Financial Regulation Weekly Bulletin - Microsoft · 2020-01-21 · Financial Regulation Weekly...
Transcript of Financial Regulation Weekly Bulletin - Microsoft · 2020-01-21 · Financial Regulation Weekly...
If you have any comments or questions, please contact Selmin Hakki. Slaughter and May also produces a periodical Insurance Newsletter. If you would like to go on the distribution list, please contact Beth Dobson.
Selected Headlines
General
Brexit
Banking and Finance
Securities and Markets
Asset Management
Insurance
Financial Crime
Enforcement
Financial Regulation
Weekly Bulletin 19 December 2019 / Issue 1040
Major UK and European regulatory developments of interest to banks, insurers and reinsurers, asset managers and other market participants
Selected Headlines General
Digital operational resilience – European Commission publishes consultation on resilience framework
2.2
Short-term pressures on corporations – EBA, ESMA and EIOPA publish reports
4.1
Financial risks from climate change – PRA and FPC publish Discussion Paper on 2021 BES
5.1
Brexit
Financial services legislation – announced in the Queen’s Speech 8.1
Banking and Finance
Financial stability - ESRB publishes report on macroprudential policy implications of foreign branches
12.1
IBOR transition – PRA publishes letter on regulatory capital impediments
17.2
Financial Stability Report and 2019 stress test results – published by the Bank of England
18.1
Securities and Markets
Securitisation – FSB publishes report on the vulnerabilities associated with leveraged loans and CLOs
20.2
Cryptoassets – European Commission publishes consultation on EU regulatory framework
21.2
MAR review – CLLS publishes response to ESMA consultation 29.1
Asset Management
Taxonomy on sustainable investments – European Parliament announces agreement with the Council of the EU on criteria determining the sustainability of an economic activity
31.1
Open-ended funds – FCA and Bank of England statement on joint review
32.1
FCA Policy Statement PS19/29: Making transfers simpler
33.1
Quick Links
Financial Regulation / 19 December 2019 / Issue 1040 2
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
Insurance
Solvency II – EIOPA publishes annual report on the use of capital add-ons
36.1
2020 Solvency II Review - EIOPA publishes report on insurers’ asset and liability management of illiquid liabilities
36.3
Financial Crime
4MLD – ESAs publishes final Guidelines on cooperation and information exchange between NCAs
37.1
Enforcement
EMIR – ESMA publishes consultation on procedural rules regarding the imposition of penalties on third-country CCPs, TRs and CRAs
38.1
Misleading information in relation to PPI claims – FCA fines claims management company £70,000
39.1
Hall and Hanley Limited v The Financial Conduct Authority 41.1
General 1. Financial Stability Board
1.1 2020 work programme – published by the FSB – 17 December 2019 – The Financial Stability Board
(FSB) has published its work programme for 2020, setting out its key priorities and areas of focus
for the next 12 months. These include:
reinforcing its monitoring of market developments to identify, assess and address new and
emerging vulnerabilities;
issuing a public consultation addressing the regulatory issues posed by stablecoins;
developing and delivering to the G20 a roadmap setting out how to improve the efficiency
and inclusiveness of cross-border payment systems; and
improving understanding and increasing awareness of the importance of ensuring a timely
transition away from the use of the London interbank offered rate (LIBOR) by the end of
2021.
FSB 2020 work programme
Webpage
Press release
2. European Commission
2.1 FinTech – European Commission publishes report on regulatory obstacles to financial
innovation – 13 December 2019 – The European Commission’s Expert Group on Regulatory
Obstacles to Financial Innovation (ROFIEG), set up by the European Commission in June 2018, has
published a report setting out its recommendations on how to create an accommodative
framework for the technology-enabled provision of financial services. The report contains 30
Financial Regulation / 19 December 2019 / Issue 1040 3
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
recommendations pertaining to several topics, including: (i) the use of financial technology; (ii)
the access and use of data; (iii) financial inclusion; (iv) competition; and (v) governance and
security.
European Commission ROFIEG report on a framework for the use of technology in financial
services
FAQs
Webpage
2.2 Digital operational resilience – European Commission publishes consultation on resilience
framework – December 2019 – The European Commission has published a public consultation on
the development of a digital operational resilience framework for financial services. The European
Commission states that the increasing digitalisation and use of financial technology in financial
services leaves the sector highly dependent on information and communications technology (ICT)
infrastructure and raises challenges in terms of operational resilience. The consultation seeks
stakeholders’ views on: (i) strengthening the digital operational resilience of the financial sector,
in particular as regards the aspects related to ICT and security risk; (ii) the main features of an
enhanced legal framework built on several pillars; and (iii) the impacts of the potential policy
options.
The consultation document does not state when the consultation period closes. The Commission
intends to use the responses received in respect of its consultation to inform its ongoing work on
on the development of a potential EU cross-sectoral digital operational resilience framework in
the area of financial services.
European Commission consultation on the development of an EU digital operational resilience
framework for financial services
Press release
3. Official Journal of the European Union
3.1 Modernisation of EU consumer protection rules – Directive published in the Official Journal –
18 December 2019 – Directive (EU) 2019/2161 of 27 November 2019, which amends the Unfair
Terms in Consumer Contracts Directive (93/13/EEC); Directive (98/6/EC) on consumer protection
in relation to product price indications to consumers; the Unfair Commercial Practices Directive
(2005/29/EC); and the Consumer Rights Directive (2011/83/EU) as regards the better enforcement
and modernisation of Union consumer protection rules, has been published in the Official Journal
of the European Union.
The Directive will enter into force on 7 January 2020 and will apply from 28 May 2020.
Official Journal: Directive (EU) 2019/2161 on the better enforcement and modernisation of
Union consumer protection rules
4. European Supervisory Authorities
4.1 Short-term pressures on corporations – EBA, ESMA and EIOPA publish reports – 18 December
2019 – The European Banking Authority (EBA), European Securities and Markets Authority (ESMA)
and the European Insurance and Occupational Pensions Authority (EIOPA) have published separate
Financial Regulation / 19 December 2019 / Issue 1040 4
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
reports on potential undue short-term pressure from the financial sector on corporations. The
reports have been published in response to a call for advice, published by the European
Commission.
The EBA assessed the potential presence and drivers of short-termism, by looking at: (i) potential
short-term pressures exerted by banks on corporate clients; and (ii) potential short-term pressures
banks may be under on their own, by shareholders and capital markets. Based on an analysis of
available qualitative and quantitative sources, the EBA identified some limited concrete evidence
of short-termism, without necessarily being in a position to label it systematically as undue. The
EBA makes several recommendations to incorporate long-term perspectives in the banking sector,
including maintaining a robust prudential regulatory framework as a pre-condition for long-term
investments, and improving the disclosure and awareness of sustainable investments and
environmental, social and governance (ESG) risk factors.
ESMA assessed the potential short-term pressures exerted on corporations in securities markets,
finding that the most common timeframe for general business activities was less than five years
and that a general short-term focus in investment research was indicated by survey respondents.
ESMA suggests several recommendations to incorporate long-term perspectives in securities
markets, including: (i) the increased integration of sustainability risks in investment research; (ii)
the adoption of an international set of ESG disclosure standards; and (iii) increasing institutional
investor engagement with long-term objectives by reviewing ESMA’s public statement on
shareholder cooperation.
EIOPA assessed the potential short-term pressures exerted on corporations in the insurance and
occupational pensions sectors. EIOPA found no clear evidence of undue short-termism but
acknowledged that firms’ investment practices are sensitive to certain macroeconomic
circumstances, such as the persistently low interest rate environment. EIOPA notes that short-
term remuneration practices may, however, require consideration. EIOPA makes several
recommendations to incorporate long-term perspectives in the insurance and occupational
pensions sectors, including: (i) developing a cross-sectorial framework promoting long-term
investments and supporting sustainable economic growth in the EU; and (ii) creating and
publishing long-term performance benchmarks to increase firms’ focus on long-term value creation
rather than immediate shareholders’ interests or excessively short-term profitability objectives.
The reports will be sent to the Commission for further consideration.
EBA report on undue short-term pressures on corporations in the banking sector
Press release
ESMA report on undue short-term pressures on corporations in securities markets
Press release
EIOPA report on undue short-term pressures on corporations in the insurance and
occupational pensions sectors
Press release
Financial Regulation / 19 December 2019 / Issue 1040 5
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
5. Prudential Regulation Authority and Financial Policy Committee
5.1 Financial risks from climate change – PRA and FPC publish Discussion Paper on 2021 BES –
December 2019 – The PRA and the Financial Policy Committee (FPC) have published a joint
Discussion Paper, setting out a proposed framework for the 2021 biennial exploratory scenario
(BES) exercise. The objective of the 2021 BES is to test the resilience of the UK’s largest banks and
insurers to the physical and transition risks associated with different possible climate scenarios,
and the financial system’s exposure more broadly to climate-related risk.
