FIG Bulletin Recent developments 24 January 2020

2

General 4

Financial advice firms: FCA Dear CEO letter 4

Financial advice firms: FCA Assessing Suitability Review 2 4

Use of cloud services by banks and insurers: BoE article 4

Taxonomy Regulation: House of Lords EU Committee seeks clarification from Treasury 4

Bitcoin Commercial Court case: AA v Persons Unknown [2019] 5

CRD IV: EBA peer review report on NCAs' application of RTS on identifying material risk takers 5

PRIIPs Regulation: EU trade associations concerns about ESAs KID reform consultation 5

Non-bank financial intermediation: FSB 2019 report 6

GFIN launches new website and reports on cross-border testing pilot 6

Brexit 7

FCA Update 7

Withdrawal Agreement: European Commission updates explanatory slides 7

Law enforcement and judicial cooperation in criminal matters: European Commission slides 7

Hogan Lovells Brexit resources 8

Banking and Finance 9

Regulatory reporting: PRA to update branch return form 9

Central bank group launched to assess cases for central bank digital currencies 9

SSM firms' variable remuneration policies: ECB Supervisory Board letter 9

Dividend distribution policies: ECB recommendation 10

Materiality threshold for credit obligations past due for less significant institutions: ECB consultation 10

EU-wide banking sector stress test: EBA discussion paper 10

Consumer Finance 12

Mortgage prisoners: FCA calls on larger lenders to offer modified affordability assessments 12

3

Repeat lending: FCA creditworthiness rules 12

Credit unions: FCA speech 12

Loyalty penalties: CMA 12-month progress update 12

Payment Services 13

SCA: FCA update on use of eIDAS certificates 13

Confirmation of Payee: PSR CP20/1 13

SEPA cards standardisation volume: version 9.0 in effect 14

PSD2: EBA updates guidelines on fraud reporting 14

Securities and Markets 15

Securitisation Regulation: ESMA consults on use of "no data options" in reporting 15

Synchronising clocks used for timestamping with coordinated universal time: IOSCO final report 15

Insurance 16

Access to protection insurance for people with pre-existing medical conditions or disabilities: AIWG agreement 16

Funds and Asset Management 17

Asset management supervision strategy: FCA Dear CEO letter 17

Alternatives supervision strategy: FCA Dear CEO letter 17

ELTIF Regulation: ICMA AMIC discussion paper 17

Managing fund liquidity risk in Europe: ICMA and EFAMA update 18

4

General

Financial advice firms: FCA Dear CEO letter

The Financial Conduct Authority (FCA) has published a Dear CEO letter to financial advisers, setting out the FCA's approach to tackling key areas of concern in financial advice firms and the actions those firms are expected to take. The FCA has identified four key ways in which consumers of financial advice may be harmed:

• receiving unsuitable advice for their needs and objectives; • falling victim to pension and investment scams; • not receiving redress as a result of the non-payment of Financial Ombudsman Service

(FOS) awards and/or failing firms being unable to compensate consumers; and • paying excessive fees or charges for products and services.

The FCA states that it will have an increased focus on these areas over the next two years.

The range of actions flagged in the letter that firms need to undertake is wide and includes focusing on suitability assessments (see also the FCA's Assessing Suitability Review 2, reported below), defined benefit transfer advice, having adequate financial resources, informing the FCA about the approval of financial promotions, implementing the senior managers and certification regime, and preparing for Brexit.

Firms are expected to discuss the Dear CEO letter at board level and agree what actions to take. Principal firms are also expected to share the contents of the letter with their appointed representatives.

Financial advice firms: FCA Assessing Suitability Review 2

The FCA has published a statement about its second review of the market for pensions and investment advice, which it calls Assessing Suitability Review 2. The review will focus on the advice that consumers receive around retirement income.

The FCA aims to publish a report setting out the results of the review in 2020.

Use of cloud services by banks and insurers: BoE article

The Bank of England (BoE) has published a Bank Overground article, "How reliant are banks and insurers on cloud outsourcing?", presenting data from a survey of the use of cloud services by banks and insurers.

