  • removal of the cap on the volume of permitted trading under the waiver in article 4.1(a) of MiFIR. The cap has been replaced by a minimum threshold requirement for the size of the orders matched by the system using a waiver. The post-implementation Commission report on the impact of the transparency obligations will analyse whether the waiver in article 4.1(a) is harmful to price formation.

(Source: MiFIR Presidency Compromise Text 8 April, MiFIR Presidency Compromise Text 15 April and MiFID 2 Presidency Compromise Text 15 April

Contact: Rosali Pretorius or James Brennan

Council publishes missing CRR articles: The Council has published several articles that had so far been missing from the text of the Capital Requirements Regulation (CRR) published after the Council reached political agreement with EP last month. Most of the articles deal with the calculation of the hypothetical capital requirement for central counterparties. (Source: Addendum to CRR)

Contact: Rosali Pretorius or James Brennan

European Parliament (EP)

EP plenary backs CRD4 and PRA starts planning: The EP plenary has voted in favour of the text of the Capital Requirements Directive and Regulation package (CRD4) agreed with the Council. The Council has to confirm its support too, and the texts need translating, before they can be published in the Official Journal of the European Union (OJEU). The Prudential Regulatory Authority (PRA) in the UK has explained that, if the package is published in OJEU before 1 July, implementation will be from 1 January 2014. Assuming these dates are met, PRA will consult during the summer on the changes required to GENPRU and BIRPU. A shorter consultation will cover the procedure for transitioning existing waivers. (Source:  Parliament Votes Reform Package to Strengthen EU Banks and Statement on CRD4 Implementation Timetable)

Contact: Rosali Pretorius or Juan Jose Manchado

EP publishes CRD4 guide: EP has published a note looking at why CRD4 has been adopted in its current form, and the key requirements of the new regime.(Source: EP Publishes CRD4 Guide)

Contact: Rosali Pretorius or Juan Jose Manchado

EP reschedules votes: EP has pushed back to 10 September the votes on the Key Information Document Directive (KID), the recast Insurance Mediation Directive (IMD2) and the Bank Recovery and Resolution Directive (RRD), which had been due to take place before the summer recess. The vote on the Mortgage Credit Directive (MCD) has been brought forward to 11 June, which indicates agreement in trilogue negotiations with the Council must be within reach. (Source: OEIL File for KID OEIL File for IMD2, OEIL File for RRD and OEIL File for MCD)

Contact: Emma Radmore or Juan Jose Manchado

European Supervisory Authorities (ESAs)

ESAs call for cross-sectoral risk action: The Joint Committee of the ESAs has published its first report looking at key risks facing EU financial markets. The report makes recommendations for addressing cross-sectoral risks through co-ordinated policy and supervisory actions. (Source: ESAs Call for Cross-Sectoral Risk Action)

Contact: Rosali Pretorius or Lauren Donnelly

European Securities and Markets Authority (ESMA)

ESMA publishes review on application of MMFs guidelines: ESMA has published the results of its peer review into the application by Member States of the Guidelines on Money Market Funds (MMFs), which were adopted by ESMA's predecessor in 2010. Some Member States have implemented the guidelines by means of a new specific regulation (as is the case in the UK), others by reference to existing provisions, while 10 of them had not implemented the guidelines by July 2012. The review concludes that a risk-based approach to supervision is more appropriate in larger markets, but uniform compliance monitoring is also needed to meet essential standards across all funds. It also identifies good practice, such as performance of stress tests. (Source: ESMA Finds Divergence in National Supervision of MMFs)

Contact: Rosali Pretorius or Tom Harkus

Bank for International Settlement (BIS) / Basel Committee of Banking Supervision (Basel Committee)

Basel Committee reports to G20 on Basel 3 implementation: The Basel Committee has published a new report on the progress towards a full, timely and consistent implementation of Basel 3. The report not only discusses the delays in member jurisdictions adoption of final rules to incorporate Basel 3 to their regulatory frameworks, but also covers:

  • the efforts to strengthen capital ratios and meet in advance the 2019 fully-phased-in requirements;
  • the need for sound supervisory and industry practices along with rigorous enforcement to achieve effective implementation of Basel 3;
  • the forthcoming evaluation of regulation adopted in Australia, Brazil and Canada, which will be followed by new assessments of EU and US once their final regulations are adopted; and
  • consistency of regulatory effects on banks, particularly in relation to the Basel Committee's work on asset risk weighting, which could lead to a tightening of risk models' use and their supervisory approval.