The PRA and FPC are consulting on the design of the exercise and welcome feedback on the
feasibility and robustness of their proposals from firms, counterparties, climate scientists,
economists and other industry experts by 18 March 2020. The PRA and FPC intend to publish the
final BES framework in the second half of 2020 and the results of the exercise will be published in
2021.
PRA and FPC joint Discussion Paper on the 2021 BES on the financial risks arising from climate
change
Webpage on the 2021 BES
Webpage on climate change
Press release
6. Financial Conduct Authority
6.1 SMCR extension to solo-regulated firms – FCA updates webpage – 13 December 2019 – The FCA
has updated its webpage on the application of the Senior Managers and Certification Regime
(SMCR) to solo-regulated firms in order to clarify firms’ obligations under the regime. Among other
points, the FCA reminds firms that:
they need to have identified the individuals that need to be certified on an annual basis
and ensure that annual fitness and propriety checks for certification staff and senior
managers are accommodated within the firm’s HR processes;
as of 9 December 2019, senior management functions (SMFs) appear on the Financial
Services Register. Firms are encouraged to check the Register to ensure they have the
correct SMFs;
SMFs are not restricted to members of the governing body. In particular, the Executive
Director function (SMF 3) extends beyond members of the governing body to include “a
person in accordance with whose directions or instructions (not being advice given in a
professional capacity) the directors of that body are accustomed to act”; and
senior managers should ensure that any delegation is reasonable and that the individuals
to whom they have delegated are appropriate, for example with suitable skills, and the
senior managers should retain an appropriate level of oversight.
The SMCR came into force for almost all solo-regulated firms on 9 December 2019, replacing the
approved persons regime (APR).
Financial Regulation / 19 December 2019 / Issue 1040 6
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
FCA updated webpage on the application of the SMCR to solo-regulated firms
6.2 FCA Policy Statement PS19/30 - Independent Governance Committees: extension of remit – 17
December 2019 – The FCA has published a Policy Statement (PS19/30) setting out its final rules
regarding the extension of the remit of Independent Governance Committees (IGCs) and
Governance Advisory Arrangements (GAA). IGCs currently provide independent oversight of the
value for money of workplace personal pensions in accumulation, that is before pension savings
are accessed. A GAA is a proportionate alternative to an IGC for firms with a smaller number of
relevant customers and less complex schemes. The final rules extend the remit of IGCs and GAAs
to include:
a new duty for ICGs and GAAs to consider and report on their firm’s policies on ESG issues,
member concerns and stewardship for the products that they oversee; and
a new duty for ICGs and GAAs to oversee the value for money of investment pathway
solutions for pension drawdown (pathway solutions).
The final rules and guidance will come into force on 6 April 2020.
Firms intending to offer pathway solutions should ensure that they have established an IGC or GAA
by 6 April 2020. IGCs and GAAs will need to assess the proposed design of pathway solutions, and
firms will need to take into account their concerns, before 1 August 2020.
In Q2 2020, the FCA aims to publish the findings of its review of the effectiveness of IGCs, which is
currently underway. The FCA plans to review the impact of the rules it has already made for
investment pathways one year after their implementation on 1 August 2020.
FCA Policy Statement PS19/30 – Independent Governance Committees: extension of remit
Webpage
6.3 FCA Handbook Notice No. 72 – December 2019 – The FCA has published Handbook Notice No. 72,
setting out changes made to the Handbook by the FCA board on 21 November 2019 and 12
December 2019.
FCA Handbook Notice No. 72
6.4 Climate Financial Risk Forum – FCA publishes key points from November 2019 meeting – 18
December 2019 – The FCA has published a summary of the key points discussed at the latest
Climate Financial Risk Forum, held in November 2019. Several key points were discussed at the
Forum, including: (i) the progress of the draft practical guidance and recommendations to date;
(ii) the form of the outputs and timelines for their publication; and (iii) how to generate wider
industry input on the draft guidance and recommendations in early 2020.
The next Climate Financial Risk Forum meeting is scheduled to take place in Q1 2020 and is
expected to focus on finalising the outputs for publication and determining the Forum’s next
steps.
FCA webpage on the Climate Financial Risk Forum
Financial Regulation / 19 December 2019 / Issue 1040 7
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
7. Financial Ombudsman Service
7.1 Budget and future strategy - FOS publishes Consultation Paper – December 2019 – The Financial
Ombudsman Service (FOS) has published a Consultation Paper setting out its proposed plans and
budget for the 2020/21 financial year and the FOS’ future strategy looking ahead to 2025 and
beyond. The Consultation Paper discusses the volumes of complaints the FOS expects to receive and
resolve, as well as its proposed budget and funding arrangements.
The consultation period closes on 31 January 2020. The FOS intends to publish its final plans and
budget for 2020/21 before the end of the current financial year, alongside its future strategy and
a summary of the feedback it received.
FOS Consultation Paper on its plans and budget for the 2020/21 financial year and the FOS’
future strategy
Press release
Brexit 8. HM Government
8.1 Financial services legislation – announced in the Queen’s Speech – 19 December 2019 – The
Queen’s Speech has been delivered at the Opening of Parliament, setting out the government’s
legislative agenda for the next parliamentary session. The Speech referred to the government’s
intention to bring forward financial services legislation in order to ensure that the UK maintains its
world-leading regulatory standards and remains open to international markets after leaving the
EU. More specifically, the legislation aims to:
support the UK’s position as an international financial services centre;
enhance the competitiveness of the UK’s financial sector while maintaining high standards
of consumer protection;
facilitate long-term market access between the UK and Gibraltar for financial services
firms;
simplify the process which allows overseas investment funds to be sold in the UK; and
implement the Basel standards to strengthen the regulation of global banks.
The Queen’s Speech, delivered on 19 December 2019
HM Government Briefing Paper on the legislative agenda announced in the Queen’s Speech
2019
Financial Regulation / 19 December 2019 / Issue 1040 8
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
Banking and Finance 9. Basel Committee
9.1 Consolidated Basel framework – launched by Basel Committee – December 2019 – The Basel
Committee on Banking Supervision has published a consolidated version of the Basel framework,
containing its global standards for the regulation and supervision of banks. This follows the Basel
Committee’s consultation on a draft version of this consolidated framework in April 2019.
The consolidated framework aims to improve the accessibility of the standards and includes
various technical amendments intended to clarify certain aspects of the framework. The
consolidated framework neither introduces new requirements nor substantially amends existing
standards.
The Basel Committee encourages members to implement these amendments as soon as possible
and, in any event, no later than 1 January 2022.
Basel Committee consolidated Basel framework
Webpage on the launch of the consolidated Basel framework
Webpage on the Basel framework
Press release
10. European Commission
10.1 CRR - European Commission adopts Delegated Regulation on alternative standardised approach
for market risk – 17 December 2019 – The European Commission has adopted Commission
Delegated Regulation (C(2019)9068) of 17 December 2019, on an alternative standardised
approach (ASA) for market risk under the Capital Requirements Regulation (575/2013/EU) (CRR),
as amended by the Capital Requirements Regulation (EU) 2019/876 (CRR II). This follows the
Commission’s consultation on a draft version of the Delegated Regulation in October 2019.
The Delegated Regulation aligns the revised market risk requirements, which were introduced by
the CRR II, with the Basel Committee’s final revised version of its market risk standards published
in January 2019. The Delegated Regulation also aligns technical specifications and provisions in
the CRR relating to the sensitivities-based method (SBM), which forms part of the ASA, with the
Basel Committee’s final standards. The Commission states that these amendments ensure that the
ASA reporting requirements will be fully operational.
The Delegated Regulation will now be considered by the European Parliament and the Council of
the European Union. If not objected to, it will enter into force 20 days, and apply six months,
after its publication in the Official Journal of the European Union.
Delegated Regulation on an alternative standardised approach for market risk under the CRR
Financial Regulation / 19 December 2019 / Issue 1040 9
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
11. European Parliament
11.1 EU crowdfunding legislative proposals - Parliament, Council of the EU and Commission reach
political agreement – 19 December 2019 – The European Parliament has announced that it has
reached political agreement with the Council of the European Union and the European Commission
on: (i) proposed Regulation (EU) 2018/0048(COD) on European crowdfunding service providers
(ECSPs) for business; and (ii) proposed Directive (EU) 2018/0047(COD), which makes consequential
amendments to the Markets in Financial Instruments Directive (EU) 2014/65 (MiFID II) in relation to
crowdfunding. The new rules will be formally adopted by the Council of the EU and the Parliament
pursuant to the early second reading agreement procedure.