The BoE surveyed the 30 largest banks and 27 largest insurers that it supervises to understand how they use the cloud. The survey shows that banks and insurers mainly use cloud outsourcing to run software and access additional processing capacity (Software-as-a-Service or SaaS) or to support IT infrastructure (Infrastructure-as-a-Service or IaaS). The survey indicates that banks use cloud outsourcing more widely than insurers. For both banks and insurers, the use of SaaS outweighs the use of IaaS.

The results of the survey will be used to inform and adjust the BoE's supervisory approach to cloud oversight.

5

Taxonomy Regulation: House of Lords EU Committee seeks clarification from Treasury

The House of Lords European Union Committee has published a letter from Lord Kinnoull, Committee Chair, to John Glen, Economic Secretary to the Treasury, on the proposed Regulation on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation).

Political agreement was reached by the European Parliament and the Council of the EU on the Taxonomy Regulation in December 2019. If the file is approved in the coming months and the UK-EU withdrawal agreement is passed, the primary legislation will become binding in the UK during the transition period. However, Lord Kinnoull notes that the associated secondary legislation will only start to apply from the end of 2021, which raises the possibility of future regulatory divergence. Among other things, Lord Kinnoull asks if the government will seek to align with the relevant secondary legislation after the end of the transition period.

Bitcoin Commercial Court case: AA v Persons Unknown [2019]

In AA v Persons Unknown [2019] EWHC 3556 (Comm) (17 January 2020), the Commercial Court allowed a private hearing of an insurer's application for injunctive relief in proceedings following computer hacking and payment of a ransom in Bitcoin. The defendants had demanded or held or controlled the Bitcoin.

The various claims against the defendants were for possession of property belonging to the insurer or for wrongfully extorting it. Importantly, among other things, the judge considered that a cryptoasset such as Bitcoin was a form of property capable of being the subject of a proprietary injunction, accepting the analysis in the UK Jurisdictional Taskforce (UKJT) Legal statement on cryptoassets and smart contracts (November 2019).

CRD IV: EBA peer review report on NCAs' application of RTS on identifying material risk takers

The EBA has published a peer review report on the application by national competent authorities (NCAs) of the regulatory technical standards (RTS) on the criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile (Commission Delegated Regulation (EU) 604/2014).

The peer review aimed to assess the supervisory practices followed by NCAs, and measures taken regarding the RTS. The review panel did not identify any deficiencies or major issues during the period 1 January 2015 to 31 December 2017. However, it identified a number of best practices and weaknesses on the part of NCAs.

To improve the consistent application of the RTS and harmonise NCAs' practices, the review panel suggests carrying out a targeted review of the RTS' application following their amendment under the CRD V Directive. However, it considers there should be a period of time before this review takes place, to allow supervisors and institutions to implement the CRD V Directive and the amended RTS.

PRIIPs Regulation: EU trade associations concerns about ESAs KID reform consultation

Insurance Europe has published a letter written jointly with the Association of Mutual Insurers and Insurance Co-operatives in Europe (amice), the European Banking Federation (EBF) and

6

the European Fund and Asset Management Association (EFAMA), to the European Commission. The associations raise serious concerns with the review by the European Supervisory Authorities (ESAs) of the RTS under the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs Regulation). In the associations' view the ESAs' current approach to amending the PRIIPs key information document (KID) is fundamentally flawed and will not meet the PRIIPs Regulation's aim of providing information that is fair, clear and not misleading.

The associations set out their concerns in the letter.

Separately, the ESAs have published the non-confidential responses to their consultation (which closed on 13 January 2020) on proposed amendments to the KID.

Non-bank financial intermediation: FSB 2019 report

The Financial Stability Board (FSB) has published its global monitoring report on non-bank financial intermediation 2019. The report sets out the results of the FSB's annual monitoring exercise to assess global trends and risks from non-bank financial intermediation (NBFI).

The annual monitoring exercise is an important part of the FSB’s policy framework to enhance the resilience of NBFI. It covers data up to the end of 2018 from 29 jurisdictions, which together represent over 80% of global GDP. The FSB focuses particularly on those parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage.

The FSB will continue to monitor and assess developments to ensure that non-bank financing is resilient.