(Source: Report to G20 on Monitoring Implementation of Basel 3 Regulatory Reform)

Contact: Rosali Pretorius or Juan Jose Manchado

Basel Committee publishes intraday liquidity monitoring tools: The Basel Committee has published a paper providing a set of tools for supervisors to monitor banks' intraday liquidity. The paper also includes stress scenarios and reporting requirements. Specific tools are provided in respect of correspondent banks and of direct participants in a payments system. Only internationally active banks will be supervised and these must comply with the requirements under the tools, but national authorities can extend their application to any bank within their jurisdiction. Reporting will be monthly, starting on 1 January 2015 to coincide with the reporting of the Liquidity Coverage Ratio. (Source: Monitoring Tools for Intraday Liquidity Management)

Contact: Rosali Pretorius or James Brennan

BIS and IOSCO consult on authorities' access to TR data: The Committee on Payment and Settlement Systems (CPSS) at BIS and the International Organisation for Securities Commissions (IOSCO) have published a consultation paper on policies for authorities to access the data on OTC derivatives held by trade repositories (TRs). The paper includes an illustrative template for a data request form and a table mapping the minimum typical data access levels according to supervisory need. (Source: Authorities' Access to TR Data)

Contact: Rosali Pretorius or Lauren Donnelly

UK Parliament and Government


Parliament to hear e-crimes evidence: Parliament has set up a committee that will hear evidence about e-crime policy and the response of banks and card providers to e-crime. (Source: Parliament to Hear e-Crimes Evidence)

Contact: Andrew Barber or Lauren Donnelly

HM Treasury (Treasury)

Treasury updates sanctions:

Treasury has updated the sanctions lists in relation to Syria. (Source:Treasury updates sanctions)

Contact: Emma Radmore or Lauren Donnelly

Financial Reporting Council (FRC)

FRC to consider HBOS action: FCA has said it will consider whether there is a reason for it to investigate whether HBOS' financial statements were misleading or there were deficiencies in its audit. (Source:  FRC to Consider Consumer HBOS Action)

Contact: Rosali Pretorius or Andrew Barber

UK Financial Services and Markets Regulators

Financial Conduct Authority (FCA)

FCA speaks on the human face of regulation: Martin Wheatley spoke on how FCA plans to use behavioural economics to inform its approach to regulation. He focused on how the best firms use consumer behaviour analyses to steer them towards the best products. FCA has published two papers on how behavioural economics can help it understand the mistakes consumers make and how firms respond to these mistakes. The first paper discusses behavioural biases in personal finance decisions, while the second analyses how redress letters must be laid out to encourage consumers to act upon receiving them. Martin Wheatley said that FCA's use of behavioural economics will impact on the way it identifies risks. (Source: FCA Speaks on the Human Face of Regulation and FCA Publishes Occasional Papers on Behavioural Economics)

Contact: Emma Radmore or Andrew Barber

FCA publishes MMR FAQs: FCA has published a set of FAQs following its mortgage market review (MMR) lender roadshows. (Source: FCA Publishes MMR FAQs)

Contact: Andrew Barber or Emma Radmore

FCA publishes complaints data: FCA has published data setting out the firms and products in relation to which consumers complained most in the second half of 2012. Complaints continue to increase on payment protection insurance, with complaints falling against the largest banks and in relation to several other products. (Source: FCA Publishes Complaints Data)

Contact: Emma Radmore or Andrew Barber

FCA and FRC sign MoU: FCA and FRC have entered into a memorandum of understanding (MoU) setting out their respective statutory regulatory responsibilities and the arrangements for co-operating and exchanging information between them. (Source: MoU between FCA and FRC)

Contact: Emma Radmore or Juan Jose Manchado

Other authorities/regulators/Industry associations

Investment Management Association (IMA)