Press release: European Parliament announces political agreement on EU crowdfunding
legislative proposals
Council of the EU press release
European Commission press release
12. European Systemic Risk Board
12.1 Financial stability - ESRB publishes report on macroprudential policy implications of foreign
branches – December 2019 – The European Systemic Risk Board (ESRB) has published a report on
the macroprudential policy implications of foreign branches that are relevant for financial
stability. The report provides an underlying analysis of the issues addressed in Recommendation
ESRB/2019/18 of the ESRB, on the exchange and collection of information for macroprudential
purposes on branches of credit institutions which have their head office in another member state
or in a third country, which was published in the Official Journal of the European Union on 9
December 2019.
The report analyses the significance of foreign branches in EU member states and their potential
financial stability implications before concluding that: (i) a framework for the exchange of
information on foreign branches for macroprudential purposes is necessary and should be
developed further at EU and national levels; and (ii) colleges of supervisors and voluntary
arrangements between authorities on the exchange of information within the existing legal
framework, such as Memoranda of Understanding, are proposed as the vehicles of this framework.
ESRB report on the macroprudential policy implications of foreign branches relevant for
financial stability
13. European Banking Authority
13.1 Benchmarking of internal models – EBA publishes consultation on draft ITS – 12 December 2019
– The European Banking Authority (EBA) has published a Consultation Paper, and accompanying
annexes, on proposed draft implementing technical standards (ITS) which amend Implementing
Regulation (EU) 2016/20170 on the benchmarking of internal models. The proposed draft ITS seek
to adjust the benchmarking portfolios and reporting requirements of internal models in view of
the EBA’s benchmarking exercise, which the EBA intends to carry out in 2021. Among other things,
the draft ITS introduce International Financial Reporting Standard (IFRS) 9 benchmarking
templates.
Financial Regulation / 19 December 2019 / Issue 1040 10
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
The EBA intends to host a public meeting on the consultation on 3 February 2020. The consultation
period closes on 13 February 2020.
EBA Consultation Paper on draft ITS amending the benchmarking of internal models
Webpage
Press release
13.2 CRR II – EBA publishes final draft RTS on the standardised approach for counterparty credit risk
– 18 December 2019 – The EBA has published its final draft regulatory technical standards (RTS) on
the standardised approach for counterparty credit risk under the CRR II. The final draft RTS:
set out the method for identifying material risk drivers of derivative transactions on the
basis of which the mapping to one or more of the risk categories is to be done;
illustrate the formula that institutions are to use to calculate the supervisory delta of
interest-rate options, when mapped to the interest rate risk category, which is compatible
with negative interest rates; and
introduce a method suitable for determining the direction of the position in a material risk
driver.
The EBA will submit the final draft RTS to the European Commission for adoption.
EBA final draft RTS on the standardised approach for counterparty credit risk under CRR II
Press release
13.3 CRD IV - EBA publishes Consultation Paper on final draft RTS on the identification of staff with
a material impact on institutions’ risk profiles – 19 December 2019 - The EBA has published a
Consultation Paper setting out its proposed final draft RTS on criteria to identify staff whose
professional activities have a material impact on institutions’ risk profiles, supplementing the
Capital Requirements Directive (2013/36/EU) (CRD IV).
Members of staff are identified as having a material impact on the institution’s risk profile as soon
as they meet at least one of either the criteria foreseen under the CRD IV, the qualitative or
quantitative criteria in the draft RTS or, where necessary because of the specificities of their
business model, additional internal criteria, to ensure that all risk takers are identified. The
proposed final draft RTS include qualitative criteria identifying staff with managerial
responsibilities and decision-making powers that have a material impact on institutions’ risk
profiles. The RTS also contain quantitative criteria based on institutions’ staff remuneration
levels.
The consultation period closes on 19 February 2020.
EBA Consultation Paper on draft RTS on the identification of staff with a material impact on
institutions’ risk profiles under CRD IV
Press release
Financial Regulation / 19 December 2019 / Issue 1040 11
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
14. Single Resolution Board
CRR – SRB extends prior permissions procedure for MREL – 18 December 2019 – The Single
Resolution Board (SRB) has announced that it intends to extend its procedure to assess
applications to reduce eligible liabilities instruments under Article 78a of the CRR until the
relevant EBA RTS come into force. The SRB states that, in order to continue performing market-
making and secondary market activities from 1 January 2020, banks must obtain a prior
permission.
Press release: SRB extends prior permissions regime under for MREL under the CRR
15. Official Journal of the European Union
15.1 Single Supervisory Mechanism – ECB Regulation and Decision published in the Official Journal –
17 December 2019 – Regulation (EU) 2019/2155 of the ECB of 5 December 2019, amending the ECB
Regulation (1163/2014/EU) on annual supervisory fees, has been published in the Official Journal
of the European Union. The Regulation amends the ECB Regulation insofar as: (i) annual
supervisory fees will be levied only after the end of the relevant fee period when the actual
annual costs have been determined; and (ii) the supervisory fees payable by less significant
supervised entities and less significant supervised groups with total assets of €1 billion or less will
be reduced. The Regulation will enter into force on 20 December 2019. The 2020 fee period will
be governed by the transitional arrangements set out in Article 17a of the ECB Regulation.
Decision (EU) 2019/2158 of the ECB of 5 December 2019, on the methodology and procedures for
the determination and collection of data regarding fee factors used to calculate annual
supervisory fees, has also been published in the Official Journal of the European Union. This
Decision reflects the revisions made by Regulation (EU) 2019/2155.
Official Journal: Regulation (EU) 2019/2155 amending the ECB Regulation on annual
supervisory fees
Official Journal: ECB Decision on the methodology and procedures used to calculate annual
supervisory fees
15.2 CRR – Commission Implementing Decision on equivalent third countries published in the
Official Journal – 18 December 2019 – Commission Implementing Decision (EU) 2019/2166 of 16
December 2019, which amends Implementing Decision (2014/908/EU) as regards the inclusion of
Serbia and South Korea in the lists of third countries and territories whose supervisory and
regulatory requirements are considered equivalent for the purposes of the treatment of exposures
in accordance with the CRR, has been published in the Official Journal of the European Union.
Commission Implementing Decision (EU) 2019/2166 will enter into force on 7 January 2020.
Official Journal: Commission Implementing Decision (EU) 2019/2166 amending the lists of
equivalent third countries for the treatment of exposures under the CRR
16. European Central Bank
16.1 Central bank digital currencies – ECB publishes paper on anonymity – December 2019 – The
European Central Bank (ECB) has published a paper exploring the extent to which an appropriate
balance may be struck between allowing a certain degree of privacy in electronic payments and
ensuring compliance with regulations aimed at tackling money laundering and the financing of
Financial Regulation / 19 December 2019 / Issue 1040 12
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
terrorism. Under the coordination of the ECB, the European System of Central Banks (ESCB) has
established a proof of concept for anonymity in digital cash. This proof of concept demonstrates
that a central bank digital currency payment system, based on distributed ledger technology
(DLT), could work. The paper observes that there is no immediate need to take concrete steps
towards the issuance of central bank digital currency in the euro area.
ECB paper on anonymity in electronic payments and central bank digital currencies
Press release
17. Prudential Regulation Authority
17.1 PRA Policy Statement PS26/19 – Pillar 2 liquidity: PRA110 reporting frequency threshold –
December 2019 – The PRA has published a Policy Statement (PS26/19) setting out its final policy as
regards the PRA110 reporting frequency threshold. This follows the PRA’s June 2019 Consultation
Paper (CP14/19) on the same matter. The PRA has decided to implement the proposed
amendments as consulted on, meaning that firms with total assets of £5 billion or above, that
would otherwise report the PRA110 monthly, will have to report on every business day if (and for
as long as) there is a specific liquidity stress, or market liquidity stress in relation to the firm,
branch or group in question.
The PRA has updated Supervisory Statement (SS24/15) ‘The PRA’s approach to supervising liquidity
and funding risks’ in order to align it with the amended PRA110 reporting frequency. The PRA also
intends to amend the Regulatory Reporting Part of the PRA Rulebook to give effect to the
amendments. The amendments will come into force on 1 May 2020.
PRA Policy Statement PS26/19 – Pillar 2 liquidity: PRA110 reporting frequency threshold
Updated Supervisory Statement (SS24/15) ‘The PRA’s approach to supervising liquidity and
funding risks’
Webpage
Press release
17.2 IBOR transition – PRA publishes letter on regulatory capital impediments – 18 December 2019 –
The PRA has published a letter from Sam Woods (Deputy Governor of the Bank of England and CEO
of the PRA) to Tushar Morzaria (Chair of the Working Group on Risk-Free Reference Rates
(RFRWG)) regarding regulatory capital impediments to interbank offered rates (IBOR) transition.