GFIN launches new website and reports on cross-border testing pilot

Launched in January 2019, the Global Financial Innovation Network (GFIN) is an international network of financial regulators and related organisations committed to supporting financial innovation in the best interests of consumers. It seeks to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas. This includes the ability to apply to join a pilot for firms wishing to test innovative products, services or business models across more than one jurisdiction. The GFIN also aims to create a new framework for cooperation between financial services regulators on innovation-related topics, sharing different experiences and approaches.

The GFIN has published a report reflecting on the pilot phase, the GFIN's achievements and the challenges it has faced. The report includes next steps and solutions to improve cross-border testing for the next phase.

GFIN has also launched a new website.

Further announcements on the timing of the new cohort will be made in due course.

7

Brexit

FCA Update

In its latest regulation round-up for January 2020, the FCA sets out some reminders for firms relating to Brexit. Latest updates will appear on the relevant FCA website pages.

• The Temporary Permissions Regime (TPR) notification window will close on 30 January, as will the notification window for fund managers under the Temporary Marketing Permission Regime (TMPR). As the government has not yet announced its plans for the period after 31 December 2020, the FCA will provide further details on its approach to the end of the implementation period in due course.

• All MiFID systems will remain connected to the European Securities and Markets Authority (ESMA) during the implementation period. The FCA's new Financial Instruments Reference Data System (FCA FIRDS) will continue to publish in parallel to ESMA's systems, but should only be used by firms for testing purposes. The FCA's version of ESMA’s Financial Instruments Transparency Reference System (FCA FITRS) will be suspended until further notice. The FCA will resume FCA FITRS, as appropriate, closer to the end of the implementation period.

• For credit rating agencies, during the implementation period, EU law will continue to apply in the UK and ESMA will continue to operate as the direct supervisor of UK CRAs. Additionally, any new EU legislation that takes effect before the end of the implementation period will also apply to the UK. UK firms using credit ratings for regulatory purposes can continue to use EU ratings during the implementation period in line with the existing rules.

• During the implementation period, ESMA will continue to operate as the direct supervisor of UK trade repositories (TRs). Additionally, any new EU legislation that takes effect before the end of the implementation period will also apply to the UK. The FCA's Trade Repository Derivatives Data Store (TRDDS) is now in operation and the FCA will continue to engage with TRs on submission of EMIR data to TRDDS (under FCA's current article 81 data mandate).

Withdrawal Agreement: European Commission updates explanatory slides

The European Commission has published updated slides explaining the revised EU-UK Withdrawal Agreement.

Law enforcement and judicial cooperation in criminal matters: European Commission slides

The European Commission has published slides from its internal presentation to the Council Working Party on 16 January 2020. The presentation covers the future of law enforcement and judicial cooperation in criminal matters between the UK and the EU post-Brexit and cover four areas for negotiation:

• the exchange of security data; • operational cooperation; • anti-money laundering and counter terrorism cooperation; and • combatting illegal migration.

8

Hogan Lovells Brexit resources

Given the moving Brexit target at the moment we recommend that for an up-to-date take on Brexit impact please try the Hogan Lovells Brexit Hub, an open resource online.

Hogan Lovells Brexit Hub

Twitter

9

Banking and Finance

Regulatory reporting: PRA to update branch return form

The Prudential Regulation Authority (PRA) has posted an update on its regulatory reporting webpage for banks, building societies and investment firms.

The PRA states that it has identified that the Branch Return Form, previously published on 12 September 2019, contains incorrect validations in Part 3. The PRA has published a corrected version of the template and expects to consult on making the changes in March 2020 with a view to the revisions taking effect from May 2020.

Central bank group launched to assess cases for central bank digital currencies

The Bank of England (BoE) has announced the launch of a central bank group to assess potential cases for central bank digital currencies (CBDCs). The group comprises the BoE, the Bank of Canada, the Bank of Japan, the Sveriges Riksbank, the Swiss National Bank, the European Central Bank (ECB) and the Bank for International Settlements (BIS). The group will coordinate with the FSB and the Committee on Payments and Market Infrastructures (CPMI).

The group will assess the potential cases for CBDCs in their home jurisdictions and share their experiences. In particular, the group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies.

SSM firms' variable remuneration policies: ECB Supervisory Board letter

The ECB has published a letter from Andrea Enria, ECB Supervisory Board Chair, on the variable remuneration policies of credit institutions in the single supervisory mechanism (SSM).

