UK: Financial Regulatory Developments (FReD) - 31 May 2013

Last Updated: 7 June 2013


EP backs single banking supervisory system 
ESMA publishes final AIFMD key concepts guidance 
FCA bans NED for failure to disclose conflicts 
AIMA pleads for OTC derivatives coordination

European Union and International

European Parliament (EP)

EP backs single banking supervisory system: EP has approved draft laws that will make the European Central Bank the direct supervisor of the largest banks in the Eurozone with a say in the supervision of other banks. However, it will not give its final approval in plenary until there has been a successful outcome on talks about accountability of supervisors. (Source:  EP Backs Single Banking Supervisory System and Consolidated Approved Text of Banking Supervision Changes)

Contact: Rosali Pretorius or Andrew Barber

European Banking Authority (EBA)

EBA consults on more CRD4 standards: Following the consultations relating to the implementation of the fourth Capital Requirements Directive (CRD4) and Regulation (CRR) reported in last week's FReD, EBA is consulting on further draft standards, most of which also stem from the CRD4/CRR package. The latest consultations cover:

  • draft guidelines on capital measures for foreign currency lending to give guidance to national competent authorities on how to deal with the specific risk of such lending to unhedged borrowers as part of the Supervisory Review and Evaluation Process. The consultation closes on 23 August;
  • draft Regulatory Technical Standards (RTS) on additional collateral outflows and draft Implementing Technical Standards (ITS) related to supervisory reporting of additional monitoring metrics for liquidity. The consultation closes on 14 August;
  • draft RTS on own funds related to criteria to define broad market indices, the calculation of minority interest and the deduction of indirect and synthetic holdings. The consultation runs until 18 July;
  • draft RTS to define a range of methods to reflect in the own funds requirements non-delta risks for options and warrants, and further draft RTS to define the term "market" for the purpose of calculating the "general" component of market risk for equities under the standardised rules. The consultations close on 31 August; and
  • draft RTS to specify the securitisation retention rules and related requirements and draft ITS to clarify the measures to be taken in the case of non-compliance with such obligations.

The consultations close on 22 August. (Source: EBA Consults on Further Draft Standards)

Contact: Rosali Pretorius or Andrew Barber

European Securities and Markets Authority (ESMA)

ESMA publishes final AIFMD key concepts guidance: ESMA has published its final guidance on key concepts in the Alternative Investment Fund Managers Directive (AIMFD). The guidance includes ESMA's views on what is meant by:

  • a collective undertaking;
  • raising capital;
  • a number of investors; and
  • a defined investment policy for the purposes of AIFMD.

Despite several respondents asking for further clarification as to whether joint ventures and commercial special purpose vehicles should fall outside AIFMD scope, ESMA made few changes from its consultation draft. (Source: ESMA Publishes Final AIFMD Key Concepts Guidance)

Contact: Rosali Pretorius or Kam Dhillon

ESMA consults on AIFMD reporting obligations: ESMA is consulting on guidelines for national authorities to which alternative investment fund managers (AIFMs) will report under the AIFMD. The guidelines cover:

  • the information that AIFMs should report to national authorities;
  • the timing of reports; and
  • the procedures to be followed when AIFMs move from one reporting obligation to another.

The guidelines also include the reporting template and a summary of the reporting obligations of AIFMs as well as detailed IT guidance. ESMA asks for comments by 1 July. (Source: ESMA Consults on AIFMD Reporting Obligations)

Contact: Rosali Pretorius or Tom Harkus

ESMA approves MoUs on non-EU AIFMs supervision: ESMA has approved the Memoranda of Understanding (MoUs) negotiated with 34 regulators around the world on non-EU AIFMs' compliance with AIFMD. These supervisory cooperation arrangements are necessary for non-EU AIFMs to market funds in the EU or manage funds on behalf of EU managers. (Source: ESMA Promotes Global Supervisory Cooperation on Alternative Funds)

Contact: Rosali Pretorius or Tom Harkus

ESMA updates prospectus FAQs: ESMA has updated its FAQs on the prospectus Directive to include four new questions with ESMA's views in response. (Source: ESMA Updates Prospectus FAQs)