This follows the RFRWG’s October 2019 letter to the PRA, which identified several potential
impediments to the adoption of alternative risk-free rates, including: (i) the eligibility of
Additional Tier 1 (AT1) and Additional Tier 2 (AT2) capital; (ii) bilateral margin requirements for
non-cleared derivatives; (iii) rules related to resolution and counterparty credit risk; (iv) market
risk; and (v) interest rate risk in the banking book. Among other points, Mr Woods states that:
in relation to AT1 and AT2 capital, the PRA does not believe it is desirable to reassess the
eligibility of instruments where the amendments are solely to replace the benchmark
reference rate;
Financial Regulation / 19 December 2019 / Issue 1040 13
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
international regulators have confirmed that bilateral margin requirements for non-
cleared derivatives are not intended to apply to legacy contracts where they are amended
solely to deal with interest rate benchmark reforms;
the PRA is considering the possible implications of benchmark rate reform for its rules on
contractual recognition of bail-in and stays in resolution and it intends to provide an
update on the matter in spring 2020; and
changes relating to new benchmark rates could require widespread model changes in
relation to counterparty credit risk, market risk and interest rate risk in the banking book.
Mr Woods urges firms to take appropriate action now so that they have transitioned to alternative
rates before the end of 2021. The PRA intends to meet again with major firms in Q1 2020 to
discuss the development of a consistent approach to the management of these risks through the
transition period.
Letter from Sam Woods (Deputy Governor of the Bank of England and CEO of the PRA) to
Tushar Morzaria (Chair of the RFRWG) on regulatory capital impediments to IBOR transition
17.3 PRA Policy Statement PS27/19: Reporting updates for Capital+ and ring-fenced bodies – 19
December 2019 – The PRA has published a Policy Statement (PS27/19) setting out its final rules
amending the Regulatory Reporting Part of the PRA Rulebook in relation to several capital+ and
ring-fenced body reporting templates. The PRA will implement the rules as consulted on in its
October 2019 Consultation Paper (CP25/19). The PRA has also updated Supervisory Statement
(SS34/15) ‘Guidelines for completing regulatory reports’ accordingly.
The final rules and changes set out in this Policy Statement will take effect on Wednesday 1 March
2020 for the PRA101 and PRA102 templates, and Monday 1 June 2020 for the RFB003, RFB004 and
RFB008 templates.
PRA Policy Statement PS27/19: Reporting updates for Capital+ and ring-fenced bodies
Updated Supervisory Statement (SS34/15) ‘Guidelines for completing regulatory reports’
Webpage
18. Bank of England
18.1 Financial Stability Report and 2019 stress test results – published by the Bank of England –
December 2019 – The Bank of England has published its latest Financial Stability Report alongside
the results of its 2019 stress test of the UK banking system. The Financial Policy Committee (FPC)
states that the 2019 stress test shows the UK banking system is resilient to deep simultaneous
recessions in the UK and global economies that are more severe overall than the global financial
crisis (which come with large decreases in asset prices and a separate stress of misconduct costs)
and the UK would be able to continue to meet credit demand from UK households and businesses
even in the unlikely event of these highly adverse conditions.
The 2019 stress test also shows that: (i) losses on corporate exposures are higher than in previous
tests, reflecting some deterioration in asset quality; (ii) major UK banks’ capital ratios have
remained stable since the end of 2018; and (iii) at the end of Q3 2019, major UK banks’ common
equity Tier 1 (CET1) ratios were over three times higher than at the start of the global financial
Financial Regulation / 19 December 2019 / Issue 1040 14
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
crisis. The FPC also states that the core of the UK financial system, including banks, dealers and
insurance companies, is resilient to, and prepared for, the wide range of UK economic and
financial shocks that could be associated with a worst-case disorderly Brexit. The FPC comments
that most risks to UK financial stability that could arise from disruption to cross-border financial
services in a worst-case disorderly Brexit have been mitigated due to the extensive preparations
made by authorities and the private sector.
The Bank has also published a document analysing the effectiveness and implementation of the
stress test framework against certain aspects of the Basel framework.
Bank of England Financial Stability Report
Webpage
Speech by Mark Carney (Governor of the Bank of England) on the Financial Stability Report
Record and summary of the FPC meeting
Bank of England assessment on the effectiveness of the stress test framework
Webpage
18.2 Global standard to modernise UK payments – Bank of England publishes update on
implementation of the ISO 20022 CHAPS migration - December 2019 – The Bank of England has
published several documents which provide an update on the implementation of the introductory
phase of the ISO 20022, a new common global messaging standard for UK payments. The
implementation of ISO 20022 seeks to align credit payment messages across the UK’s three main
interbank payments systems: CHAPS, Bacs and Faster Payments. The Bank plans to migrate CHAPS
from SWIFT MT messaging to ISO 20022 messaging in March 2022.
Bank of England statement on ISO 20022 CHAPS migration information for Direct Participants
Bank of England statement on ISO 20022 CHAPS migration information for other RTGS account
holders
Bank of England and Pay.UK 2020 priorities for the ISO 20022 migration
Webpage
See the Securities and Markets section for an item on the European Money Markets Institute (EMMI)
publishing the benchmark statement for the administration of the Euro overnight index average (EONIA).
Securities and Markets 19. International Organization of Securities Commissions
19.1 Conflicts of interest and associated conduct risks – IOSCO publishes Consultation Report on the
debt capital raising process – December 2019 – The International Organization of Securities
Commissions (IOSCO) has published a Consultation Report requesting feedback on proposed
guidance to help IOSCO members address potential conflicts of interest and associated conduct
risks arising from the role of market intermediaries during the debt capital raising process. Among
other topics, the consultation seeks public comments on the use of distributed ledger technology
Financial Regulation / 19 December 2019 / Issue 1040 15
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
(DLT) in bond issuances and the potential benefits and risks of using DLT, including for managing
conflicts of interest. The proposed guidance comprises eight measures that address:
the pricing of debt securities and risk management transactions;
the quality of information available to investors; and
the allocation of debt securities.
The consultation period closes on 16 February 2020.
IOSCO Consultation Report on the conflicts of interest and conduct risks arising from the role
of market intermediaries in the debt capital raising process
Press release
20. Financial Stability Board
20.1 Reforming major interest rate benchmarks – FSB publishes annual progress report – 18
December 2019 – The Financial Stability Board (FSB) has published its annual progress report on
the implementation of its 2014 recommendations to reform major interest rate benchmarks. The
report emphasises that the continued reliance of global financial markets on the London interbank
offered rate (LIBOR) poses risks to financial stability and calls for significant and sustained efforts
by firms and institutions to transition away from LIBOR by the end of 2021. The report also states
that:
there is a common view across FSB jurisdictions that the use of overnight risk-free rates
should be encouraged across global interest rates markets where appropriate, and that
contracts referencing interbank offered rates (IBORs) should have robust fallback
provisions;
good progress has been made in derivatives and securities markets, but transition in
lending markets has been slower and needs to accelerate; and
firms should not delay their transition away from LIBOR until the emergence of possible
forward-looking term versions of risk-free rates and should expect increasing scrutiny of
their transition efforts as the end of 2021 approaches.
FSB progress report on reforming major interest rate benchmarks
Webpage
Press release
20.2 Securitisation – FSB publishes report on the vulnerabilities associated with leveraged loans and
CLOs – 18 December 2019 – The FSB has published a report assessing the financial stability
implications of developments in the leveraged loan and collateralised loan obligation (CLO)
markets. The report states that markets for leveraged loans and CLOs have remained strong and
have grown significantly in recent years, exceeding pre-crisis levels in 2014, with the majority of
issuances concentrated in the US and, to a lesser extent, the EU. The report also highlights that
while most leveraged loans are originated and held by banks, the role of non-bank financial
Financial Regulation / 19 December 2019 / Issue 1040 16
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
institutions has increased. In relation to the vulnerabilities associated with leveraged loans and
CLOs, the report concludes that:
vulnerabilities in these markets have increased since the financial crisis;
banks have the largest direct exposures to leveraged loans and CLOs and that these
exposures are concentrated among a limited number of large global banks and have a
significant cross-border dimension; and
increasing numbers of non-bank investors, including investment funds and insurance
companies, are also exposed to the leveraged loan and CLO markets.
FSB report on the vulnerabilities associated with leveraged loans and CLOs
Webpage
Press release
21. European Commission
21.1 EMIR – European Commission adopts Delegated Regulation on RTS on the mitigation of
counterparty credit risk associated with covered bonds and securitisations – 16 December 2019
– The European Commission has adopted Commission Delegated Regulation (C(2019)8886) of 16
December 2019 supplementing the European Market Infrastructure Regulation (648/2012/EU)
(EMIR) with regard to regulatory technical standards (RTS) specifying the criteria for establishing
the arrangements to adequately mitigate counterparty credit risk associated with covered bonds
and securitisations. This follows the Joint Committee of the European Supervisory Authorities’
(ESAs’) consultation on the draft RTS, published in December 2018.
