European Union: Financial Regulatory Developments (FReD) - June 26, 2015

HEADLINES

  • Council agrees bank structure mandate
  • Treasury consults on PAD implementation
  • PRA and FCA publish new remuneration rules
  • FCA finalises fees
  • FCA and CLLS exchange letters on unfair terms guidance

EUROPEAN UNION AND INTERNATIONAL

Council of the EU (Council)

Council agrees bank structure mandate: The Council has agreed its negotiating position on the draft Regulation on bank structural reform. Key elements of the Council's position are:

  • the Regulation would apply to global systemically important institutions or to entities with total assets of at least €30 billion over the last three years and trading activities of at least €70 billion or 10% of their total assets. These would be divided depending on whether trading activities during the last three years exceed €100 billion. Stricter reporting requirements, a more thorough risk assessment and different supervisory actions would apply to banks exceeding the threshold;
  • the Regulation would not apply to institutions with total eligible deposits of less than 3% of their total assets, or total eligible retail deposits of less than €35 billion;
  • the Regulation would not initially apply to sovereign debt instruments but the Commission would review this; and
  • to provide two options for addressing excessive risk stemming from trading activities: either using national legislation requiring core retail activities to be ring-fenced, or through measures national regulators impose in accordance with the Regulation.

The Council said the incoming Luxembourg presidency could now start to negotiate with the European Parliament. (Source: Council Agrees Bank Structure Mandate)

Contact: Michael Wainwright or Rosali Pretorius

European Banking Authority (EBA)

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

Contact: Rosali Pretorius or Michael Wainwright

EBA publishes shadow banking responses: EBA has published the responses to its consultation on limits on exposures to shadow banking. EBA received 47 responses from a range of contributors. (Source: Guidelines on Limits on Exposures to Shadow Banking: Responses)

Contact: Rosali Pretorius or Michael Wainwright

EBA releases amended LCR ITS: EBA has published its updated Implementing Technical Standards (ITS) on supervisory reporting of the liquidity coverage ratio (LCR) for EU credit institutions. The ITS contain new templates and instructions for credit institutions on capturing all the necessary LCR items and adequately ensuring supervisory reporting of the LCR. These new templates and instructions will apply only to credit institutions and not to investment firms who will continue reporting the LCR items using the current instructions and templates. The new instructions and templates will apply as of the application date of the ITS, which will be specified when they appear in the OJEU. (Source: EBA Issues Amended Technical Standards on Reporting of Liquidity Coverage Ratio)

Contact: Rosali Pretorius or Michael Wainwright

EBA issues equivalence recommendation: EBA has published a recommendation setting out its opinion on the confidentiality regime of several non-EU supervisory authorities to help their participation in supervisory colleges overseeing international banks, led by EU supervisors. The non-EU authorities were reviewed on the basis of their treatment of the notion of confidential information, professional secrecy requirements and restrictions on the use and disclosure of confidential information. The recommendation covers the authorities of: Bosnia and Herzegovina, Brazil, Canada, China, FYR Macedonia, Mexico, Montenegro, Serbia, Singapore, Switzerland, Turkey and the US. EBA looked specifically at ensuring that each non-EU authority is subject to a confidentiality regime equivalent to the one provided in the EU by the Capital Requirements Directive (CRD4). (Source: EBA Recommendation on the Equivalence of Confidentiality Regimes)

Contact: Rosali Pretorius or Michael Wainwright

European Securities and Markets Authority (ESMA)

ESMA postpones CSDR technical standards: ESMA has written to the Commission to inform it that it intends to delay its draft technical standards for the Central Securities Depositories Regulation (CSDR) until September. They were due for delivery on 18 June. (Source: ESMA Requests Delay to CSDR Technical Standards)

Contact: Rosali Pretorius or Luca Salerno

ESMA issues CRA submission guidelines: ESMA has issued guidelines on periodic information to be submitted to it by credit rating agencies (CRAs). The guidelines set out the quarterly deadlines for the submission of information to ESMA as well as providing detailed clarification of the content that ESMA expects. (Source: Guidelines on Periodic Information to be Submitted to ESMA by CRAs)

Contact: Rosali Pretorius or Michael Wainwright

European Central Bank (ECB)

ECB looks at strengthening EMU: ECB has published a report by the presidents of five European institutions (the Council, Commission, EP, Eurogroup and ECB) which looks at further integration of the euro area. (Source: ECB Looks at Strengthening Euro)