Contact: David Cohen or Laura Cansdale

ESAs speak on ESFS: Steven Maijoor of ESMA, speaking in Brussels on the review of the European System of Financial Supervision (ESFS), said he thought the introduction of the European Supervisory Authorities (ESAs) had worked well. He spoke also of the challenges they faced, which include striking the balance between regulation and supervision, the need, in future, to restore the balance between "stability-prudential" concerns and investor protection concerns and funding of the ESAs. Gabriel Bernardino of the European Insurance and Occupational Pensions Authority (EIOPA) stressed the need for strengthening operational independence, reinforcing EIOPA's independent challenging role and enhancing its mandate and powers. Andrea Enria of EBA stressed the benefits of the Single Supervisory Mechanism and the Single Rulebook but stressed the limitations of a system that applied only to participating Member States. EBA is also concerned about the proposed flexibility for Member States in the proposed legislation on recovery and resolution of financial institutions. (Source: ESMA Speaks on ESFS EIOPA Speaks on ESFS and EIOPA Speaks on ESFS)

Contact: Emma Radmore or Luca Salerno

Commission asks ESMA for advice on TR fines: ESMA has published a request from the EU Commission for advice on procedures for imposing fines or periodic penalties on trade respositories (TR) under the European Market Infrastructure Regulation (EMIR) and on relevant limitation periods. The Commission wants the advice by 31 December 2013. (Source: Commission Asks ESMA for Advice on TR Fines)

Contact: Rosali Pretorius or James Brennan

European Central Bank (ECB)

ECB backs MLD4: ECB has published its opinion backing the Commission's proposals for a fourth Money Laundering Directive (MLD4) and Wire Transfer Regulation. It says the Commission has correctly identified and sought to address the weaknesses in the current legislation. It makes a few suggestions for changes, mainly to align the proposals with definitions in the Payment Services Directive. (Source: EBC Backs MLD4)

Contact: Emma Radmore or Andrew Barber

UK Government and Parliament

HM Treasury (Treasury)

Treasury launches UK investment fund strategy: Treasury has confirmed its wish to make the UK the most desirable and competitive centre for the investment funds sector. Among other things, it is committed to working with FCA to create a more responsive regulatory environment. (Source: Treasury Launches UK Investment Fund Strategy)

Contact: Rosali Pretorius or Tom Harkus

UK Financial Services and Markets Regulators

Prudential Regulation Authority (PRA)

PRA makes statement on bank capital: PRA is discussing with banks adjustments to capital positions identified by the Financial Policy Committee relating to expected future losses, conduct costs and prudent risk-weighting. So far Lloyds Banking Group and The Royal Bank of Scotland have advanced their plans to a position where PRA thinks disclosure is appropriate. It will publish more information when it has concluded its discussions with all banks. (Source: PRA Makes Statement on Bank Capital)

Contact: Rosali Pretorius or Howard Cohen

PRA updates on Solvency 2: PRA has updated on the progress of Solvency 2 preparations. It has written to insurers explaining how it continues to plan for implementation without causing unnecessary expense to firms. It hopes to hold an industry briefing in September. (Source: PRA Updates on Solvency 2)

Contact: Howard Cohen or Emma Radmore

PRA publishes FICOD review rules: PRA has published a policy statement containing the final rules to implement the technical review of the Financial Conglomerates Directive (FICOD). These changes relate to coordination with sectoral supervision, capital calculations, the requirement to include asset management companies and alternative investment fund managers, threshold triggers to identify conglomerates and stress testing. (Source: PS3/13 Financial Conglomerates Directive Technical Review)

Contact: Rosali Pretorius or Andrew Barber

Financial Conduct Authority (FCA)

FCA bans NED for failure to disclose conflicts: FCA has banned a non-executive director (NED) of two mutual societies and fined her £154,800 for failing to disclose conflicts of interest. Angela Burns had undertaken consultancy work for a US-based investment manager and subsequently asked for its support to become a UK business or renew her consultancy. When she became a NED of the two mutual societies she did not tell them of her consultancy request and FCA alleged she used her position as a NED to benefit her own position. Ms Burns is appealing the FCA decision. (Source: FCA Bans NED for Failure to Disclose Conflicts)

Contact: Howard Cohen or Josie Day

FCA publishes corporate governance details: FCA has published details of its corporate governance structure, including the terms of reference for all its committees. (Source: FCA Publishes Corporate Governance Details)