The Delegated Regulation will now be considered by the European Parliament and the Council of
the European Union. It will enter into force and apply 20 days after its publication in the Official
Journal of the European Union.
Delegated Regulation supplementing EMIR with regard to RTS specifying the criteria for
establishing the arrangements to mitigate counterparty credit risk associated with covered
bonds and securitisations
21.2 Cryptoassets – European Commission publishes consultation on EU regulatory framework –
December 2019 – The European Commission has published a public consultation on the suitability
of the existing EU regulatory framework for cryptoassets, including stablecoins. The consultation
defines a cryptoasset as “a digital asset that may depend on cryptography and exists on a
distributed ledger”. The consultation seeks views on: (i) the potential use of cryptoassets; (ii)
whether and how cryptoassets should be classified at the EU level in the absence of an existing
common classification; (iii) cryptoassets that currently fall outside the scope of EU financial
services legislation, and on the risks presented by some service providers related to unregulated
cryptoassets and the best way to mitigate them; and (iv) cryptoassets that currently fall within
the scope of EU legislation, termed “security tokens” and “e-money tokens”.
The consultation period closes on 19 March 2020. The Commission intends to use the responses
received in respect of its consultation to inform its ongoing work on cryptoassets.
Financial Regulation / 19 December 2019 / Issue 1040 17
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
European Commission consultation on the EU regulatory framework for cryptoassets
Press release
22. Official Journal of the European Union
22.1 EEA Agreement – Decisions amending Annex IX (Financial Services) published in the Official
Journal – 12 December 2019 – The following five Decisions of the EEA Joint Committee, amending
Annex IX (Financial Services) to the EEA Agreement, have been published in the Official Journal of
the European Union:
Decision 21/2018 of 9 February 2018, amending Annex IX (Financial Services), Annex XII
(Free Movement of Capital) and Annex XXI (Company Law) to incorporate the Bank
Recovery and Resolution Directive (2014/59/EU) (BRRD) into the EEA Agreement;
Decision 20/2018 of 9 February 2018, amending Annex IX (Financial Services) to
incorporate Credit Rating Agency Directive (2013/14/EU) (CRA III) and the Undertakings
for the Collective Investment in Transferable Securities Directive (2014/91/EU) (UCITS
Directive) into the EEA Agreement;
Decision 256/2018 of 5 December 2018, amending Annex IX (Financial Services) to
incorporate several Delegated Regulations and Implementing Decisions relating to EMIR
into the EEA Agreement;
Decision 79/2019 of 29 March 2019, amending Annex IX (Financial Services) to incorporate
the Capital Requirements Regulation (575/2013/EU) (CRR), the Capital Requirements
Directive (2013/36/EU) (CRD IV) and the CRR IFRS 9 Regulation (EU) 2017/2395 into the
EEA Agreement; and
Decision 125/2019 of 8 May 2019, amending Annex IX (Financial Services) and Annex XIX
(Consumer protection) to incorporate the Mortgage Credit Directive (2014/71/EU) (MCD)
into the EEA Agreement.
Official Journal: EEA Joint Committee Decision incorporating the BRRD into the EEA
Agreement
Official Journal: EEA Joint Committee Decision incorporating the CRA III and UCTIS Directive
into the EEA Agreement
Official Journal: EEA Joint Committee Decision incorporating several Delegated Regulations
and Implementing Decisions relating to EMIR into the EEA Agreement
Official Journal: EEA Joint Committee Decision incorporating the CRR, CRD IV and the CRR IFRS
9 Regulation into the EEA Agreement
Official Journal: EEA Joint Committee Decision incorporating the MCD into the EEA Agreement
Financial Regulation / 19 December 2019 / Issue 1040 18
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
22.2 Covered bonds - Regulation and Directive published in the Official Journal – 18 December 2019
– The following Regulation and Directive have been published in the Official Journal of the
European Union:
Regulation (EU) 2019/2160 of 27 November 2019, which amends the CRR as regards
exposures in the form of covered bonds; and
Directive (EU) 2019/2162 of 27 November 2019, which amends the UCITS Directive and the
BRRD on the issue of covered bonds and covered bond public supervision.
The Regulation and Directive will enter into force on 6 January 2020. The Regulation will apply
from 8 July 2022.
Official Journal: Regulation (EU) 2019/2160 amending the CRR as regards exposures in the
form of covered bonds
Official Journal: Directive (EU) 2019/2162 amending the UCITS Directive and the BRRD on
covered bonds and covered bond supervision
23. Joint Associations
23.1 EMIR and SFTR – Joint Associations publish new master regulatory reporting agreement – 19
December 2019 – The Joint Associations, which include the Association of Financial Markets in
Europe (AFME), the Futures Industry Association (FIA), the International Capital Markets
Association (ICMA), the International Swaps and Derivatives Association (ISDA) and the
International Securities Lending Association (ISLA), have published a new master regulatory
reporting agreement which is intended to simplify regulatory reporting under EMIR and the
Securities Financing Transaction Regulation (EU) 2015/2365 (SFTR).
The Joint Associations have also published an explanatory memorandum which provides guidance
on the new master regulatory reporting agreement.
Joint Associations master regulatory reporting agreement for EMIR and SFTR
Explanatory memorandum
ICMA press release
ISDA press release
AFME press release
FIA press release
ISLA press release
24. European Securities and Markets Authority
24.1 MAR - ESMA publishes annual report on accepted markets practices - 13 December 2019 – The
European Securities and Markets Authority (ESMA) has published its annual report to the European
Commission on the application of accepted market practices (AMPs) in the EU in accordance with
the Market Abuse Regulation (596/2014/EU) (MAR). AMPs constitute a defence against allegations
Financial Regulation / 19 December 2019 / Issue 1040 19
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
of market manipulation, such that dealings in financial markets which are carried out for
legitimate reasons and in conformity with an established AMP will not constitute market
manipulation.
The report considers the AMPs established in the EU under the Market Abuse Directive (2003/6/EC)
(MAD) which still apply, and three AMPs established in the EU under the MAR. ESMA notes that
AMPs remain a matter of interest for only a small number of countries and states that the data
provided by national competent authorities (NCAs) indicates that the number of liquidity contracts
and the liquidity of shares benefitting from AMPs and trade volumes remain stable and comparable
with 2018.
ESMA annual report on the application of AMPs under MAD and MAR
Press release
25. European Money Markets Institute
25.1 EONIA benchmark statement – published by EMMI – 18 December 2019 – The European Money
Markets Institute (EMMI) has published the benchmark statement for the administration of the
Euro overnight index average (EONIA) following its authorisation by the Belgian Financial Services
and Markets Authority on 11 December 2019 under the Benchmarks Regulation (EU) 2016/1011
(BMR). Consequently, EONIA can continue to be used until 3 January 2022, the date on which the
benchmark will be discontinued.
The statement provides information on EONIA in relation to: (i) market or economic reality; (ii)
potential limitations of the benchmark; (iii) input data and methodology; (iv) exercise of
judgement or discretion by the administrator or contributors; (v) cessation and change of the
methodology; and (vi) specific disclosures for interest rate and critical benchmark.
EMMI EONIA benchmark statement
Press release
26. Association for Financial Markets in Europe
26.1 LIBOR transition – AFME publishes report on the management of conduct and compliance risks
– December 2019 – The AFME has published a report on the management of conduct and
compliance risks arising from the transition away from LIBOR ahead of its planned cessation after
2021. The report aims to provide practical guidance on the management of conduct risks by firms
engaged in the transition away from LIBOR to risk-free rates (RFRs), including suggested steps to
establish a robust governance structure to mitigate such risks.
AFME report on the management of conduct and compliance risks arising from the transition
away from LIBOR
Press release
Financial Regulation / 19 December 2019 / Issue 1040 20
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
27. Bank of England
27.1 LIBOR transition – RFRWG publishes Consultation Paper on credit adjustment spread
methodologies for fallback provisions in cash products referencing LIBOR – December 2019 –
The Bank of England’s Working Group on Sterling Risk-Free Reference Rates (RFRWG) has
published a Consultation Paper on the credit spread adjustment methodologies to be included
within contractual fallback provisions in sterling cash instruments referencing LIBOR in order to
facilitate a smooth transition from LIBOR to the Sterling overnight index average rate (SONIA). The
paper considers four proposed methodologies that could be used to calculate the credit
adjustment spread.
The consultation period closes on 6 February 2020.