Contact: Michael Wainwright or Juan Jose Manchado

ECB launches T2S: ECB has launched TARGET2 securities (T2S), a platform enabling integrated securities settlement across Europe. The Bank of Greece's depository for government bonds, the depository of the Malta Stock Exchange, Romania's Depozitarul Central and SIX-SIS of Switzerland are now connected to T2S. Italy will be next on 31 August. Three more groups of markets will follow in stages, and the full complement, covering a total of 21 European countries, will have migrated by February 2017. (Source: ECB Launches TARGET2 Securities)

Contact: Rosali Pretorius or Michael Wainwright

Joint Committee of ESAs (Joint Committee) (EBA/EIOPA/ESMA)

Joint Committee launches KIDs discussion: The Joint Committee has issued a discussion paper on risk, performance scenarios and cost disclosures for Key Information Documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The paper comprises a section on risk and reward and a section on costs. The Joint Committee suggests several different methodological options for each element of disclosure. The consultation closes on 17 August. (Source: Joint Committee Launches Discussion on PRIIPs KIDs)

Contact: Nicholas Ralph or Michael Wainwright

Official Journal of the European Union (OJEU)

Own funds RTS regulation in OJEU: A delegated Regulation on Regulatory Technical Standards (RTS) for assessing the materiality of extensions and changes of internal approaches when calculating own funds requirements for market risk under the Capital Requirements Regulation (CRR) has been published in the OJEU. (Source: Delegated Regulation as Regards RTS for Assessing the Materiality of Extensions and Changes of Internal Approaches When Calculating Own Funds Requirements for Market Risk)

Contact: Rosali Pretorius or Michael Wainwright

UK GOVERNMENT AND PARLIAMENT

HM Treasury

Treasury consults on PAD implementation: Treasury is consulting on UK implementation of the Payment Accounts Directive (PAD). It notes the UK had already addressed several of the areas the PAD covers, and that its aim during negotiations had been to align PAD as closely as possible with UK requirements.  Treasury has decided it will not make use of the option to extend the application of PAD so will apply it only where strictly required. The only exception is where UK policy on basic bank accounts already goes further than PAD, and here Treasury proposes to keep the current rules so far as not inconsistent with PAD. Treasury plans to implement PAD through secondary legislation (including secondary legislation amending parts of the Financial Services and Markets Act and Financial Services Banking Reform Act), and has published with the consultation draft regulations, which copy out the relevant PAD text so closely as possible. Key elements of PAD include:

  • comparison of fees and charges: FCA will lead on determining the UK's provisional national list of the most representative services linked to payment accounts;
  • comparison websites: Treasury will require the Money Advice Service to operate a comparison website complying with PAD's minimum requirements and does not expect any other providers to incur costs as a result of PAD;
  • packaged accounts: Treasury plans to impose the PAD obligations on payment service providers only where it is possible for a  consumer to purchase the payment account and the additional service from the same provider, but wants to understand the potential costs this would entail;
  • switching:  Treasury proposes complementary roles for the PSR and FCA in relation to designation of compliant switching arrangements and monitoring and enforcement. Treasury also seeks views on the success and operation of the Current Account Switching Service; and
  • basic bank accounts: Treasury proposes changes to the current UK requirements on basic bank accounts in three areas: eligibility criteria, grounds for refusal to open or terminate a basic bank account and basic bank account fees, charges and costs.

Treasury seeks comments by 3 August. It must adopt implementing laws by 18 September 2016, and these will be followed by EBA guidelines and technical standards, which Member States will need to comply with from late 2017/early 2018. (Source: Treasury Consults on PAD Implementation)

Contact: Nicholas Ralph or Emma Radmore

Office of Gas and Electricity Markets (Ofgem)

Ofgem publishes REMIT feedback: Ofgem has published the results of its consultation on a review of the Regulation on Energy Market Integrity and Transparency (REMIT) procedural guidelines and REMIT penalties statement. It explains the minor changes that Ofgem intends to make and outlines how the concerns raised by respondents to the consultation have influenced these amendments. Respondents included National Grid, SSE, EDF Energy, E.ON, Npower and Scottish Power. (Source: Consultation Decision: Review of REMIT Procedural Guidelines and REMIT Penalties Statement)

Contact: Luca Salerno or Tom Harkus

UK FINANCIAL SERVICES AND MARKETS REGULATORS

Financial Conduct Authority (FCA)

PRA and FCA publish new remuneration rules: FCA and PRA have published a joint policy statement on new remuneration rules, together with new rules, guidance and policy papers. The changes apply to banks, building societies and PRA-designated investment firms, including UK branches of non-EEA firms. They apply to all "material risk takers" in these firms, including senior managers designated under the new senior managers regime (SMR). The main changes:

  • extend deferral to seven years for senior managers, five years for PRA-designated risk managers with senior, managerial or supervisory roles, and three to five years for other material risk takers;
  • introduce clawback for periods of seven years from the award of variable remuneration for material risk takers, with the possibility to add three further years for senior managers who are under investigation at the end of the seven-year period;
  • ban variable pay for non-executive directors;
  • clarify that firms which have taxpayer support cannot award any variable pay or discretionary payments to their management; and
  • strengthen PRA requirements on dual-regulated firms so there is more effective risk adjustment on variable remuneration.

