Worldwide: Financial Regulatory Developments (FReD) – 08 May 2015

European Union and International

European Parliament (EP)

ECON and Presidency agree PSD2: The Economic and Monetary Affairs Council within the EP and the Latvian Presidency of the EU have reached an informal political agreement on the revisions to the Payment Services Directive (PSD2). Once formally approved, the Council of the EU can agree it. Jonathan Hill for the European Commission (Commission) welcomed the advance. (Source: ECON and Presidency Agree PSD2

Contact: Josie Day or Juan Jose Manchado 

EP adopts MMF amendments: EP has voted to adopt the amended draft of the money market funds (MMF) Regulation. (Source: EP Adopts MMF Amendments

Contact: Rosali Pretorius or Michael Wainwright

EP to vote on MLD4 package in May: The EU's legislative observatory shows EP will vote on the fourth Money Laundering Directive (MLD4) and Funds Transfer Regulation in its plenary session on 20 May. (Source: EP to Vote on MLD4 and EP to vote on Funds Transfer Regulation)

Contact: Emma Radmore or Nicholas Ralph 

European Banking Authority (EBA)

EBA updates single rulebook Q&As: EBA has added five new items to its single rulebook Q&As. (Source: Single Rulebook Q&As)

Contact: Emma Radmore or Josie Day 

EBA speaks on SREP framework: Piers Haben spoke on the Common European supervisory review and evaluation process (SREP) framework and EBA Guidelines. In his speech he addressed:

  • the use of the SREP as a comprehensive supervisory view on institutions;
  • challenges raised by banks regarding the EBA Guidelines on SREP including: proportionality, the use of scoring, a common approach to additional capital requirements and the risk of side-lining the individual capital adequacy assessment process and dialogue with institutions; 
  • particular issues in the Guidelines which might be new to supervisors including: business model analysis, the multiple use of stress testing and supervisory outcomes; and
  • supervisory convergence across the EU.

(Source: Common European SREP Framework and EBA Guidelines

Contact: Rosali Pretorius or Michael Wainwright

EBA updates on additional Tier 1 monitoring: EBA has published an update to its draft report on the monitoring of Additional Tier 1 (AT1) capital instruments issued by EU institutions. EBA has reviewed 15 AT1 issuances which took place between August 2013 and November 2014. The report:

  • sets out EBA's views on clauses that it recommends be avoided in the terms and conditions of AT1 instruments;
  • clarifies EBA's position on acceptable triggers for regulatory calls and on the conditions for including tax gross-up provisions in the terms and conditions of AT1 instruments;
  • further details the triggers for loss absorption, in particular on Common Equity Tier 1, that should be the basis for setting the triggers for AT1 instruments issued within a banking group; and
  • elaborates on the rationale for disallowing contingent clauses where payments become mandatory if they lose the status of AT1 instruments.

EBA welcomes views on the report and will hold a public hearing on 18 May. EBA expects to publish the final report by the end of May. (EBA Updates its Monitoring of Additional Tier 1 Capital Instruments)

Contact: Rosali Pretorius or Michael Wainwright 

European Securities and Markets Authority (ESMA)

ESMA finalises commodity derivatives guidelines: ESMA has published its final guidelines setting out a common, uniform and consistent application of the definitions of commodity derivatives under C6 and C7 of Annex I of the current Markets in Financial Instruments Directive (MiFID). The guidelines, which ESMA has decided to provide only in English, will apply from 7 August until MiFID 2 and its associated technical standards and guidelines take effect. The guidelines clarify the definitions by specifying, in particular, what is meant by "physically settled" and confirming that forwards traded on a regulated market or Multilateral Trading Facility (MTF) fall within the scope of category C6. ESMA notes it has provided the Commission with technical advice on related points, but sees no conflict between these guidelines and its advice. (Source: ESMA Finalises Commodity Derivatives Guidelines)

Contact: Rosali Pretorius or Luca Salerno 

European Insurance and Occupational Pensions Authority (EIOPA)

EIOPA responds on Solvency 2 questions: EIOPA has responded to:

  • a question on the definition of "reserve risk method 2" in the Solvency 2 Regulation; and
  • questions on the dates on which each set of monthly technical information will be published for the rest of 2015. It also explains the origins of the fluctuations in forward rates calculated from the published spot rates. 

(Source: EIOPA Responds on Solvency 2 Questions

Contact: Michael Wainwright or Juan Jose Manchado 

EIOPA issues Solvency 2 preparation update: EIOPA has updated its webpage on Solvency 2 to make it easier for insurers, reinsurers and other market participants to find any information they need quickly. The page includes the first six Implementing Technical Standards (ITS). EIOPA is considering comments on its consultation on the second set of Solvency 2 ITS and guidelines. It plans to publish its response in Q3 2015. On 30 June, EIOPA will send the Commission the final set of ITS for endorsement, in particular those related to the harmonised regular reporting requirements under Solvency 2. The XBRL taxonomy in Q3 2015 will be based on the full final reporting package. (Source: EIOPA Updates on Preparation for Solvency 2)

Contact: Michael Wainwright or Juan Jose Manchado 

The Joint Committee of European Supervisory Authorities (ESAs) (ESMA/EBA/EIOPA)

ESAs publish financial system risks report: The Joint Committee of the ESAs has published its fifth "Report on Risks and Vulnerabilities in the EU Financial System". Overall, the report found that while the nature of the risks facing the EU financial system have not changed, they have intensified. The risks identified fall into two broad categories: macro risks and operational risks. The two key operational risks identified were:

  • business conduct risk, the costs of which the report recommends should be included in future stress tests where appropriate, while institutions should also strengthen product oversight and governance frameworks; and
  • continuing concerns about IT operational risk and cyber risk and the challenges these pose to the safety and integrity of financial institutions.