The ECB underlines the need for firms to:

• adopt a prudent, forward-looking stance when deciding on a remuneration policy; • duly consider the potentially detrimental impact of their remuneration policy on their

ability to maintain a sound capital base, especially taking into account the transitional requirements set out in the CRD IV Directive and the transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds under Article 473a of the Capital Requirements Regulation (CRR);

• when making a variable remuneration award (including the use of malus and clawback arrangements) under its remuneration policy, apply a policy that is consistent with a conservative (at a minimum, a linear) path towards its fully-loaded capital requirements, including the combined buffer requirement, and outcomes of the supervisory review and evaluation process (SREP);

• take into account the potential impact on capital demand due to future changes in the EU's legal, regulatory and accounting frameworks; and

• keep their ECB joint supervisory team regularly informed of any decisions regarding their remuneration policy.

The ECB advises that, in the absence of specific information to the contrary, the future Pillar 2 requirements and Pillar 2 guidance used in capital planning are expected to be at least as high as the current levels.

10

Dividend distribution policies: ECB recommendation

The ECB has published a recommendation, aimed at significant supervised entities and significant supervised groups, as defined in paragraphs (16) and (22) of Article 2 of the SSM Framework Regulation on dividend distribution policies. The recommendation relates to credit institutions paying dividends in 2020 for the 2019 financial year.

The ECB details in the recommendation that credit institutions need to continue preparing for a timely and full application of the CRR, the CRD IV Directive and the end of the transitional period provided by the IFRS 9 Regulation.

Credit institutions that are not able to comply with the recommendation because they consider themselves legally required to pay out dividends should contact their joint supervisory team immediately.

Materiality threshold for credit obligations past due for less significant institutions: ECB consultation

The ECB is consulting on a draft guideline on the definition of the materiality threshold for credit obligations past due for less significant institutions (LSIs).

The ECB has published a press release and set of FAQs alongside the consultation. It explains that the materiality threshold has been designed to align with the definition given by the ECB for significant institutions in Regulation (EU) 2018/1845 of the ECB on the exercise of the discretion under Article 178(2)(d) of the CRR in relation to the threshold for assessing the materiality of credit obligations past due (ECB/2018/26) (SI Regulation). The aim of the new guideline is to ensure consistency in the way defaulted exposures are defined both among LSIs and across the SSM, thereby increasing their comparability.

The guideline sets a single materiality threshold for all LSIs within the SSM, both for retail and non-retail exposures, irrespective of the method used for the calculation of capital requirements. The materiality threshold will comprise an absolute component, which is expressed as a specific maximum amount for the sum of all amounts past due owed by an obligor. It will also have a relative component, which is expressed as a percentage reflecting the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor for the credit institution, the parent undertaking, or any of its subsidiaries.

The consultation closes on 17 February 2020.

The SI Regulation will need to be slightly adjusted to ensure full alignment with the CRR. Therefore, a corrigendum to the SI Regulation will be adopted together with the guideline to ensure that the definitions of the materiality threshold in the SI Regulation and the guideline are identical.

EU-wide banking sector stress test: EBA discussion paper

The European Banking Authority (EBA) has published a discussion paper on future changes to the EU-wide banking sector stress test.

Most of the features of the EU-wide stress test have remained unchanged since establishment. The EBA has, in the past, organised numerous workshops and other formal and informal interactions with stakeholders in order to improve the stress test methodology and processes. It says that, while such feedback was useful for deciding on the final stress test package in each

11

exercise, there has never been a structured discussion on the post-crisis long-term strategy for the EU-wide stress test and on possible fundamental changes to the framework. The EBA has therefore decided to start assessing potential longer term changes to the EU-wide stress test approach.

The changes also aim to address some of the suggestions of the European Court of Auditors, which audited the 2018 EU-wide stress test and provided recommendations that might require a redesign of the current framework.

The EBA is holding a public hearing on the discussion paper on 21 February 2020. The deadline for responses to the discussion paper is 30 April 2020.

The discussion paper is the first formal step for the EBA in assessing possible changes to the EU-wide stress test. It will be followed by an assessment of the potential options. However, if the final assessment indicates that changing the current framework would bring very few benefits, or would reduce its current advantages, the EBA will retain the EU-wide stress test framework in its current form.