The rules will apply from 1 July 2015, except for those on clawback and deferral, which will apply to variable remuneration on performance periods beginning on or after 1 January 2016. Changes to the rules comprise:

  • for PRA's Rulebook, a Remuneration Part of the Rulebook with consequential changes to the Handbook (including repealing chapter 19A of the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC)). PRA has published a supervisory statement alongside the changes, which it says firms should read in conjunction with its two existing supervisory statements on remuneration, which it has updated to reflect the new rule references;
  • for FCA's Handbook, a new chapter SYSC 19D, containing the dual-regulated firms' Remuneration Code. Chapter 19A becomes the Remuneration Code for "IFPRU" firms. FCA has also published new general guidance on proportionality and has amended two existing pieces of guidance, as well as non-Handbook guidance on the application of malus to variable remuneration and ex-post risk adjustment; and
  • for both regulators, minor changes to the rule on the bonus cap to more closely reflect the wording in the CRD, without changing policy.

(Source: PRA and FCA Publish New Remuneration Rules)

Contact: Michael Wainwright or Rosali Pretorius

FCA finalises fees: FCA has published its feedback and final rules on fees and levies for 2015/16. Many respondents to FCA's consultation complained about the overall increase in the annual funding requirement, but FCA has not changed the amount, which is an increase of 7.9% from last year. It says this is mainly driven by a 6% increase in its ongoing regulatory activities, which include delivering on its competition objective and investing in Project Innovate. FCA also received complaints on its proposals for some fee-blocks but has made minimal change from its consultation figures. (Source: FCA Finalises Fees)

Contact: Rosali Pretorius or Tom Harkus

FCA and CLLS exchange letters on unfair terms guidance: The City of London Law Society (CLLS) wrote to FCA in April asking it to explain why it had withdrawn its guidance on unfair terms from its website and to ask what firms were supposed to do in its absence. FCA responded that it had explained the reasons for withdrawal, amongst which was the European Court's decision in Jean-Claude Van Hove v. CNP Assurances SA – see FReD 1 May), and said that firms should seek their own legal advice. (Source: Letter to FCA Regarding Withdrawal of Unfair Contract Terms Guidance (Dated 22 April 2015) and Response From FCA to CLLS re Withdrawal of Unfair Contract Terms Guidance (Dated 19 May 2015))

Contact: Nicholas Ralph or Juan Jose Manchado

FCA publishes Market Watch: FCA's latest Market Watch includes items on:

  • trade volume advertising: FCA is aware of the reasons and circumstances in which firms wish to inform the market of volumes but has noted risks of market abuse. It suggests questions firms should consider when advertising trading volume to check their actions comply with FCA rules and will not constitute market abuse;
  • FCA's observations from suspicious transaction reporting (STR) supervisory visits: FCA noted that STR submission is not consistent across all areas of industry and says submission levels are too low in places. It says the quality of STRs it receives is good and it is not looking to reduce quality nor encourage defensive reporting. Its advice focuses on training firms give, specifically to front-office staff, to ensure they escalate suspicions appropriately. It also looks at the importance of calibrating surveillance systems correctly;
  • Direct Electronic Access (DEA) pre-trade controls: FCA has carried out a review, and noted that certain market incidents could have been avoided had firms implemented proper controls. It will continue to monitor compliance, and notes that the RTS ESMA is developing in the context of the revised Markets in Financial Instruments Directive (MiFID 2) will formalise and expand on existing guidelines.

(Source: Market Watch Issue 48)

Contact: Rosali Pretorius or Luca Salerno

FCA consults on mutuals: FCA is consulting on a second set of issues relating to its duties to ensure mutual societies registered as co-operative community benefit societies are complying with appropriate rules. It seeks feedback on its:

  • views on the setting of interest rates;
  • concept of a 'bona fide co-operative society'; and
  • names policy.

It asks for responses by 14 August. (Source: FCA Consults on Mutuals)

Contact: Rosali Pretorius or Juan Jose Manchado

FCA supports Treasury on pension freedoms: FCA and Treasury have exchanged letters confirming that:

  • in July Treasury will consult on how to remove barriers to pension transfers. The consultation will consider excessive early exit penalties and introducing a standardised transfer process;
  • between June and August, FCA will gather evidence of prevalence and level of exit fees and charges across the industry to develop a solid evidence base for proportionate intervention; and
  • FCA will support Treasury further by assessing the process and timing barriers which may face consumers seeking to transfer with a view to informing the design of a new standardised process.