IMA comments on margin for non-centrally-cleared derivates: On its response to the Basel Committee's and IOSCO's second consultation on margin requirements for non-centrally-cleared derivatives, IMA has focused on the group-basis approach to calculating exposure to derivatives. It says that where sub-funds are legally segregated from each other, as under the protected cell regimes, exposure to derivatives should be calculated at the level of the sub-fund. IMA also asks for inflation derivatives to be included in the same class as interest rate and currency derivatives, so that netting of exposures is possible across these types of derivatives. (Source: IMA Response on Margin for Non-Centrally-Cleared Derivates)

Contact: Rosali Pretorius or James Brennan

International Organisation of Securities Commissions (IOSCO)

IOSCO consults on benchmark principles: IOSCO is consulting on a set of principles for benchmarks used in global financial markets. It has also identified a need for a subset of principles to address benchmarks that have specific risks because of their reliance on submissions or ownership structure. The 18 proposed principles cover:

  • governance;
  • quality of the benchmark;
  • quality of the methodology; and
  • accountability.

The Board-level task force is chaired by Martin Wheatley and the US Commodity Trading and Futures Commission's Gary Gensler. Consultation closes on 16 May. (Source: IOSCO Consults on Benchmark Principles)

Contact: Rosali Pretorius or Felicity Ewing

International Swaps and Derivatives Association (ISDA)

Industry voices concern over initial margin: ISDA and other industry associations have written a letter to FSB, BIS and IOSCO asking for a suspension of any initial margin (IM) requirement until its impact has been fully analysed. The Quantitative Impact Study accompanying the Basel Committee's and IOSCO's near-final proposals in February misstates the level of IM that would be required. The letter warns that IM requirements could cause procyclicality and push users to rely on imperfect hedges or dissuade them from hedging or from carrying out the underlying activity altogether. Some derivatives cannot not be cleared. Encouraging clearing houses to accept them would also pose a risk to financial stability. (Source: Re: Margin Requirements for Non-Centrally-Cleared Derivatives)

Contact: Rosali Pretorius or James Brennan

Public Concern at Work

Whistleblowing charity consults on improvements: Public Concern at Work, the whistleblowing charity, is consulting on how current laws on workplace whistleblowing work and can be improved. It asks for comments by 21 June. (Source: Whistleblowing Charity Consults on Improvements)

Contact: Emma Radmore or Lauren Donnelly

International Capital Markets Association (ICMA)

ICMA has released the 2013 Global Master Repurchase Agreement (GMRA) legal opinions. The opinions currently cover 63 jurisdictions. (Source: ICMA Publishes 2013 GMRA Opinions)

Contact: David Cohen or Gareth Burton

Payments Council

Payments Council response on access services: The Payments Council has responded to the European Central Bank's consultation on recommendations for payment account access services (PAAS). It strongly supports regulation of PAAS and believes regulation can help legislators establish the rights and responsibilities of the parties in a payment chain. It cautions that the recommendations must be assessed against other relevant EU measures, such as those on money laundering and data protection, and says the provisions on protection of personal security credentials need further review. (Source: Payments Council Response on PAAS)

Contact: Andrew Barber or Emma Radmore

Forthcoming Events and Recent Publications

New: Infoline AIFMD Level 2 Implementation: Rosali Pretorius is leading a workshop at Infoline's conference on implementation of the AIFMD on 22 April.

Investment Services and Markets Reform

Don't be an April Fool: prepare for FSMA at legal cut-over: Emma Radmore has written an article for Compliance Monitor on preparations for the change in UK regulatory structure.

PLC RDR Checklists: Andrew Barber and Emma Radmore have written a suite of checklists for PLC. The checklists are designed to help firms ensure that they comply with the requirements of the Retail Distribution Review (RDR).

Last Lap to Legal Cut-Over: Emma Radmore has written an article for Compliance Monitor on FSA's first two consultations on preparing for the new regulatory regime.

Asset Management

The Alternative Investment Fund Managers Directive – Theory Becomes Reality: Rosali Pretorius and Emma Radmore wrote an article on implementation of the AIFMD for the Global Asset Management & Servicing Review 2013/14 published by Euromoney Yearbooks.

Enforcement and Litigation

Having Your Cake and Eating It: FOS Award is no Bar to Issuing Proceedings: Katharine Harle has written an article for Compliance Monitor on the High Court award in Clark and another v. In Focus Asset Management & Tax Solutions Ltd

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