UK: Financial Regulatory Developments (FReD) - 30 August 2013

Last Updated: 30 August 2013


ESMA writes to Commission on types of AIFM

BoE speaks on recovery and announces liquid asset requirement reduction

FCA outlines mobile banking risks

Basel Committee reports on Basel III implementation

AIFMD Implementation Breakfast Briefing

European Union and International

Financial Stability Board (FSB)

FSB welcomes better bank disclosures: FSB has welcomed the Enhanced Disclosure Task Force (EDTF) report on the level and quality of the implementation of the EDTF's recommendations on enhancing the risk disclosures of banks in major banks' 2012 annual reports. Banks consider they implemented 50% of the recommendations in their 2012 reports, a significant improvement on the previous year, and expect to implement over 70% next year. (Source: FSB Welcomes Better Bank Disclosures)

FSB reports on compensation practices: FSB has published its second progress report on implementation of its Principles for Sound Compensation Practices and their Implementation Standards. It is pleased with progress, but says it needs more evidence that implementation is effectively leading to more prudent risk-taking behaviour. It acknowledges this will take time, and highlights some emerging trends and practices. All but two FSB member jurisdictions have now implemented the principles and standards and are focusing on effective supervision and oversight of implementation by relevant firms. FSB noted the need for further work on the identification criteria for material risk-takers and other "level playing field" concerns. Generally, it says disclosure has improved, although access to and transparency of data is still often difficult. FSB will continue to monitor compliance and develop guidelines for good practice, although it also acknowledges that certain current regulatory initiatives could materially change compensation structures. (Source: FSB Reports on Compensation Practices)

European Parliament (EP)

EP creates OEIL files for payment services proposals: EP has set up in its OEIL legislative observatory files for the Commission's initiatives on the review of the Payment Services Directive (PSD) and on interchange fees for card-based payments. (Source: OEIL File on PSD Review and OEIL File on Interchange Fees)

European Banking Authority (EBA)

EBA publishes risk-taker responses: EBA has published the responses it received to its consultation on draft Regulatory Technical Standards (RTS) on criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile. It needs to submit the draft RTS to the Commission by the end of March 2014. (Source: EBA Publishes Risk Taker Responses)

European Securities and Markets Authority (ESMA)

ESMA writes to Commission on types of AIFM: ESMA has written to the Commission in response to the Commission's criticism of the draft RTS ESMA had submitted in respect of types of alternative investment fund manager (AIFM) under the Alternative Investment Fund Managers Directive (AIFMD). The Commission said the draft risked being incompatible with the AIFMD and invited ESMA to submit revised standards. ESMA does not agree with the Commission's views, and comments that only in "restricted and extraordinary circumstances" should the Commission amend ESMA's draft RTS. However, it has submitted a revised draft, so as not further to delay the final standards. (Source: ESMA Writes to Commission on Types of AIFM)

UK Government and Parliament

Bank of England (BoE)

BoE speaks on recovery and announces liquid asset requirement reduction: Mark Carney has spoken on how the UK is recovering from the financial crisis and how BoE is restoring the stability of, and the public confidence in, banks. He outlined the new requirements for banks to repair their balance sheets so that their capital ratios at least reach a threshold of 7% by the turn of the year. He announced that, for major banks and building societies meeting the minimum 7% capital threshold, BoE will reduce the level of required liquid asset holdings. He said the effect of this will be to lower total required holdings by £90 billion, once all eight major banks and building societies meet the capital threshold. He stressed there is also ongoing work at international and UK levels to meet requirements for systemically important institutions and the Vickers recommendations. The Prudential Regulation Authority (PRA) published guidance on how it will implement the reforms for banks that meet the threshold. (Source: BoE Speaks on Recovery and PRA Confirms Liquid Asset Reduction Arrangements)

The Office of Gas and Electricity Markets (OFGEM)

OFGEM publishes REMIT response: OFGEM has published the responses it received to its open letter on the Regulation on Energy Market Integrity and Transparency (REMIT) and its reaction to the responses. Its letter clarifies the registration process and what constitutes inside information. It says it is unlikely the registration process will be available until early 2014. It will make the registration service available as soon as it can but does not plan to grant any transitional relief to participants who do not register within the REMIT timescales. OFGEM notes the European Agency for the Cooperation of Energy Regulators (ACER) has already published guidance for national regulators and is in the process of updating it and producing further guidance. (Source: OFGEM Publishes REMIT Response)