(Source: Exchange of Letters Confirming FCA Support on Pension Freedoms)

Contact: Michael Wainwright or Juan Jose Manchado

FCA to revoke investment through nominees rules: FCA is consulting on revoking rules and guidance scheduled to come into force later this year that would require certain disclosures and other actions by firms that are "intermediate unitholders" in authorised investment funds. FCA has already postponed implementation of the changes once, and now believes the rationale for the changes will be affected by planned papers on communications with customers and on an asset management study. As a result, it plans to revoke the rules relating to notifications to beneficial owners about short reports, unitholder voting rights and other fund information, and will reconsider the rules in 2016. FCA asks for comment by 17 July. (Source: FCA to Revoke Investment Through Nominees Rules)

Contact: Rosali Pretorius or Tom Harkus

FCA issues add-on remedies paper: FCA has published a discussion paper on "value measures" in relation to the remedies proposed to address general insurance add-ons. The paper looks at ways to assess the value of a product in these markets and suggests three options for a value measure. FCA seeks comments by 24 September. (Source: FCA Issues Add-On Remedies Paper)

Contact: Michael Wainwright or Nicholas Ralph

Jail for unauthorised CIS operator: Adam Hawkins has been sentenced to 6 years and 9 months imprisonment for his involvement in operating an unauthorised collective investment scheme through three land banking companies as a result of which over 110 investors lost at least £4.3 million. FCA had already announced the sentences for seven other individuals involved in the schemes, run as Plott UK, European Property Investments (UK) Ltd and Stirling Alexander Limited. (Source: Jail for Unauthorised CIS Operator)

Contact: Rosali Pretorius or Tom Harkus

Prudential Regulation Authority (PRA)

PRA and FCA consult on credit unions: PRA and FCA are consulting on the reform of the legacy Credit Unions Sourcebook (CREDS). PRA proposes to delete CREDS from its designated rules and replace it with a new Rulebook part called Credit Unions. This would deal with the safety and soundness of credit unions. FCA will retain those parts of CREDS that relate to its statutory responsibilities, and so will deal with conduct of business.  FCA does not propose significant changes to its version of CREDS. PRA will transform the current CREDS into its new Rulebook style, and will also introduce changes to limit any investors' aggregate holding to the compensation limit, and introduce a new flexible framework for additional activities. Separately, FCA has explained how it has simplified its approach to the authorisation of credit unions using the "mobilisation" option already available to banks. Under mobilisation, PRA and FCA will work together with the applicant to make the authorisation process simpler and aid competition. PRA and FCA seek comments on their proposed rule changes by 30 September. (Source: PRA and FCA Consult on Credit Unions)

Contact: Nicholas Ralph or Juan Jose Manchado

Competition and Markets Authority (CMA)

CMA publishes consumer data findings: CMA published its report into the collection and use of consumer data, following its call for information issued in January. The report has found:

  • there is scope for a wide range of benefits for both firms and consumers from the use of data. Firms can gain from better customer targeting, service improvements, logistical and transaction efficiencies and fraud prevention. Consumers can receive more personalised services, wider choice, and more relevant advertising and targeted offers;
  • these benefits will only be realised if consumers provide data and firms use it in transparent and competitive markets;
  • all kinds of data about consumers is routinely collected by businesses, the use of which many consumers do not understand. Many have concerns about data being lost or misused; and
  • there are concerns about the effectiveness of privacy policies, terms and conditions and cookie notices in enabling consumers to control the collection and use of their data.

Based on these findings, the report identifies elements that could support well-functioning markets and notes that where there are breaches of regulations, regulators must enforce proportionately and effectively. (Source: CMA Publishes Findings on the Commercial Use of Consumer Data)

Contact: Nick Graham or Simon Elliott

Financial Ombudsman Service (FOS)

Ombudsman News looks at middlemen and unregulated schemes: The June edition of "Ombudsman News" contains an interview with Garry Wilkinson, principal ombudsman and director of new services at FOS on the subject of "Moving with the Times". It also examines cases where "middlemen" have led to consumer complaints and issues arising from investments in unregulated collective investment schemes. (Source: Ombudsman News, Issue 125, May/June 2015)

Contact: Emma Radmore or Josie Day 

Financial Services Complaints Commissioner (FSCC)