12

Consumer Finance

Mortgage prisoners: FCA calls on larger lenders to offer modified affordability assessments

Following its policy statement on changes to the responsible lending rules, the FCA has published a new webpage on Understanding mortgage prisoners, giving further data on the mortgage prisoner population.

The FCA wants as many lenders as possible to offer the modified affordability assessment. It says that evidence so far has shown little desire from larger lenders to adopt the changes. It encourages more lenders to step forward and offer products to mortgage prisoners in the coming three months.

Repeat lending: FCA creditworthiness rules

In its latest regulation round-up for January 2020, the FCA gives some clarification to firms on repeat lending in the high-cost short-term credit (HCSTC) market.

The FCA states that there has been some debate in the HCSTC market about how its creditworthiness rules should apply to repeat lending. The FCA explains that, other than for rollovers, its rules do not prevent firms from issuing more than a particular number of loans to a customer per se. However, they would need to comply with the FCA's creditworthiness rules in doing so, including assessing the affordability risk to the borrower. The FCA says that this is a view shared by all relevant bodies, including the FOS.

The FCA reminds firms of its October 2018 Dear CEO letter, sent to all HCSTC firms. In that letter, the FCA highlighted the risks in relation to repeat borrowing as it could indicate a pattern of dependency on HCSTC that is harmful to the borrower. It says that rigorous affordability assessments are key to avoiding harm in this area, and firms should ensure they are making proportionate and responsible assessments of the sustainability of borrowing.

Credit unions: FCA speech

The FCA has published a speech by its chair, Charles Randell, "Is this the decade of the credit union?", in which Mr Randell made the following key points:

• community-based lending is a key part of growing the supply of affordable credit; • accelerating the growth in credit union membership requires a transformation of the

sector; and • credit unions need governance that is equal to this transformation challenge, while

continuing to protect consumers and prevent financial crime.

Loyalty penalties: CMA 12-month progress update

The Competition and Market Authority (CMA) has published a 12-month progress update following the investigation into the loyalty penalty super-complaint submitted by the Citizens Advice. During the investigation substantial loyalty penalty was identified in the mobile, broadband, household insurance, cash savings and mortgages markets. The update sets out the progress made by Ofcom, the FCA, the CMA and the government based on the CMA's previous recommendations.

13

Payment Services

SCA: FCA update on use of eIDAS certificates

The FCA has updated its webpage on strong customer authentication (SCA) under the revised Payment Services Directive (PSD2). The FCA includes additional guidance on its position on the use of electronic identification, authentication and trust services (eIDAS) certificates.

When the FCA first published the webpage in September 2019, it explained that, in response to concerns about industry readiness to apply SCA for open banking, and to minimise potential disruption to consumers and merchants, it was introducing a six-month adjustment period. The adjustment period lasts until 13 March 2020. During this time, the FCA will not take enforcement action against firms if they do not introduce SCA.

On the updated webpage, the FCA explains that, during the adjustment period, account servicing payment service providers (ASPSPs) are encouraged to allow third party providers (TPPs) that do not yet have an eIDAS certificate and are accessing accounts via application programming interface standards (APIs), to enable the use of equivalent certificates enabling secure identification (one example is an Open Banking certificate).

All ASPSPs should tell TPPs which certificates they will accept during the adjustment period. The FCA encourages use of the Open Banking Implementation Entity's transparency calendar for this purpose.

Following the adjustment period, the FCA expects all ASPSP and TPPs to rely on eIDAS certificates for the purpose of identification. This means that an ASPSP must ensure that its interface is capable of enabling a TPP to identify itself using only its eIDAS certificate.

Additionally, if TPPs agree voluntarily, ASPSPs can also enable TPPs to use a certificate obtained from a provider of an API programme, provided that provider only issues the alternative identification certificate to a TPP that has enrolled with the API programme using its eIDAS certificate to identify itself. The provider of the API programme should continue checking, on behalf of the ASPSP, the status of the TPP's eIDAS certificate with the qualified trust service provider (QTSP).

From 14 March 2020, failure to comply with the requirements for SCA and identification will be subject to full FCA supervisory and enforcement action.