The report also notes that, despite the risks, a range of different policy and regulatory initiatives are contributing to improved stability and confidence in the financial system as well as helping funding channels in the real economy.(Source: ESAs - Main Risks to EU Financial Market Stability Have Intensified)

Contact: Rosali Pretorius or Michael Wainwright 

UK Government and Parliament

HM Treasury (Treasury)

Treasury updates sanctions: Treasury has updated its sanctions lists in respect of terrorism and terrorist financing. (Source: Treasury Updates Sanctions)

Contact: Emma Radmore or Nicholas Ralph 

UK Financial Services and Markets Regulators

Financial Conduct Authority (FCA)

Up next from FCA: FCA's latest Policy Development Update confirms the publications FCA expects to release. Before the end of June, it plans several policy statements on:

  • fees and levies and whistleblowing;
  • a partial response on its approach to non-executive directors in Solvency 2 firms and the presumption of liability on senior managers in banking firms, with more feedback due in July;
  • pension transfers and conversions and pension transfer rules;
  • guaranteed asset protection (GAP) insurance rules and a competition remedy;
  • client money rules for insurance intermediaries;
  • buy-to-let mortgages in the context of implementing the Mortgage Credit Directive;
  • improving complaints handling; and
  • changes to consumer credit rules and guidance.

It also plans consultation with PRA on the legacy Credit Unions Sourcebook and will feed back on the retail distribution regulatory capital requirements in either the second or third quarter of 2015. (Source: Policy Development Update No. 22)

Contact: Emma Radmore or Juan Jose Manchado 

FCA releases MAR guide: FCA has published a "one minute guide" to the Market Abuse Regulation (MAR). The guide briefly outlines MAR's objectives, what it will apply to, the key requirements and the timetable for its implementation. Alongside the guide, FCA is also hosting a MAR overview webinar. MAR will apply from 3 July 2016. (Source: One Minute Guide – Market Abuse Regulation)

Contact: Luca Salerno or Tom Harkus 

Prudential Regulation Authority (PRA)

PRA consults on more Rulebook modules: PRA is consulting on a third set of instruments and supervisory statements transferring materials from the current combined Handbook into the new PRA Rulebook style. The instruments it proposes to make cover:

  • exercise of passport rights (currently in chapter 13 Supervision Manual (SUP));
  • integrated regulatory reporting and prudent valuation reporting (currently in SUP 16.12 and 16.16);
  • rules and policy relating to UK branches of banks, building societies and investment firms incorporated outside the EU (currently in chapters 4 to 9 of the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC)); and
  • rules and policy on reverse stress testing (currently in SYSC 15).

There will also be supervisory statements backing up the new rules, and giving detail on the Internal Capital Adequacy Assessment Process, the Supervisory Review and Evaluation Process and various consequential changes. PRA also proposes to delete certain modules of the current Handbook, but not replace them. PRA asks for comment by 30 June. (Source: PRA Consults on More Rulebook Modules)

Contact: Emma Radmore or Juan Jose Manchado 

PRA finalises branch return policy: PRA has published its policy statement with its final rule on implementing the branch return. It confirms its second pilot study involved the 152 incoming and third country firms within scope of its proposals. In a few cases the relevant firm's supervisor decided not to include a firm in the exercise. Following its review of responses, PRA has made a rule that will take effect from 1 July and will require firms to file the branch return form as at 30 June and 31 December each year within 30 days of the date to which the information relates. (Source: PRA Finalises Branch Return Policy)

Contact: Rosali Pretorius or Tom Harkus 

Competition and Markets Authority (CMA)

CMA consults on draft payday lending order: Following its market investigation into the payday lending industry, CMA has published a draft order for consultation. The draft order will address the competition issues and their causes as identified in the course of the CMA investigation. CMA invites representations from any interested parties by 1 June. (Source: CMA Consults on Draft Payday Lending Market Investigation Order 2015)

Contact: Alex Haffner or Rebecca Owen-Howes 

CMA closes interchange fees investigations: CMA has announced that, in light of the impending EU Interchange Fee Regulation, it will close its investigations into MasterCard's and Visa's multilateral interchange fees. CMA has reached this decision on the basis that the Interchange Fees Regulation will address the harm to consumers and retailers which may be caused by the current levels of interchange fees. (Source: CMA Closes MasterCard and Visa Investigations Following EU Regulation)

Contact: Alex Haffner or Josie Day 

Other Regulators/Authorities/Industry Associations

Intercontinental Exchange (ICE)

ICE feeds back on ICE LIBOR: ICE has published a feedback statement in relation to the responses received to the ICE Benchmark Administration (IBA) position paper on the evolution and enhancement of ICE LIBOR. The original paper sought the opinions of stakeholders on the proposed evolution of ICE LIBOR including:

  • submission criteria;
  • the implementation of a more transaction-based approach (as far as possible);
  • having a waterfall of calculation methodologies to ensure the continued availability of LIBOR rates as well as the consistency and reliability of data; and
  • other enhancements to the benchmark.

Responses came from LIBOR licence holders and other interested parties from around the world. Since January, IBA has been holding roundtable meetings for LIBOR users. The next step will be a further market consultation in the summer on more detailed aspects of the proposals. (Source: IBA Publishes Feedback on LIBOR Evolution Paper)

Contact: Rosali Pretorius or Michael Wainwright 

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