UK Financial Services and Markets Regulators

Financial Conduct Authority (FCA)

FCA agrees redress package for mis-sold CCP products: FCA has published details of a scheme it has agreed with Card Protection Plan Limited (CPP) and 13 high street banks and credit card issuers to allow customer redress for mis-sold CPP Card Protection and Identity Protection policies. Although CPP and the banks and card issuers have agreed the scheme, and customers should soon start receiving letters explaining it, the scheme must be approved by the customers who hold the relevant policies and by the High Court before it can make any payments. FCA expects the scheme to be able to pay out in spring 2014. (Source: FCA Agrees Redress Package for Mis-sold CCP Products)

FCA publishes CIS information: FCA has published a new webpage setting out information and forms relating to collective investment schemes (CIS). The page explains the restrictions on promotion of schemes, and gives links to relevant forms for application for authorisation or alteration of schemes, recognition of overseas schemes, marketing a UK UCITS in the EEA and filing information. It also sets out key messages on its expectations of firms in respect of information on model portfolios and portfolio modelling/stress testing. (Source: FCA Publishes CIS Information)

FCA publishes market operator guidance: FCA has published its finalised guidance on its expectations on market operators to ensure their members comply with their rules on an ongoing basis. FCA acknowledges there will be differences based on operators and markets and expects operators to apply a risk-based approach. Within this, it says all market operators should have in place effective and proportionate arrangements, with documented processes and procedures. They must be able to determine that their members' systems and controls can be reasonably expected to ensure compliance with the respective market operator's rules and trading procedures. The arrangements should cover both assessments of new members and ongoing arrangements for continued assurance. FCA also notes that operators should be proactive in engaging with members to spot potential for difficulties, rather than merely reacting when the difficulties arise. (Source: FCA Publishes Market Operator Guidance)

FCA outlines mobile banking risks: FCA has published a thematic review setting out the potential key risks mobile banking and payments present. It notes that not all of the risks are the same as those of internet banking and notes specifically dangers relating to:

  • fraud - for both firms and customers, but FCA is concerned mainly with the risk of fraud against consumers;
  • security and the risk of malware and viruses;
  • use of third parties, specifically the chain of responsibility for problems or losses that occur;
  • consumer awareness and understanding. FCA is concerned that the smaller screens and limited keypads of smartphones and tablets make consumer error more likely;
  • risk of IT failure and service interruption; and
  • anti-money laundering systems and controls particularly where mobile banking services are not linked to the customer's current account.

FCA will now visit a sample of high street banks and other firms that provide mobile banking services to assess how they are addressing these risks. It will report again in mid-2014 but in the meantime encourages all providers to consider the risks and how they mitigate them. (Source: FCA Outlines Mobile Banking Risks)

FCA publishes AIFM passporting FAQs: FCA has added to its webpages about the passporting arrangements under the AIFMD a set of FAQs for UK AIFMs managing or marketing alternative investment funds. (Source: FCA Publishes AIFM Passporting FAQs)

FCA publishes CRD 4 FAQs: FCA has published the first set of FAQs about implementation of the fourth Capital Requirements Directive and Regulation (the CRD 4 package). It intends to update this page as implementation gets closer. (Source: FCA Publishes CRD 4 FAQs)

FCA consults on disclosure of regulated information: FCA has published:

  • its feedback on issues raised in response to its consultations on the proposed new regulatory regime and fees for Primary Information Providers (PIPs);
  • finalised changes to the Enforcement Guide in relation to PIPs; and
  • further consultation about the definition of a Regulatory Information Service.

It asks for comments on its further proposals by 28 October. (Source: FCA Consults on Disclosure of Regulated Information)

FCA consults on LR changes for remuneration reporting: FCA is consulting on changes to the Listing Rules (LR) as a result of new requirements of the Department for Business, Innovation and Skills on directors' remuneration reporting. The proposed changes impact premium listed companies incorporated in the UK and will not reduce the current transparency and disclosure requirements for premium listed overseas incorporated companies. FCA asks for comments by 9 October. (Source: FCA Consults on LR Changes for Remuneration Reporting)

Other Regulators/Authorities/Industry Associations

Bank for International Settlements/Basel Committee on Banking Supervision (BIS/Basel Committee)