RFRWG Consultation Paper on credit adjustment spread methodologies for fallback provisions
in cash products referencing LIBOR
Webpage
28. Financial Conduct Authority
28.1 Primary Market Bulletin No. 26 – published by the FCA – December 2019 – The FCA has published
its Primary Market Bulletin No. 26, which contains the first stage of updates to the FCA’s technical
and procedural notes to reflect the entry into force of the Prospectus Regulation (EU) 2017/1129.
These changes consist of updated terminology and rule references which are a direct consequence
of the change of prospectus regime, and do not materially affect the substance of the guidance in
the respective notes. Three technical notes are also deleted.
FCA Primary Market Bulletin No. 26 on amendments to the FCA’s Knowledge Base following
the entry into force of the Prospectus Regulation
28.2 Open Finance – FCA publishes call for input – December 2019 – The FCA has published a call for
input in order to explore the opportunities and risks arising from the utilisation of open finance in
financial services. Open finance refers to the extension of open banking-like data sharing to a
wider range of financial products, providing customers and businesses with new ways in which to
utilise their finances. This follows the launch of the FCA’s Advisory Group on Open Finance in
August 2019. The FCA states that open finance has the potential to increase the accessibility and
efficiency of financial services, particularly in the general insurance, cash savings and mortgage
markets, but that the FCA also wants to ensure that it develops in the best interests of consumers.
The call for input is expected to shape the FCA’s future strategy towards open finance.
The FCA has also published a series of notes from various working groups of its Advisory Group on
Open Finance, which has informed the FCA’s call for input on open finance.
The call for input closes on 17 March 2019, after which the FCA intends to publish a Feedback
Statement in summer 2020.
FCA call for input on open finance
Advisory Group note on cohesion and interoperability
Advisory Group note on data rights
Financial Regulation / 19 December 2019 / Issue 1040 21
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
Advisory Group note on incentives
Webpage on call for input on open finance
Webpage on Advisory Group on Open Finance
Press release
29. The City of London Law Society
29.1 MAR review – CLLS publishes response to ESMA consultation – 13 December 2019 – The City of
London Law Society (CLLS) Regulatory Law Committee has published its response, dated 29
November 2019, to ESMA’s consultation on MAR. ESMA’s consultation, published in October 2019,
covers a wide range of issues, including: (i) the inclusion of spot foreign exchange (FX) contracts
within the scope of MAR; (ii) the definition and delayed disclosure of inside information; (iii) the
appropriateness of the trading prohibition and insider lists for persons discharging managerial
responsibilities; and (iv) the cross-border enforcement of sanctions. The Committee’s response
discusses several points, including:
reservations about whether extending the scope of MAR to include spot FX contracts is
appropriate, owing to the fact that spot FX contracts have different characteristics to the
instruments for which the MAR prohibitions were designed;
the practical challenges faced by market participants in identifying inside information,
specifically with regards to precision and the assessment of when the information is likely
to have a significant effect on price;
concerns that the proposed amendments to Article 11 of MAR (market soundings), which
make market soundings requirements which do not involve the provision of inside
information obligatory, are disproportionate and overly burdensome on market
participants; and
the lack of clarity surrounding how Article 19 of MAR (managers’ transactions) applies to
employee share schemes.
ESMA is undertaking the consultation following a formal request for technical advice from the
European Commission. ESMA intends to submit a final report to the Commission by spring 2020.
CLLS Regulatory Law Committee response to ESMA consultation on the MAR
See the Enforcement section for an item on ESMA publishing a Consultation Paper on the procedural rules
regarding the imposition of penalties on third-country CCPs, TRs and CRAs under EMIR.
Asset Management 30. International Organization of Securities Commissions
30.1 Financial stability - IOSCO launches framework for monitoring leverage in investment funds
that may pose stability risks – December 2019 – The International Organization of Securities
Commissions (IOSCO) has published a report setting out its recommendations for establishing a
two-step framework for the assessment of leverage-related risks in investment funds which may
Financial Regulation / 19 December 2019 / Issue 1040 22
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
pose a threat to financial stability. The framework covers: (i) how regulators could exclude from
consideration funds that are unlikely to produce financial stability risks; and (ii) how to identify
and analyse a subset of funds which may pose financial stability risks.
IOSCO recommends that regulators use the framework as a basis for their assessment of leverage-
related risks in funds. IOSCO plans to publish an annual report in 2021 reflecting leverage trends
within the asset management industry at a global level.
IOSCO report on a framework on the assessment of leverage-related risks in investment funds
which may pose a threat to financial stability
Press release
31. European Parliament
31.1 Taxonomy on sustainable investments – European Parliament announces agreement with the
Council of the EU on criteria determining the sustainability of an economic activity – 17
December 2019 – The European Parliament has announced that it has reached agreement with the
Council of the European Union on new criteria to determine whether an economic activity is
considered environmentally sustainable under the proposed Regulation (EU) 2018/0178(COD)
(Taxonomy Regulation) on the establishment of a framework to facilitate sustainable investment
and identify green economic activities.
The agreement states that the following criteria should be considered when evaluating an
activity’s sustainability: (i) climate change mitigation and adaptation; (ii) sustainable use and
protection of water and marine resources; (iii) transition to a circular economy, including waste
prevention and increasing the uptake of secondary raw materials; (iv) pollution prevention and
control; and (v) protection and restoration of biodiversity and ecosystems. A sustainable economic
activity should contribute towards one or more of these objectives, and not significantly harm any
of them. The text does not preclude or blacklist any specific technologies or sectors from green
activities, apart from solid fossil fuels, such as coal or lignite. Gas, and nuclear energy production
are not explicitly excluded from the proposed Regulation. The new legislation should also protect
investors from the risks of ‘greenwashing’ as it makes it compulsory to provide a detailed
description of how the investment meets the environmental objectives.
The agreement reached by the European Parliament negotiating team will have to be approved
first by the two committees involved and by a plenary vote.
Press release: European Parliament and Council of the EU reach agreement on the criteria
determining the sustainability of an economic activity under the Taxonomy Regulation
32. Financial Conduct Authority and Bank of England
32.1 Open-ended funds – FCA and Bank of England publish statement on joint review – 16 December
2019 – The Financial Policy Committee (FPC) has published a report setting out the initial findings
of a joint review by the FCA and the Bank of England on open-ended investment funds and the
risks posed by their liquidity mismatch. The FPC has reviewed the progress of the work and has
identified that, if greater consistency between the liquidity of fund’s assets and its redemption
terms is to be achieved:
Financial Regulation / 19 December 2019 / Issue 1040 23
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
the liquidity of funds’ assets should be assessed by reference to the price discount needed
for a quick sale of a representative sample of those assets or the time period needed for a
sale which avoids a material price discount;
redeeming investors should receive a price for their units in the fund that reflects the
discount needed to sell the required portion of a fund’s assets in the specified redemption
notice period, ensuring fair outcomes for redeeming and remaining investors; and
redemption notice periods should reflect the time needed to sell the required portion of a
fund’s assets without discounts beyond those captured in the price received by redeeming
investors.
The review will now consider how these principles could be implemented in a proportionate and
cost-effective manner and the FCA intends to use the conclusions of the review, which will be
released in 2020, to inform the development of the FCA’s rules for open-ended funds.
Press release: FCA and Bank of England statement on joint review of open-ended funds
33. Financial Conduct Authority
33.1 FCA Policy Statement PS19/29: Making transfers simpler – December 2019 – The FCA has
published a Policy Statement (PS19/29) setting out its final rules which seek to make it easier for
consumers to transfer their assets from one platform to another without unnecessary liquidation
of investments. This follows the FCA’s March 2019 Consultation Paper (CP19/12) on the matter,
and forms part of the package of remedies resulting from the findings of the FCA’s investment
platforms market study.
The new rules will amend the FCA’s Conduct of Business sourcebook (COBS) to introduce
requirements for investment platform service providers to: (i) offer consumers the choice to
transfer units in investment funds that are common to both platforms using an in-specie transfer;
(ii) request a conversion of unit classes where necessary to facilitate an in-specie transfer; and
(iii) ensure that customers moving to a new platform are given an option to convert to discounted
units where these are available for them to invest in.
The new rules will come into force on 31 July 2020. The FCA plans to consult separately on exit
fees in Q1 2020.
