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Key Regulatory Topics: Weekly Update - 13 October 2017 – 19 October 2017


23 October 2017

Allen & Overy publish weekly updates on key regulatory topics affecting the financial services sector. If you would like to receive this update by email please contact


Please see the Financial Crime section for an update on the new Sanctions and Anti-Money Laundering Bill which is presently being considered by the UK Parliament in preparation for Brexit.
TheCityUK publishes summary paper on Brexit transitional arrangements
On 17 October, TheCityUK published a summary paper on Brexit transitional arrangements. In the paper, TheCityUK urges the UK government to make rapid progress on setting out the detail of transition and for the EU to respond quickly and positively. TheCityUK argues that it is critical for the UK-based financial and related professional services industry, and for other UK and EU businesses, to have urgent clarity from the UK and the EU27 on time-limited, legally-binding transitional arrangements and the principles underpinning them. In particular, TheCityUK states that: (i) significant progress must be made on transitional arrangements by the end of 2017 and there must be clarity from the UK and the EU on the arrangements in the first quarter of 2018 at the latest; and (ii) transitional arrangements should allow for enough time to negotiate a mutually beneficial future UK/EU relationship, which should be followed by an adaptation/implementation period (an integral part of most free trade agreements) to allow for enough time to make all necessary adjustments for the new trading arrangements.


EC publishes report on progress to mitigate risks associated with SFTs
On 19 October, the EC published a report (COM(2017)604) to the EP and Council of the EU under Article 29(3) of the Regulation on reporting and transparency of SFTR. The report discusses FSB recommendations aimed at mitigating SFT risk and provides a brief assessment of European SFT markets. The EC concludes that to a large extent, the FSB recommendations on SFTs have been addressed in the EU through the adoption of SFTR and specific provisions in sectoral financial services legislation and guidelines. As such, there does not seem to be a need for further regulatory action at this stage. However, the EC will continue to thoroughly monitor developments in SFT markets and the international regulatory space. The EC will reassess the added value of qualitative standards and haircut floors on the basis of a report to be prepared by ESMA once comprehensive SFT data is available.
ECB publishes opinion on proposed Regulation amending EMIR
On 17 October, the ECB published an opinion (dated 11 October) on the proposed Regulation amending EMIR as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a CCP, the registration and supervision of trade repositories and the requirements for trade repositories. The ECB supports the EC’s initiatives to introduce modifications, which simplify applicable rules and eliminate some of the burdens of EMIR
EC Implementing Decision on equivalence of arrangements of US CFTC regime for purposes of Article 11 of EMIR published in OJ
On 14 October, EC Implementing Decision ((EU) 2017/1857) on the recognition of the legal, supervisory and enforcement arrangements of the US for derivative transactions supervised by the CFTC as equivalent to certain requirements of Article 11 of EMIR was published in the OJ. The EC adopted the Implementing Decision on 13 October. It comes into force on 3 November (that is, 20 days after publication in the OJ).
BoE confirms SONIA reform to be implemented in April 2018
On 16 October, the BoE confirmed that its reforms to the SONIA interest rate benchmark will take effect on 23 April 2018. The final day for which SONIA will be calculated and published by the Wholesale Market Brokers’ Association will be 20 April 2018. For the rate pertaining to 23 April 2018, SONIA will be calculated by the BoE using the reformed methodology. It will be published at 9:00am on 24 April 2018.
ESMA updates benchmarks webpage
On 13 October, ESMA updated its webpage on benchmarks. ESMA will start publishing a register of administrators and third country benchmarks, in accordance with Article 36 of the Benchmarks Regulation. ESMA will start publishing this list of administrators and third country benchmarks as of 1 January 2018 (i.e. the date on which Article 36 of the Benchmarks Regulation applies). The list will be published through an excel file starting from 1 January 2018 and until Q3 2018 when the final register interface will be available.
EC adopts modified legislative proposal to amend EMIR supervisory regime for CCPs
On 13 October, the EC adopted a modified legislative proposal for a Regulation amending the EMIR supervisory regime for EU and third-country CCPs (COM(2017) 331 final/2). The modified legislative proposal states that it is a consolidated version to be read together with the explanatory memorandum contained in COM(2017) 539.