Contact: Rosali Pretorius or Juan Jose Manchado

FCA introduces new forms for CIS: With effect from 1 June, FCA is introducing new forms for UK authorised collective investment schemes (CIS). UK authorised CIS can now also send applications and notifications electronically. (Source: CIS Authorisations Team)

Contact: Kam Dhillon or Tom Harkus

Financial Ombudsman Service (FOS)

FOS publishes annual review: FOS has published its annual review for 2012/2013. The number of cases FOS has dealt with has almost doubled since the previous report. PPI cases represent 74% of all cases. Cases on banking and credit financial products come next, related mainly to complaints about charges and administration. FOS has started to register separately cases involving packaged accounts. (Source: FOS Annual Review 2012/2013)

Contact: Andrew Barber or Emma Radmore

Other Regulators/Authorities/Industry Associations

Alternative Investment Management Association (AIMA)

AIMA pleads for OTC derivatives coordination: AIMA has published a note setting out the importance of international coordination on measures relating to OTC derivatives. It sets out examples of potential regulatory conflicts or unnecessary overlap between EMIR and the US Commodity Futures Trading Commission's derivatives rules in several areas including clearing obligations, reporting obligations, segregation rules, collateral rules and margin requirements. AIMA is concerned about possible market fragmentation resulting from counterparties being unable to comply with the different regimes and calls on international regulators to introduce a "substituted compliance" or "equivalence" regime so counterparties can comply with one regime only. (Source: AIMA Pleads for OTC Derivatives Coordination)

Contact: Rosali Pretorius or James Brennan

Bank for International Settlements (BIS)

BIS publishes paper on collateralisation: BIS has published a paper entitled "Asset encumbrance, financial reform and the demand for collateral assets". The paper dismisses concerns about the risk of an absolute shortage of high-quality assets that could be used as collateral to meet new regulatory requirements. Any shortage can be mitigated by private sector adjustments, but these latter will, in turn, add to interconnectedness and procyclicality in the financial system. BIS calls for strict collateral valuation and through-the-cycle haircuts, and for levels of asset encumbrance to be better disclosed and also taken into account in the price of deposit guarantee schemes. (Source: Asset Encumbrance, Financial Reform and the Demand for Collateral Assets)

Contact: Rosali Pretorius or James Brennan

International Swaps and Derivatives Association (ISDA)

Industry responds on trading book review: ISDA, the Global Financial Markets Association and the Institute of International Finance have responded further to the Basel Committee on Banking Supervision consultation on a review of the trading book. The organisations feel the ideas for standard rules are too prescriptive and complex because they try to achieve too much. They feel many of the aims could be addressed by using a standardised calibration of internal models for the purpose of benchmarking models and making cross-firm comparisons. (Source: Industry Responds on Trading Book Review)

Contact: Rosali Pretorius or James Brennan

National Association of Pension Funds (NAPF)

NAPF updates Responsible Investment Guidance: NAPF has published an updated version of its 2009 Responsible Investment Guidance. The guidance aims to explain:

  • why pension fund investors should look to incorporate extra-financial risks within their investment decisions; and
  • how pension funds can, in keeping with their fiduciary duty, move the market towards one where responsible investment is considered the norm.

(Source: NAPF Updates Responsible Investment Guidance)

Contact: Rosali Pretorius or James Brennan

Forthcoming Events

New: UCITS and AIFMD Conference: Rosali Pretorius is speaking at IBC's UCITS and AIFMD Conference in Luxembourg on 2 and 3 July. FReD readers can benefit from a 20% discount by quoting FKW52573EMSPK. 

Compliance Management and Practice: Emma Radmore and Andrew Barber are speaking at the Compliance Register's training course on Compliance Management and Practice on 6 June. This one-day intensive training course is limited to 12 delegates. Dentons clients and contacts can take advantage of a discounted price of £290 + VAT by quoting "Dentons" in a covering email.

Recent Publications

Financial Crime

Anti-Bribery and Corruption Laws in Key Jurisdictions: Lawyers from Dentons offices in six jurisdictions prepared a table comparing key provisions of anti-corruption laws for Thomson Reuters Compliance Complete.

Preventing Financial Crime: Emma Radmore has written an article for Financial Regulation International on recent developments in financial crime prevention.

The Evolving Financial Sanctions Landscape – UK and US Perspectives: Emma Radmore, Thomas Laryea, Michael Zolandz and Peter Feldman have written an article for Financial Regulation International on financial sanctions under the UK and US regimes.