FCA Policy Statement PS19/29: Making transfers simpler
Webpage
Webpage on the investment platforms market study
34. Recent Cases
34.1 Case C-272/18 Verein für Konsumenteninformation v TVP Treuhand und
Verwaltungsgesellschaft für Publikumsfonds mbH & Co KG, 3 October 2019
Unfair terms in consumer contracts - choice of law clause in an investment trust agreement
concluded between a professional and a consumer for the management of shares in a limited
Financial Regulation / 19 December 2019 / Issue 1040 24
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
partnership – interpretation of the Rome Convention, the Rome I Regulation (593/2008/EC) and
the Unfair Contract Terms Directive (93/13/ECC)
The European Court of Justice (First Chamber) (ECJ) has given a preliminary ruling on the
interpretation of the Rome Convention, the Rome I Regulation (593/2008/EC) and the Unfair
Contract Terms Directive (93/13/ECC) (UCTD) in the context of a potentially unfair choice of law
clause in an investment trust agreement concluded between a professional and a consumer for the
management of shares in a limited partnership. The trust agreement was governed by German
law. The law and jurisdiction clause was not individually negotiated and could be found in the
standard form contract. The ECJ held that:
Article 1(2)(e) of the Rome Convention and Article 1(2)(f) of the Rome I Regulation must
be interpreted as not excluding from the scope of that convention or of that regulation
contractual obligations which are based on a trust agreement for the purposes of
administering shares in a limited partnership;
Article 5(4)(b) of the Rome Convention and Article 6(4)(a) of the Rome I Regulation must
be interpreted as meaning that a trust agreement, where the services owed to a consumer
must be provided in the country of the consumer’s habitual residence at a distance, from
another country, do not fall within the scope of the exclusion in those provisions; and
Article 3(1) of the UCTD must be interpreted as meaning that a choice of law clause in an
investment trust agreement, which is concluded between a professional and a consumer
for the management of shares in a limited partnership, which has not been individually
negotiated and which states that the applicable law is the law of the member state of the
partnership’s seat, is unfair where it leads the consumer into error by giving them the
impression that only the law of that member state applies to the contract, without
informing them that they also enjoy the protection of the mandatory provisions of the
national law that would be applicable in the absence of that term.
Verein für Konsumenteninformation v TVP Treuhand und Verwaltungsgesellschaft für
Publikumsfonds mbH & Co KG
See the General section for an item on the FCA clarifying solo-regulated firms’ ongoing requirements
under the Senior Managers and Certification Regime (SMCR).
Insurance 35. International Association of Insurance Supervisors
35.1 FinTech Developments: Disruption or dividends? – speech by Jonathan Dixon, Secretary
General of the IAIS – 13 December 2019 – Jonathan Dixon (Secretary General of the International
Association of Insurance Supervisors (IAIS)) has delivered a speech, dated 10 December 2019,
addressing the IAIS’ regulatory achievements in 2019 and the issues, challenges and opportunities
posed by FinTech developments in the insurance sector, at the Asia Insurance Forum 2019 held in
Hong Kong.
Mr Dixon highlights the IAIS’ key regulatory achievements in 2019, including: (i) the creation of a
substantially revised set of insurance core principles (ICPs); (ii) the adoption of the first global
frameworks for the effective and globally consistent supervision of internationally active insurance
groups (IAIGs); (iii) the adoption of a framework for assessing and mitigating systemic risk in the
Financial Regulation / 19 December 2019 / Issue 1040 25
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
global insurance sector; and (iv) a significant step forward in the development of a global
insurance capital standard (ICS).
In relation to FinTech developments, Mr Dixon states that FinTech poses various issues, challenges
and opportunities for the insurance sector globally. He acknowledges that while developments in
FinTech have the potential to increase access to finance and improve the efficiency of services,
such developments may also cause disruption to traditional digital models and challenges for
regulators attempting to strike an appropriate balance between risk and benefit. Among other
points, Mr Dixon outlines the action taken by the IAIS to address the risks and benefits of FinTech
developments from a regulatory perspective, including:
establishing an IAIS virtual FinTech Forum, designed to provide a platform for experts to
share their practical experiences of technical innovation impacting the insurance sector,
including on the use of alternative data, artificial intelligence and smart contracts;
organising digital-themed events and workshops to increase insurance supervisors’
awareness of FinTech developments and how best to address them; and
developing IAIS working groups to formulate guidance on the risks, trends and
opportunities posed by technological innovation in the insurance sector, including the
Market Conduct working group which recently published a draft issues paper on the
increasing use of algorithms and advanced data analytics by insurers.
Speech by Jonathan Dixon (Secretary General of the IAIS) on the IAIS’ key achievements in
2019 and the issues, challenges and opportunities posed by FinTech developments in the
insurance sector
35.2 2019 G-SII identification process – IAIS publishes report - 13 December 2019 – The IAIS has
published a report on the annual process for identifying global systemically important insurers (G-
SIIs), whose distress or disorderly failure may potentially cause significant disruption to the global
financial system and economic activity.
IAIS report on the 2019 identification process for G-SIIs
36. European Insurance and Occupational Pensions Authority
36.1 Solvency II – EIOPA publishes annual report on the use of capital add-ons – December 2019 – The
European Insurance and Occupational Pensions Authority (EIOPA) has published its third annual
report on the use of capital add-ons by national competent authorities (NCAs) under the Solvency
II Directive (2009/138/EC). The report covers the use of capital add-ons by NCAs in 2018. The
objective of the capital add-on measure is to ensure that the regulatory capital requirements
reflect the risk profiling of the undertaking or group. The report makes several findings, including
that:
in 2018, eight NCAs utilised the capital add-on measure in respect of 21 solo undertakings,
as compared to six NCAs setting capital add-ons for 23 solo undertakings in 2017; and
the amount of capital add-ons imposed on undertakings using the standard formula
remains very low overall, accounting for 1% of the total solvency capital requirement
(SCR) in 2018.
Financial Regulation / 19 December 2019 / Issue 1040 26
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
EIOPA annual report on the use of capital add-ons by NCAs in 2018
Press release
36.2 Solvency II – EIOPA publishes annual report on long-term guarantee measures and measures on
equity risk – 17 December 2019 – EIOPA has published its annual report on the use and impact of
long-term guarantee measures and measures on equity risk under the Solvency II Directive. The
report indicates that 699 (re)insurance undertakings in 22 countries, with a European market share
of 75%, use at least one of the following voluntary measures: (i) the matching adjustment; (ii) the
volatility adjustment; (iii) the transitional measures on risk-free interest rates; (iv) the
transitional measures on technical provisions; and (v) the duration-based equity risk sub-module.
The report also finds that the volatility adjustment and the transitional measure on technical
provisions are particularly widely used and that, overall, NCAs have observed a decrease in the
size and duration of guarantees.
The analysis carried out by EIOPA in the report will serve as a basis for an Opinion on the 2020
Solvency II review.
EIOPA report on long-term guarantee measures and measures on equity risk under Solvency II
Press release
36.3 2020 Solvency II Review - EIOPA publishes report on insurers’ asset and liability management
of illiquid liabilities – 16 December 2019 – EIOPA has published a report on insurers’ asset and
liability management of illiquid liabilities, following a request made by the European Commission
in April 2018 in the context of the 2020 review of the Solvency II Directive. The report
supplements information provided in EIOPA's annual reports on long-term guarantee measures.
The report contains information collected from NCAs in respect of four key areas: (i) insurance
liabilities; (ii) asset management of liabilities; (iii) long-term guarantee measures; and (iv) market
valuation of insurance liabilities.
EIOPA intends to use the information contained in the report to develop technical advice under
the 2020 Solvency II review, which will consider the extent to which the prudential framework
acknowledges the treatment of assets held against illiquid and long-term liabilities.
EIOPA report on insurers’ asset and liability management of illiquid liabilities
Press release
Financial Crime 37. Joint Committee of the European Supervisory Authorities
37.1 4MLD – ESAs publish final Guidelines on cooperation and information exchange between NCAs –
16 December 2019 – The Joint Committee of the European Supervisory Authorities (ESAs) (the
European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the
European Insurance and Occupational Pensions Authority (EIOPA)) has published a report
containing its final joint Guidelines on cooperation and information exchange between national
competent authorities (NCAs) responsible for supervising credit and financial institutions for the
Financial Regulation / 19 December 2019 / Issue 1040 27
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
purposes of the Fourth Money Laundering Directive (EU) 2015/849 (4MLD). This follows the ESAs’
consultation on draft Guidelines in November 2018.
The Guidelines aim to clarify the practicalities of supervisory cooperation and information
exchange and establish a framework of ‘colleges’ which will provide NCAs that are responsible for
the supervision of institutions which operate in three or more member states with a forum for
cooperation and exchange from an anti-money laundering (AML) and prudential perspective.
The Guidelines will apply from 10 January 2020, subject to a transitional period which is set out in
Guideline 16.