FCA undertakes thematic review of the debt management sector
On 19 October, the FCA announced undertaking a thematic review of the debt management sector. The FCA aims to understand how providers across this sector are meeting the needs of their customers, following the FCA’s interventions in the market and other changes since its last thematic review. The FCA will base its review on a sample of fee-charging and free-to-customer debt management providers. It will look at the service provided to customers and also the initial advice process to establish what is helping consumers deal with their debts, as well as identifying areas for improvement. The FCA will review customer case files and visit providers to interview staff and observe their processes and dealings with customers. It will also make full use of the information it already holds to minimise burdens on providers. The FCA highlights that although the main aim of the review is to assess the sector more broadly, it will take supervisory action if it finds that firms are not meeting the expected standards. The FCA expects to complete its review in Q1 2019.
FCA publishes Financial Lives Survey 2017
On 18 October, the FCA published a report setting out the findings of its Financial Lives Survey 2017. The survey collects information about the financial products consumers use and their attitudes to managing their money. It covers their experiences of using financial products and services, as well as their experiences of dealing with the firms that provide them. The report tells the financial story for six different age groups to show key themes at each life stage, from those 18-24 to those 65 and over. The FCA will publish an overarching strategy ‘Approach to Consumers’ later this year.
EC requests to ESAs to report on cost and past performance on the main categories of retail investment, insurance and pension products
On 17 October, the EC published its request (dated 13 October) to the ESAs to issue recurrent reports on the cost and past performance of the main categories of retail investment, insurance and pension products. The reporting should be based on data and information originating from disclosures and reporting already required by Union law or national legislations, and collected in a direct or indirect manner. The EC expects the ESAs to take a staggered and pragmatic approach to the reporting as it recognises there maybe difficulties arising from using incomplete data as the basis of these reports.
FCA speech on an ageing population and financial services
On 16 October, the FCA published a speech by Linda Woodall, Director of Life Insurance and Financial Advice, on an ageing population and financial services. In the speech, Linda Woodall highlights that not all the ageing population is vulnerable, but those who are vulnerable are not having their financial needs met. She identifies three areas in particular where firms need to consider the needs of the ageing population: (i) product and service design; (ii) customer support; and (iii) review and adapt strategies.
FCA delays interim report on mortgage market study
On 13 October, the FCA published an update on its mortgage market study (MS16/2). The FCA aimed to publish an interim report setting out its analysis and preliminary conclusions, in summer 2017. However, the FCA explains that the market study is still on-going and the publication has been deferred until spring 2018.


Please see the Markets section for an update on ESMA’s Financial Instruments Reference Data system database on MAR.
New Sanctions Bill introduced in HoL
On 18 October, a new Sanctions and Anti-Money Laundering Bill was introduced in HoL. This is the first Bill relating to Brexit to be introduced in the HoL, following a public consultation on the new measures earlier this year. The new legislation will give the UK the necessary legal powers to continue to implement sanctions and introduce tough new measures post-Brexit against states such as North Korea and terrorist organisations. It will enable the UK to maintain existing sanctions regimes currently imposed through EU law, while providing the necessary legal underpinning for the UK to decide when and how to take action against new threats. The Sanctions and Anti-Money Laundering Bill will be taken through the HoL by the Foreign Office Minister and is expected to move onto its second reading later this autumn.
Criminal Finances Act 2017 (Commencement No. 2 and Transitional Provisions) Regulations 2017 published
On 17 October, the Criminal Finances Act 2017 (Commencement No. 2 and Transitional Provisions) Regulations 2017 was published. The Regulations bring various provisions of the act into force on 31 October.
MLD5 - EC consultation on broadening law enforcement access to centralised bank account registries
On 17 October, the EC published a consultation on broadening law enforcement access to centralised bank account registries. The aim of the consultation is to collect opinions on possible new EU legislation, broadening the access to centralised bank and payment account registries to a targeted number of public authorities in order to disrupt the activities of organised crime groups and terrorists. The deadline for comments is 9 January 2018.
Cyber-security – FSB publishes stocktake report and summary on cyber-security regulations, guidance and supervisory practices
On 16 October, the FSB published a report (dated 13 October) on the results of its stocktake of publicly released cyber-security regulations, guidance and supervisory practices in the financial services sector. The FSB’s stocktake report is informed by the responses of member jurisdictions and international bodies to the FSB’s surveys. The conclusions from the stocktake report highlight, in particular: (i) FSB member jurisdictions have been active in addressing cyber-security for the financial sector; (ii) FSB member jurisdictions report a significantly higher number of publicly released regulatory schemes than publicly released supervisory practices schemes; and (iii) seventy-two per cent of jurisdictions reported publicly released plans to issue new regulations, guidance or supervisory practices that address cyber-security for the financial sector within the next year. The FSB has also published a summary of its report.


Fund regulation – FCA launches asset management hub
On 16 October, the FCA launched its asset management authorisation hub. The hub has been launched to support new firms by assisting them throughout the authorisation process. The FCA stresses that the authorisation hub will not lower entry standards to the market and entrants will need to meet the same rigorous standards as current firms before they receive authorisation.