Basel Committee reports on Basel III implementation: The Basel Committee has reported to the G20 leaders on progress in implementing Basel III. Of the 27 Basel Committee jurisdictions, it says 25 have now issued the final set of Basel III based capital regulations, while the remaining jurisdictions, Indonesia and Turkey, have draft rules in place. It also notes that some jurisdictions have begun to introduce regulations for liquidity and leverage ratios, and requirements for global and domestic systemically important banks. Its periodic monitoring of Basel III's quantitative impact shows internationally active banks continue to build capital, and should be able to meet the full minimum Basel III capital requirements before 2019. (Source: Basel Committee Reports on Basel III Implementation)

BIS reports on impact of derivatives reforms: The Macroeconomic Assessment Group on Derivatives within BIS has published a report on the macroeconomic effects of OTC derivatives regulatory reforms. The report looks at the effects of:

  • mandatory central clearing of standardised OTC derivatives;
  • margin requirements for non-centrally cleared OTC derivatives; and
  • bank capital requirements for derivatives-related exposures.

(Source: BIS Reports on Impact of Derivatives Reforms)

Committee of Advertising Practice (CAP)

CAP updates codes: CAP has updated its advertising codes to reflect recent changes to the structure of UK financial regulation and certain changes to underlying legislation. (Source: CAP Updates Codes)

International Swaps and Derivatives Association (ISDA)

ISDA publishes EMIR amendments: ISDA has published the ISDA Standard Amendment Agreement – 2013 European Market Infrastructure Regulation (EMIR) Portfolio Reconciliation, Dispute Resolution and Disclosure Form. Market participants can use this to comply with their EMIR obligations on a bilateral basis. (Source: ISDA Publishes EMIR Amendments)

Forthcoming Events

Marketing Funds in the UK: Navigating the New Landscape: In this breakfast briefing on 11 September, Rosali Pretorius and Josie Day will consider the AIFMD requirements as implemented in UK, and how they impact on and interrelate with, existing requirements under FSMA. We will consider the position of UK and non UK funds, whether managed in the EU or not. We will also touch on the FCA's recent enforcement action in this area. Registration is from 8:15, and the seminar will run from 8:45 to 10:00. If you would like to register for this seminar, RSVP here.

FReD Live: On 24 September, our FReD Live Breakfast Seminar will be presented by Rosali Pretorius and Adrian Berendt, Regulatory Consultant, formerly of LCH.Clearnet, and the topic will be "To clear or not to clear?: Implications of EMIR and CRR". FReD readers will receive invitations and registration details shortly.

Recent Publications

New This Week

Mobile Network Operator Billing: Andrew Barber and Alex Haffner have written an alert on the effects of the Payment Services Directive on the development of direct-to-phone-bill purchases by mobile network operators.

Financial Crime

Deferred Prosecution Agreements: Emma Radmore has written an article for Financial Regulation International on the introduction of Deferred Prosecution Agreements in the UK. (June 2013)

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. (May 2013)

Preventing Financial Crime: Emma Radmore has written an article for Financial Regulation International on recent developments in financial crime prevention. (April 2013)

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. (November 2012)

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. (October 2012)

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). (May 2012)

Investment Services and Markets Reform

US Government announces six-month delay in FATCA rules: John Harrington, Jeffrey Koppele, Marc Teitelbaum and Jerome Walker have written an update on the delay in implementing certain elements of FATCA.

Take aim for AIFMD implementation: Emma Radmore and Kam Dhillon have written an article for Compliance Monitor on the final steps towards implementation of the AIFMD.

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. (April 2013)

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. (January 2013)

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. (October 2012)

Treasury Publishes Banking Reform Bill: Read our summary of the Bill implementing the Vickers reforms into FSMA. (October 2012)

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. (October 2012)

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. (September 2012)

Rate Setting and Regulation: In Everyone's Interests?: Rosali Pretorius and Katharine Harle wrote an article for Financial Regulation International on the background to LIBOR setting and potential regulatory action. (August 2012)

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. (May 2012)

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). (January 2012)

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. (June 2012)

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. (June 2012)

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. (May 2012)

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.

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. (July 2012)

Another Stable Door?: Emma Radmore and Katharine Harle wrote an article for Thomson Reuters Complinet on IOSCO's proposals for complex product distribution. (April 2012)

Enforcement and Litigation

It's all in the detail: a cautionary tale for handling complaints: Richard Caird and Felicity Ewing have written an article on the FCA's fine on Policy Administration Services.

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. (January 2013)

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. (September 2012)

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. (August 2012)

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. (March 2012)

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