ESAs report containing final joint Guidelines on cooperation and information exchange
between NCAs responsible for supervising credit and financial institutions under 4MLD
Press release: ESAs
Press release: EIOPA
Enforcement 38. European Securities and Markets Authority
38.1 EMIR – ESMA publishes consultation on procedural rules regarding the imposition of penalties
on third-country CCPs, TRs and CRAs – 13 December 2019 – The European Securities and Markets
Authority (ESMA) has published a Consultation Paper on future procedural rules regarding the
imposition of penalties on third-country central counterparties (CCPs), trade repositories (TRs)
and credit rating agencies (CRAs) under the European Market Infrastructure Regulation
(648/2012/EU) (EMIR). This follows a provisional request for ESMA to provide technical advice to
the European Commission on the formulation of procedural rules on the imposition of penalties on
third-country CCPs, TRs and CRAs.
The Consultation Paper sets out ESMA’s preferred options for these procedural rules, including in
relation to: (i) the rights of the persons subject to the investigation to be heard by the
investigation officer; (ii) the rights of access to the file of the persons subject to the investigation;
(iii) limitation periods for the imposition of penalties; and (iv) the rules applicable to periodic
penalty payments. In order to ensure alignment, ESMA also proposes several amendments to the
existing procedural rules on the imposition of penalties on CRAs.
The consultation period closes on 18 January 2020. ESMA intends to publish and submit its final
report and technical advice to the European Commission in Q1 2020.
ESMA Consultation Paper on procedural rules for penalties imposed on third-country CCs, TRs
and CRAs
Press release
39. Financial Conduct Authority
39.1 Misleading information in relation to PPI claims – FCA fines claims management company
£70,000 – 17 December 2019 – The FCA has published a Final Notice fining Professional Personal
Claims Limited (PPC), a claims management company (CMC), £70,000 for publishing misleading
information and submitting insufficiently accurate redress claims for mis-sold payment protection
Financial Regulation / 19 December 2019 / Issue 1040 28
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
insurance (PPI) on behalf of its customers. This decision follows the transfer of regulatory
responsibility for CMCs from the Claims Management Regulator (CMR) to the FCA on 1 April 2019.
Following an investigation in December 2018, the CMR determined that PPC had breached the
previous CMC conduct rules by misleading consumers into believing that they were submitting
redress claims for mis-sold PPI directly to their banks, rather than engaging PPC as a CMC to
pursue claims on their behalf. The CMR held that PPC published website and printed material
which replicated the domain names, colour schemes and logos of five major banks. The CMR also
found that PPC had failed to present accurate, fully formed, detailed and specific complaints to
banks on behalf of its consumers. PPC had submitted Financial Ombudsman Service (FOS)
questionnaires to banks on behalf of different consumers. The questionnaires in part contained
identical factual allegations where evidence specific to each client should have been presented.
The CMR issued a penalty notice imposing a £70,000 fine in respect of PPC’s failings.
PPC appealed against the CMR’s penalty notice on 21 December 2018. While the appeal was
pending, the FCA took over the regulation of CMCs from the CMR. Having reviewed the evidence
put forward by the FCA, PPC withdrew its appeal and the FCA imposed the £70,000 fine on PPC for
the failings identified in the CMR’s penalty notice. This decision represents the first Final Notice
issued to a CMC by the FCA.
FCA Final Notice fining a CMC £70,000 for publishing misleading information and failing to
submit sufficiently accurate complaints to banks on behalf of its customers
Press release
40. Office of the Complaints Commissioner
40.1 Unpaid awards – Complaints Commissioner invites the FCA to consider the case for publishing
or disclosing information about regulated firms' professional indemnity insurers – December
2019 – The Financial Regulators Complaints Commissioner has published a final report, dated 21
November 2019, in relation to a complaint made against the FCA and the support available to
clients of financial services firms which fail to pay FOS awards.
The Commissioner did not uphold a client’s complaint against the FCA, which related to the FCA’s
failure to disclosure the identity of a financial services firm’s professional indemnity insurer for
confidentiality reasons. This followed a request by the client for such information in order to
enable them to make a claim to the insurer in respect of an unpaid FOS award. Despite not
upholding the client’s complaint, the Commissioner invites the FCA to consider whether there is a
case for allowing the publication or disclosure of information about regulated firms' professional
indemnity insurers in the future.
Complaint number FCA00664 (dated 21 November 2019)
41. Recent cases
41.1 Hall and Hanley Limited v The Financial Conduct Authority, (CMS 2019/0001), First-Tier
Tribunal, Grand Regulatory Chamber, 6 and 7 November 2019
CMC fined by the CMR – data breaches and unauthorised copying of client signatures – decision
upheld
Financial Regulation / 19 December 2019 / Issue 1040 29
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
The First-Tier Tribunal has dismissed an appeal made by Hall and Hanley Limited (H&H), upholding
a decision of the CMR to impose a fine of £91,000 on H&H in connection with data breaches and
the unauthorised copying of client signatures. H&H is a CMC whose business focuses on claims for
mis-sold PPI. The CMR is the former regulator of CMCs. The FCA conducted the hearing before the
First-Tier Tribunal having taken over the functions of the CMR on 1 April 2019.
In March 2019, the CMR held that H&H had breached rules requiring CMCs to take all reasonable
steps to ensure that any referrals, leads or data purchased from third parties had been obtained in
accordance with applicable law. The CMR found that H&H sent marketing text messages to
consumers without taking sufficient steps to check whether the consumers had consented to
receiving such messages. In addition, when reviewing a sample of H&H’s client files, the CMR
found that several clients’ signatures on claim documentation had been copied without
authorisation. The CMR considered the unauthorised copying of clients’ signatures, which were
submitted to financial firms by H&H, to be a serious matter and considered H&H to have been
negligent in failing to detect and prevent this conduct by one of its employees.
The Tribunal upheld the CMR’s decision in its entirety. In relation to data breaches, the Tribunal
found that these were serious and followed from H&H not having taken previous compliance
advice and warnings on board. The Tribunal concluded that H&H failed to act with the required
degree of competence and therefore acted negligently. Regarding the copied clients’ signatures,
the Tribunal concluded that H&H acted negligently in failing to provide proper training and
supervision to its employees, and that “the underlying matter was so serious that a financial
penalty is justified”.
Hall and Hanley Limited v The Financial Conduct Authority (CMS 2019/0001)
Press release
Financial Regulation / 19 December 2019 / Issue 1040 30
Quick Links
Selected Headlines General Brexit Banking and Finance Securities and Markets
Asset Management Insurance Financial Crime Enforcement
Document No
This Bulletin is prepared by the Financial Regulation Group of Slaughter and May in London.
The Group comprises a team of lawyers with expertise and experience across all sectors in which
financial institutions operate.
We advise on regulatory issues affecting firms across the financial services sector, including
banks, investment firms, insurers and reinsurers, brokers, asset managers and funds, non-bank
lenders, payment service providers, e-money issuers, exchanges and clearing systems. We also
advise non-regulated businesses involved in financial regulatory matters. In addition, our leading
financial regulatory investigations practice is regularly instructed by financial institutions
requiring specialist knowledge of financial services regulation together with experience in high
profile and complex investigations and contentious regulatory matters.
Most of the projects that we advise on have an extensive international or cross-border element.
We work in seamless integrated teams with leading independent law firms which offer many of
the most highly regarded financial institutions lawyers in Europe, the US and Asia, as well as
strong and constructive relationships with local regulators.
Our Financial Regulation Group also produces occasional briefing papers and other client
publications. The five most recent issues of this Bulletin and our most recent briefing papers
and client publications appear on the Slaughter and May website here.
The Group’s recent work includes advising:
A number of global banks, insurance and asset management groups on their preparations for
Brexit;
A number of banking groups in relation to banking structural reform, including the UK
ring-fencing regime;
Prudential plc on the proposed demerger of its UK & Europe business (M&G Prudential) from
Prudential plc, resulting in two separately-listed companies;
Standard Life plc on the recommended all-share merger with Aberdeen Asset Management and
the subsequent sale by Standard Life Aberdeen plc of its capital-intensive insurance business to
Phoenix;
UK Asset Resolution and Bradford & Bingley plc in relation to the disposal of legacy buy-to-let
mortgage assets to Prudential plc and funds managed by Blackstone for a total consideration of
£11.8bn;
On the legal implications of developments across a broad Fintech waterfront for clients such as
Euroclear, TreasurySpring, Bupa, TrueLayer, WorldRemit and Stripe, as well as other established
businesses, challengers and start-ups; and
A number of multi-national clients in relation to the UK, EU, and US economic and trade
sanctions regimes.
If you would like to find out more about our Financial Regulation Group or require advice on a
financial regulation matter, please contact one of the following or your usual Slaughter and May
contact:
Jan Putnis [email protected]
Ben Kingsley [email protected]
Nick Bonsall [email protected]
© Slaughter and May 2019
This material is for general information only and is not intended to provide legal advice.
For further information, please speak to your usual Slaughter and May contact.