FSCC publishes annual report: The FSCC, which considers complaints against the Bank of England (BoE), PRA and FCA, has published its annual report for 2014-2015. It both dealt with, and concluded, fractionally more complaints than it had in the previous year. Approximately half the complaints concerned FCA, with only one about BoE and two about PRA. Around one third of the complaints were not for the FSCC to deal with and it redirected them. Around two thirds of the cases did not result in a full investigation, and on the whole the FSCC agreed with the conduct of the authorities while making some criticisms on the way they had addressed or communicated their investigations. In only three cases did the FSCC overturn FCA's ruling. (Source: FSCC Publishes Annual Report)

Contact: Nicholas Ralph or Tom Harkus

Payment Systems Regulator (PSR)

PSR consults on card payments: PSR has launched a call for evidence on card payment systems. The call for evidence is designed to:

  • develop PSR's understanding of card systems fees and how they may be affected by reactions to the Interchange Fee Regulation (IFR);
  • build PSR's understanding of the provisions on business rules and functional separation included in the IFR and their potential impacts;
  • develop PSR's policy for monitoring compliance with and enforcing the IFR, subject to PSR being designated as a competent authority; and
  • gather information on other possible concerns parties may have relating to indirect access, transparency of information and the decision-making process, governance and how service-users' interests are represented in decision-making in card systems.

PSR asks for responses by 31 July. (Source: Call for Input: Card Payment Systems)

Contact: Nicholas Ralph or Josie Day

OTHER REGULATORS/AUTHORITIES/INDUSTRY ASSOCIATIONS

Association of British Insurers (ABI)

ABI outlines pension freedoms plan: ABI has written to the Chancellor of the Exchequer and CEO of FCA setting out its action plan for tackling the implementation challenges with the new pension freedoms. The plan includes:

  • a proposal to create a new "customer control" mechanism, replacing the legislative requirement to pay for regulated advice where customers have pension savings that have Guaranteed Annuity Rates and are valued at £30,000 or more and allowing customers to access their pot without having to pay for advice;
  • FCA to conduct a broader review of the balance of responsibility between customers and providers in light of pension flexibility;
  • FCA to set out clearly those products and circumstances where advice should be taken;
  • providers to work with FCA and Department of Work and Pensions to clarify the definition and valuation of safeguarded benefits, by a change in the law;
  • ABI and its members to start work on developing standardised language on products and charges to help customers consider their options; and
  • ABI and its members to ensure clear, consistent communications to customers on the products and services available.

(Source: ABI Sets Out Action Plan to Help Customers Get Most From Pension Freedoms)

Contact: Michael Wainwright or Juan Jose Manchado

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

Basel Committee issues NSFR disclosure standards: The Basel Committee has issued the final Net Stable Funding Ratio (NSFR) disclosure standards, following the NSFR standard in October 2014. Internationally active banks in all member jurisdictions will have to publish their NSFRs according to a common template. The standards will apply from the date of the first reporting period after 1 January 2018. (Source: Basel Committee Issues NSFR Disclosure Standards)

Contact: Rosali Pretorius or Michael Wainwright

International Association of Insurance Supervisors (IAIS)

IAIS consults on MicroTakāful: IAIS is consulting on issues in respect of MicroTakāful and its role in enhancing financial inclusion in the Muslim community. This draft paper intends to:

  • identify the current practices and models used for offering MicroTakāful products, and the challenges and potential issues arising from transactions in the products;
  • review the current regulatory framework for the sector in various jurisdictions and suggest initiatives to strengthen the framework and enhance financial inclusion through the Takāful sector; and
  • provide guidance to the supervisors in putting in an enabling environment for the overall development and growth of the sector.

The paper focuses on four major themes to address the regulatory and supervisory issues within the Takāful industry:

  • Corporate Governance;
  • Financial and Prudential Regulation;
  • Transparency, Reporting and Market Conduct;
  • Supervisory Review Process.

IAIS asks for views by 6 August. (Source: Draft Paper on Issues in Regulation and Supervision of MicroTakāful)

Contact: Michael Wainwright or Tom Harkus

IAIS consults on inclusive insurance: IAIS published a draft Issues Paper on Conduct of Business in Inclusive Insurance. The paper gives a description of the features of the inclusive insurance market. It then discusses the various elements of the inclusive insurance life cycle and presents the issues that have been identified from a conduct of business perspective. The term "life cycle" is used as reference to the specific elements of an insurance product from its development as a product, its distribution, disclosure of information, customer acceptance, premium collection, and claims settlement to the handling of complaints by the insurer. IAIS asks for comments by 6 August. (Source: Draft Issues on Conduct of Business in Inclusive Insurance)

Contact: Michael Wainwright or Juan Jose Manchado

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Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.