FCA reports on implementation of insurance renewal transparency rules
On 19 October, the FCA published a new webpage on how general insurance firms have implemented its rules relating to transparency in insurance renewals which came into effect in April. The FCA identifies four key areas where firms have failed to meet the rules: (i) providing incorrect premium information; (ii) failing to present the premiums and shopping around message clearly, accurately and in a way which draws the reader’s attention; (iii) not implementing the rules for all products and customers; and (iv) failing to properly identify a ‘renewal’ as defined by the rules. The FCA is concerned that firms were not prepared to implement the renewal transparency rules accurately. The FCA reminds firms of upcoming regulatory changes such as the IDD and the SM&CR which it considers to be more complex. The FCA warns that under-preparation for major regulatory change is not acceptable and firms will need to ensure that regulatory changes are managed effectively in future.
PRA publishes policy statement on half-yearly reporting of market risk sensitivities for Solvency II firms
On 18 October, the PRA published its policy statement on the data collection of market risk sensitivities under the Solvency II Directive (2009/138/EC) (PS25/17). PS25/17 provides feedback to responses to CP7/17 and includes a link to the final supervisory statement (SS7/17). The PRA has also published a template for the data collection of market risk sensitivities, which it expects firms to use to submit data, together with instructions.
PRA publishes report on key themes from PRA roundtables on Solvency and Financial Condition Reports under Solvency II
On 18 October, the PRA published a report on the key themes identified from its roundtables on Solvency and Financial Condition Reports (SFCRs) in September. Amongst other things, the report highlights two areas of priority for increased disclosure: (i) sensitivity analysis. The most important priority was disclosure of the sensitivity of solvency capital requirement (SCR) coverage ratios to changes in market and other key variables; and (ii) analysis of movements in Solvency II SCR coverage. Analysts and investors wanted more granular and consistent disclosures of the drivers of movements in SCR coverage. This would include a breakdown of the sources of capital generation, changes in risk assumptions and changes in modelling approach.
IDD – Insurance Europe welcomes ECON call for delaying application
On 17 October, Insurance Europe welcomed the ECON’s decision to vote to adopt recommendations calling on the EC to extend the application date for measures implementing the IDD to 1 October 2018. The original date for the application of the IDD is 23 February 2018.
Corrigendum to Delegated Regulation amending Solvency II Delegated Regulation on infrastructure corporates published in OJ
On 13 October, a corrigendum to Commission Delegated Regulation ((EU) 2017/1542) amending the Solvency II Delegated Regulation ((EU) 2015/35) concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings has been published in the OJ.


ESMA updates FAQs on transitional transparency calculations under MiFID II
On 18 October, ESMA published an updated version of its FAQs (ESMA50-164-677) on Interim Transparency Calculations. The FAQs relate to MiFID II TTC for all non-equity instruments in accordance with RTS 2 on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives under MiFIR.
ESMA launches Financial Instruments Reference Data System
On 16 October, ESMA announced the launch of its FIRDS database. The purpose of the database is to provide market participants with reference data to enable them to identify instruments subject to reference data reporting requirements under MAR and MiFID II/MiFIR.
ESMA publishes instructions on MiFID II and its Financial Instruments Reference Data System
On 16 October, ESMA published instructions relating to the FIRDS (dated 6 October) (ESMA65-8-5014). The purpose of the document is to provide details on the reference data files that ESMA will be publishing and how to access them.
EC and CFTC publishes joint statement on common approach to certain derivatives trading venues
On 13 October, the EC and CFTC issued a joint statement on common approach to certain derivatives trading venues. The aim of the common approach is to ensure that EU counterparties are able to comply with the trading obligation under Article 28 of MiFIR by executing mandated derivatives on EU authorized trading venues or CFTC-authorized SEFs and DCMs, while ensuring that US counterparties can comply with the trade execution requirement under Section 2(h)(8) of the CEA by executing swaps on certain EU authorized trading venues that are exempted from SEF registration pursuant to CEA Section 5h(g), as well as on SEFs and DCMs. The EC proposes that it adopts an equivalence decision to recognise CFTC-authorized SEFs and DCMs that operate in the United States as eligible venues for the execution of those derivatives transactions that will be subject to the EU trading obligation, provided the requirements of MiFIR/MiFID II and MAR are met.