Confirmation of Payee: PSR CP20/1

The Payment Systems Regulator (PSR) has published consultation, CP20/1, proposing to vary the PSR’s Specific Direction 10 on Confirmation of Payee. Specific Direction 10 (SD10) was given by the PSR to members of the UK's six largest banking groups on 19 August 2019 to fully implement Confirmation of Payee by 31 March 2020.

Confirmation of Payee is a name-checking service that is a tool to help prevent authorised push payment (APP) scams and accidentally misdirected payments. The service checks whether the name of the account that a payer is sending money to matches the name they have entered.

According to the PSR, the regulator has always said that exemption requests can be made by the banks under exceptional circumstances and, as it stands, SD10 only makes provision for exemption requests on that basis.

14

The PSR thinks there could be some circumstances where an exemption could be justified, but which would not be considered exceptional. Among other things, therefore, in CP20/1, the PSR proposes to introduce an additional basis for a directed Payment Service Provider (PSP) to ask for an exemption from an obligation under the direction.

The consultation ends on 29 January 2020.

SEPA cards standardisation volume: version 9.0 in effect

The European Cards Stakeholders Group (ECSG) has published version 9.0 of the Single Euro Payments Area (SEPA) cards standardisation (SCS) volume. The volume seeks to ensure the operability and security of cards in Europe by defining a standard set of requirements to enable an interoperable and scalable card and terminal infrastructure across SEPA, based on open international card standards.

Version 9.0 takes immediate effect from 15 January 2020, for a three year period.

PSD2: EBA updates guidelines on fraud reporting

The EBA has published guidelines amending existing guidelines on fraud reporting, made under Article 96(6) of PSD2. The update takes into consideration developments since the previous version of the guidelines. The EBA has also published a consolidated version of the guidelines incorporating the new amendments.

The changes introduce two new data fields for reporting transactions where SCA is not applied for reasons other than an exemption to SCA under Commission Delegated Regulation (EU) 2018/389. The EBA has also made some editorial changes to the guidelines for greater clarity.

The guidelines will be translated into the official EU languages and published on the EBA website. Competent authorities must report whether they comply with the amended guidelines within two months after the publication of the translations. The amendments will apply to the reporting of payment transactions initiated and executed from 1 July 2020.

15

Securities and Markets Securitisation Regulation: ESMA consults on use of "no data options" in reporting

ESMA is consulting on guidelines on securitisation repository data completeness and consistency thresholds. The aim of the guidelines is to help market participants and securitisation repositories to understand ESMA's expected maximum use of "no data options" contained within a securitisation data submission.

The proposed guidelines set out an initial calibration of thresholds to be applied by securitisation repositories when verifying the completeness and consistency of disclosure templates submitted to them under RTS recently published by the European Commission, setting out the key elements of the disclosure obligations for securitisation transactions as well the operational standards of securitisation repositories.

Although the RTS are not yet in final form, ESMA believes that providing this clarification ahead of time will allow relevant parties to be sufficiently prepared for introduction of the new reporting templates.

The consultation period ends on 16 March 2020. ESMA intends to publish its final report on the guidelines as close as possible to the date of publication of the RTS in the Official Journal of the EU.

Synchronising clocks used for timestamping with coordinated universal time: IOSCO final report

Following its September 2019 consultation, the International Organization of Securities Commissions (IOSCO) has published a final report recommending that trading venues and their participants synchronise the clocks they use for timestamping a reportable event with coordinated universal time (UTC).

Respondents to the consultation broadly agreed with the risks identified in the consultation paper and the proposed amendments to the recommendation. IOSCO is, therefore, proceeding with its proposed amendment of recommendation 7 of IOSCO's final report on technological challenges to effective market surveillance.

Responding to feedback received, IOSCO explained that it does not intend to extend the application of the recommendation to systematic internalisers under the MiFID II Directive or require that trading venues and participants should regularly monitor the business clocks they use to ensure they remain synchronised to UTC. This is because they would expand the scope and standards of recommendation 7. However, IOSCO added that the use of UTC by trading venues should encourage its adoption in the wider financial system.

