UK: Financial Regulatory Developments

Last Updated: 19 May 2006


  • Member States approve 3 MLD measures
  • FSA issues Best Execution paper
  • FSMT decides on the Plumber

European Union

European Commission

Commission looks at opening up mortgage market: The Commission has started a dialogue with national industry and consumer associations to start the process towards an integrated, consumer-friendly EU-wide mortgage market. (Source: IP/06/642)

DWS contact: or

Commission to set up expert group on account transfers: The Commission is to set up an expert group to look at any barriers to customer mobility on Community-wide transfers of bank accounts. (Source: IP/06/619)

DWS contact: or

Commission consults on Settlement Finality Directive: The Commission is seeking the views of industry and experts on the evaluation report on the Settlement Finality Directive and possible revisions to it. (Source: IP/06/620)

DWS contact: or

Member States approve 3 MLD measures: The Member States have approved the Commission’s draft Level 2 implementing measures on the 3rd Money Laundering Directive. The measures relate to:

  • what is a 'Politically Exposed Person';
  • technical criteria for simplified CDD; and
  • technical criteria allowing Member States to exclude from the scope of the application of the Directive people who conduct financial activities on an occasional or very limited basis.

Parliament now has a month to confirm the Level 1 measures have been complied with before the Commission adopts the draft. (Source: IP/06/605)

DWS contact: or

Commission proposes new VAT process for financial services: The Commission is planning to modernise the current legislation on financial services and insurance. It wants to ensure that customers are not left with "hidden VAT" whilst improving competition, reducing administration and tightening up on definitions. (Source: IP/06/602)

DWS contact: or

Committee of European Securities Regulators (CESR)

CESR and CFTC to ease transatlantic derivatives business: CESR and the CFTC have launched an initiative to enhance transparency in the international derivatives markets by publishing online guides to key jurisdictions. The initial guides cover the US and UK, Germany, Ireland, Luxembourg, the Netherlands, Poland and Sweden. (Source: CESR/06/204)

DWS contact: or

Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS)

CEIOPS publishes deeply subordinated debt advice: CEIOPS has finalised and submitted its advice to the Commission on the treatment of deeply subordinated debt. Following consultation, CEIOPS advises that there is strong support for giving further recognition to these instruments under Solvency 1. However, the concepts need to be defined broadly, because treatment differs significantly between Member States and the eventual treatment under Solvency 1 should not prejudge what the situation will be under Solvency 2. (Source: Advice to the European Commission on the treatment of deeply subordinated debt)

DWS contact: or

UK Financial Services and Markets Regulator

Financial Services Authority (FSA)

FSA issues Best Execution paper: FSA has published a discussion paper on Best Execution. The paper comes ahead of other MiFID related consultations as FSA recognises the importance of the issue. The paper sets out the key MiFID requirements and seeks firms’ views on the issues MiFID raises. The responses to this paper will help shape FSA’s proposals for implementing Article 21 of MiFID within its COB consultation due for October. The paper looks at:

  • execution policy and arrangements, including execution venues and how the requirements can be adapted to various business models;
  • dealer markets and whether dealer prices could be referenced to robust benchmarks and methods of price validation; and
  • review and monitoring.

The paper asks a number of specific questions in relation to each chapter. Comments are due by 17 August. (Source: Discussion Paper 06/3: Implementing MiFID’s Best Execution Requirements)

DWS contact: or

FSA publishes newsletters: FSA's latest newsletters focus on:

  • General insurance: this issue looks at FSA's thematic work on effectiveness of regulation, PPI, contract certainty, conflicts management, client money, non-executive directors and its plans to look at the due diligence process within wholesale firms when launching new products or entering new markets. It looks also at solvency and general supervisory issues; and
  • Life insurance: this issue looks at similar solvency and supervisory issues as well as requirements regarding new payout data and the FSA's thematic work on investment product disclosure and CFPPFM.

(Source: General insurance newsletter No.9 and Life insurance newsletter No. 7)

DWS contact:

FSA bans firms: FSA has issued final notices removing authorisation from a number of firms:

  • the High Street Mortgage Company in particular for not paying FSA’s fees;
  • Mark Cooper Garages, Middleton Financial Limited, Maurice Lynn Motors, Eileen Hayes and Peter Swatton, all of whom failed to submit an RMAR.

(Source: Final Notices)

DWS contact:

FSA halts betting syndicates: FSA has finally halted the operations of 147 Racing Limited and Top Bet Placement Services, which it has been warning consumers about for 3 years. Gary Woodward and Sean Fradley respectively were responsible for running the schemes, which FSA believed were operating illegally as collective investment schemes. After 32 months of court action, the court agreed with FSA’s views, and FSA has taken control of around £100,000 in frozen bank accounts. (Source: FSA/PN/047/2006)

DWS contact:

FSA on the conference circuit: During the last week, FSA has spoken at a number of conferences:

  • in the Keynote speech at FSA’s MiFID conference, Hector Sants outlined the European and domestic timetables and the key areas that MiFID will affect. He stressed that in many areas UK regulation is unlikely to have to change significantly and in others MiFID will offer more freedoms than currently;
  • also at the MiFID conference, Christina Sinclair spoke on the FSA’s forthcoming proposals for a common platform for firms amending their organisational systems and controls to comply with both MiFID and the CRD. The common platform will present technical and timing issues for firms covered by both Directives, but is preferable to 2 separate but considerably overlapping requirements;
  • Sarah Wilson spoke on the future of life insurance: she concentrated on the role of principles-based regulation in particular to give senior management greater ownership of capital adequacy requirements for their firms, appropriate high levels of capitalisation and progress on TCF; and
  • Thomas Huertas spoke on the distressed debt markets. He discussed the level of distressed debt that would be acceptable to banks and the need for stress testing and how this combines with liquidity planning. He then discussed the decision process for a bank deciding whether to keep credit which is becoming distressed.

(Source: Speeches)

DWS contact: or

Financial Services and Markets Tribunal (FSMT)

FSMT decides on the Plumber: The FSMT has given its judgment on the FSA’s enforcement action against Paul Davidson and Ashley Tatham. Mr Davidson was the majority shareholder in Cyprotex PLC (Cyprotex) which was to be listed on AIM. The take up of shares in the placing was slow and the idea emerged that, if a spread bet were placed in respect of shares in Cyprotex, then the spread betting firm would hedge the bet through a contract for differences with a counterparty, who would then hedge the contract for differences by purchasing shares in the placing which would complete. A few days before the flotation date, Cyprotex’s brokers, instructed by Mr Davidson, placed a large spread bet with City Index Limited of which Mr Tatham was the executive director of trading. City Index hedged the bet by a contract for differences, the counterparty of which was Dresdner Kleinwort Wasserstein Securities Limited (Dresdner Securities). Dresdner Securities hedged its exposure by purchasing shares in Cyprotex in the placing. FSA believed that Mr Davidson, Mr Tatham and Nigel Ross from Cyprotex’s brokers arranged the scheme, agreed not to publicise it, and that the effect of the scheme was to give a false and misleading impression as to the market for and value of Cyprotex shares and so constituted market abuse. It proposed fines for each of the 3 (£750,000 on Mr Davidson, £300,000 reduced to £50,000 on Mr Howe and £100,000 on Mr Tatham) and also considered that Mr Howe and Mr Tatham, who were approved persons, had breached a number of FSA’s Principles for Approved Persons. Mr Davidson and Mr Tatham appealed the decision. The FSMT considered:

  • whether there had been market abuse;
  • whether penalties should have been imposed;
  • if so, whether they were appropriate; and
  • whether Mr Tatham had breached the Approved Persons principles.

The FSMT thought that it was Mr Howe who was the pivot of the scheme, and held that neither Mr Davidson nor Mr Tatham had engaged in market abuse and therefore no penalties should have been imposed. Even if penalties had been appropriate, it thought that a public statement would have been the appropriate sanction. It found that Mr Tatham did not breach FSA Principles. FSA is considering the implications of the judgement and the action it now needs to take. (Source: Paul Davidson, Ashley Tatham and the Financial Services Authority)

DWS contact: or

Other Authorities/Regulators/Trade Associations

British Bankers Association (BBA)

BBA sets up corporate-action working party: The BBA has established a working party to ease harmonised, pan-European corporate action standards. The group will follow the recommendations of the Giovannini group. (Source: Press Release)

DWS contact: or

Joint Money Laundering Steering Group (JMLSG)

JMLSG gets new Chair: Martin Hall, FLA Chairman will be taking over from Iain Mullen, who has chaired the JMLSG for 5 years. (Source: Press Release)

DWS contact:

Recent Publications and Forthcoming Events

Members of our Financial Markets and Regulation Team will be speaking at the following training courses:

  • Understanding the FSMA Regulatory Regime on 28 September
  • ICOB: the Insurance (Conduct of Business) Sourcebook on 7 December

For further details, please contact at the

Customer Data seminar: We are holding a seminar with MBNA on "Getting hold of the customer – How to maximise value in customer data" on 23 May. The Panel will comprise Donna Pumfrey, Head of Legal Services and Corporate Affairs, and Katy Budd, Corporate Solicitor, of MBNA Europe Bank Ltd, and DWS partners Nick Graham and Scott Singer. For further information, please contact, or

European Business Insurance Sector Enquiry: If you receive a questionnaire as part of the European Commission's Business Insurance Sector Enquiry, you must respond fully and accurately within a fixed time. Providing all the information required in the time allowed is likely to be challenging. For more information or assistance, please contact or

LME and Spectron issue: following our report in FReD This Week on 3 March, we have produced a note about the action and Spectron's subsequent request that the interim measures imposed should be lifted. For further information, please contact

REITs: We have produced a budget update on REITS. For a copy of the newsflash, please contact or

Money Laundering: How is your systems and controls review progressing? We have produced two briefing note on the JMLSG 2006 Guidance and an additional note on the effects of the new Guidance and FSA requirements on senior management. For a copy of the notes, or if you have any queries, please contact, or .

Commission payment cards inquiry: We have produced further information on the Commission's payment cards inquiry. If you would like further details, please contact


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