The Bribery Act – Has It Made A Difference?: We have updated our previous overview of the Bribery Act to take into account the Serious Fraud Office's latest guidance.

Dealing with Anti-Corruption Laws – the Bribery Act and FCPA in Context: This article summarises the effects of the Bribery Act and US Foreign Corrupt Practices Act. For further information, please contact Emma Radmore or Dominic Sedghi (London), or Michelle Shapiro (New York).

Financial Crime Podcast: Emma Radmore joined Finance IQ to discuss the FSA's Financial Crime Guide and issues associated with cutting financial crime.

Investment Services and Markets Reform

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.

A New Handbook for a New Era?: Emma Radmore has written an article for Thomson Reuters Compliance Complete on FSA's proposals to update the General Provisions Sourcebook for legal cut-over.

Treasury Publishes Banking Reform Bill: Read our summary of the Bill implementing the Vickers reforms into FSMA.

RDR: How Long Can it Last?: Emma Radmore and Andrew Barber have written an article for Compliance Monitor on the future of the Retail Distribution Review.

What's next for LIBOR? Summary of the Wheatley Review Recommendations: We have written a summary of the Wheatley 10-point plan for the reform of the LIBOR process.

Rate Setting and Regulation: In Everyone's Interests?: Rosali Pretorius, Madeleine de Remusat and Katharine Harle wrote an article for Financial Regulation International on the background to LIBOR setting and potential regulatory action.

Money through your mobile – regulation of m-payments: Andrew Barber and Emma Radmore have written an article for Compliance Monitor on the regulatory aspects of mobile payments.

MiFID 2 – Prescription and Change: Emma Radmore wrote an article for Compliance Monitor on the breadth of the proposals to amend the Markets in Financial Instruments Directive (MiFID 2).

Taking the Credit - the Transfer of Consumer Credit Regulation: Andrew Barber, Emma Radmore and Juan Jose Manchado have written an article for Compliance Monitor on the transfer of consumer credit regulation to FCA.

Prudential Regulation

UK Treasury Publishes Banking Structure Reform Plans: This article summarises the June 2012 White Paper on implementation of structural change to UK banking (as covered in FReD 15 June). For more information, please contact Rosali Pretorius, Emma Radmore or Andrew Barber.

EU Living Wills Plans – the Key Proposals: This article is the latest in our suite of articles about Living Wills and Recovery and Resolution Plans looks at the European Commission's proposals. For further information, please contact Rosali Pretorius or Andrew Barber.

Living Wills update: We have produced an update on FSA's current plans for Recovery and Resolution Plans. For further information, please contact Rosali Pretorius or Andrew Barber.

Product Regulation

More Protection for Retail Markets – the EU's PRIPs Package: We have written a detailed summary of the PRIPS, IMD2 and UCITS V proposals.

Another Stable Door?: Emma Radmore and Katharine Harle wrote an article for Thomson Reuters Complinet on IOSCO's proposals for complex product distribution.

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.

The Not So Remote Risks of Recommendations: Richard Caird, Sam Coulthard and Kattalin Truman have written an article on the case of Rubenstein v. HSBC Bank plc.

The Long Arm of FSA: Overseas Firms and Senior Management Beware: Emma Radmore  and Katharine Harle  have written an article for Compliance Monitor on the lessons from recent FSA enforcement cases involving overseas firms and their approved persons.

More Confusion on Client Money: Rosali Pretorius and Josie Day have written an article on the Supreme Court decision in the Lehman client money case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Events from this Firm
28 Sep 2017, Seminar, London, UK

On 26 July the FCA published its long-expected consultation paper on the extension of the SMCR to all FCA-authorised firms. The so-called "core regime" introduces the key concepts of regulator-approved senior managers, firm-approved certification staff and conduct rules applicable to virtually all staff.

3 Oct 2017, Conference, Zurich, Switzerland

As the founding Partner of the Europe-Iran Forum, Dentons Europe will once again support this year’s event. This compelling event which explores all Iran-related topics will take place in Zürich on 3rd and 4th October.

4 Oct 2017, Conference, Munich, Germany

Dentons Global Real Estate Group is delighted to be exhibiting once again at EXPO REAL, the International Trade Fair for Property and Investment which takes place on 4-6 October, 2017 in Munich, Germany.

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