16

Insurance Access to protection insurance for people with pre-existing medical conditions or disabilities: AIWG agreement

The British Insurance Brokers’ Association (BIBA) has announced that, in collaboration with insurers, protection insurance groups and brokers, charities and other stakeholders, a new voluntary agreement has been reached to help people with disabilities or medical conditions access protection insurance. The "Access to Insurance Working Group" formed in October 2018 with the aim of improving access to protection insurance for consumers with chronic health conditions and disabilities. The key aim of this agreement, entered into by members of the Working Group, is to develop a signposting system for consumers, supporting consumer groups and charities so they can easily access guidance and advice about insurance from protection specialists.

The agreement is voluntary and does not create legal obligations, rather, it sets out how the parties will cooperate to deliver the AIWG's objectives.

The agreement is effective from 21 January 2020 and does not have an expiry date. The Access to Insurance Committee will formally review the agreement no later than January 2022 and subsequently on a three-year basis.

17

Funds and Asset Management

Asset management supervision strategy: FCA Dear CEO letter

The FCA has published a Dear CEO letter, sent to CEOs of firms in the FCA's asset management portfolio, on its asset management supervision strategy. In the letter, the FCA outlines its view of the key risks of harm that asset managers pose to their customers or the markets in which they operate. The FCA states that firms should consider whether they present those risks and their strategies for mitigating them. The FCA states that:

• overall standards of governance, particularly at the level of the regulated entity, generally fall below its expectations;

• funds offered to retail investors in the UK do not consistently deliver good value, frequently due to failure to identify and manage conflicts of interest; and

• inadequate investment in technology and operational resilience has led to deficient systems which could cause harm to market integrity or loss of sensitive data.

The FCA sets out a number of priorities which it expects firms to consider, including liquidity management, firms' governance, asset management market study remedies, product governance, LIBOR transition, operational resilience and Brexit.

Firms may be asked to take part in one or more pieces of related work.

Alternatives supervision strategy: FCA Dear CEO letter

The FCA has published a Dear CEO letter, sent to CEOs of firms in its alternatives portfolio, on its alternatives supervision strategy. In its letter, the FCA outlines its view of the key risks of harm posed by alternative investment firms to their customers or the markets in which they operate. The FCA believes progress is needed for the asset management sector to deliver its purpose effectively. In particular, it says that:

• overall standards of governance, particularly at the level of the regulated entity, generally fall below its expectations;

• far too often, the appropriateness of investment products for investors is not adequately considered;

• CASS oversight and controls are not always robust, creating a risk of loss to client money and custody assets; and

• weak systems and controls can lead to the risks of market abuse, other types of financial crime and harm or disruption to market integrity not being effectively mitigated.

The FCA sets out its key priorities, including:

• investor exposure to inappropriate products or levels of investment risk; • client money and custody asset controls; • compliance with the Market Abuse Regulation; • market integrity and disruption; • mitigation of financial crime risks; and • preparation for Brexit.

The FCA expects firms to consider the priorities and take appropriate action. Firms may be asked to take part in one or more pieces of related work.

18

ELTIF Regulation: ICMA AMIC discussion paper

The International Capital Market Association’s (ICMA) Asset Management and Investors Council (AMIC) has published a discussion paper which proposes changes to the European Long-Term Investment Funds Regulation (ELTIF Regulation).

The AMIC notes that the ELTIF regulation aimed to create a new type of fund enabling both retail and professional investors to invest in long-term assets, but only a very limited number of ELTIFs have been launched so far. It therefore makes a number of proposals to facilitate the take-up of ELTIFs and significantly boost their contribution towards the financing of longer-term investment.

Managing fund liquidity risk in Europe: ICMA and EFAMA update

ICMA’s AMIC and the European Fund and Asset Management Association (EFAMA) have published an update of their report first published in April 2016, "Managing fund liquidity risk in Europe: Recent regulatory enhancements & proposals for further improvements". The report focuses on EU legislation and EU fund structures, namely UCITS and the AIFMD.

The purpose of the updated report remains outlining the practical liquidity risk management processes that fund management companies follow when setting up a fund and operate during the life of the fund. In addition, it aims to highlight existing European and international regulatory frameworks in the area of liquidity risk management.

Updates from the 2016 version are highlighted in the new report.

19