Please see the Taxes/Levies section for an update on the PSR’s consultation on regulatory fees.
EPC publishes new versions of SEPA rulebooks: October 2017
On 18 October, the EPC published updated rulebook versions for its SEPA payment schemes: (i) SEPA credit transfer (SCT); (ii) SEPA instant credit transfer (SCT Inst); (iii) SEPA direct debit core (SDD core); and (iv) SEPA direct debit business to business (SDD B2B) schemes. The EPC has also updated the SEPA Scheme Management Internal Rules (SMIRs). These updated versions will replace the previous 2017 versions of the rulebooks that were to take effect on 19 November (namely, the SCT, SDD Core and SDD B2B rulebooks) or 21 November (namely, the SCT Inst rulebook). The updated rulebooks will enter into force on the same date as the previous 2017 versions.
PSD2 – EBA report on final guidelines on procedures for complaints infringements
On 13 October, the EBA published its final guidelines (EBA/GL/2017/13) on the complaints procedures to be taken by CAs to ensure and monitor effective compliance by PSPs with the revised PSD2. The guidelines have been issued under Article 100(6) of PSD2. The guidelines govern the process through which payment service users, and other interested parties, can submit complaints to competent authorities with regard to PSPs’ alleged infringements of PSD2. The guidelines will come into force on 13 January 2018.
FCA open to applications under PSD2
On 13 October, the FCA announced it is open to applications for authorisation under PSD2. In light of this, the FCA has published new and updated webpages, such as: (i) a new webpage on applying to become a registered account information service provider; (ii) a new webp​age on the application fees for payment institutions; and (iii) an updated webpage on applying to become an EEA authorised payment institution. Firms can apply to passport under PSD2 from 13 December.


BCBS publishes progress report on implementation of Basel regulatory framework
On 18 October, the BCBS published its thirteenth progress report (BCBS418) (dated October 2017) on BCBS members’ implementation of Basel III. The report focuses on the status of adoption of all the Basel III standards (which will become effective by 2019) to ensure that the Basel standards are transformed into national law or regulation according to the internationally agreed timeframes. The report includes the status of adoption of: (i) the Basel III risk-based capital standards; (ii) the LCR; (iii) the NSFR; (iv) the standards for global and domestic SIBs; (v) the leverage ratio; (vi) the large exposure framework; (vii) the interest rate risk in the banking book IRRBB; and (viii) the disclosure requirements.
Financial supervisory requirements - EC inception impact assessment on fitness check
On 17 October, the EC published an inception impact assessment on a fitness check of supervisory reporting requirements (Ares(2017)5063271). The fitness check aims to analyse the shortfalls associated with supervisory reporting. The assessment will focus on legislative acts that contain requirements to report data in a structured format for supervisory purposes. It will be limited to primary (Level 1) legislation, with a more in-depth look at certain specific products (such as derivatives) where a more granular approach to reporting is used. The EC intends to launch a public consultation on the fitness check in the fourth quarter of 2017. The consultation will last for a period of 12 weeks. The EC also intends to establish a stakeholder roundtable on financial reporting, formed primarily of representatives of EU supervisors and regulators.


Recovery and resolution plans – HMT publishes MoU with BoE
On 17 October, HMT published a revised version of its MoU with the BoE on resolution planning and financial crisis management. The MoU has been updated to include references to the BoE’s resolution liquidity framework (RLF). The RLF is intended to give the BoE the tools to lend to banks, building societies or investment firms that are subject to the SRR in the context of a BoE-led resolution.


PSR regulatory fees - PSR second consultation on regulatory fees for 2018/19 delayed
On 16 October, the PSR updated its webpage on its consultation paper (CP17/30) on regulatory fees for 2018/19. The PSR published CP17/30 in August. Having reviewed the responses to CP17/30, the PSR has concluded that it requires more time before it publishes its next consultation relating to regulatory fees for 2018/19. The PSR therefore plans to publish its next consultation in December instead of in November. The PSR does not expect that this change will impact on the proposed timing of its third consultation in March 2018.
PRA publishes update to consultation on changes to PRA and FSCS fees and levies for insurers and designated investment firms
On 13 October, the PRA updated its webpage relating to its consultation paper (CP16/17) on proposals relating to periodic fees for designated investment firms, periodic fees and FSCS levies for insurers, and fees relating to models. The PRA highlighted that it was unable at the time to provide life insurers (A4 fee block) with indicative fee rates due to data limitations. Although the issues have not been resolved fully, the PRA set out some indicative rates for the 2017/18 fee year based on 2016 Solvency II reported data and the proposals set out CP16/17 (including the current weightings between fee components). The PRA explained that these figures are for information only and are intended to assist life insurers in interpreting the proposals contained within CP16/17. Future fee rates are dependent on the activity of individual firms during the reporting period, as well as the PRA’s AFR, and so will vary accordingly.


European financial markets – ESMA speech
On 17 October, ESMA published a speech by Steven Maijoor, ESMA Chair, on the state of European financial markets. In his speech, Mr Maijoor focussed on three key issues: (i) building a CMU which focussed on protecting retail investors; (ii) a strong convergent European supervisory culture including Brexit; and (iii) improving ESMA’s understanding of trends, risks and vulnerabilities in financial markets.


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