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Allen & Overy's weekly update on Key Regulatory Topics - 8 June 2018 – 14 June 2018

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20 June 2018

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



Please see the Payment Systems and Payment Services section for an update on the HoC’s European Scrutiny Committee thirtieth report of the 2017-19 parliamentary session.

HMT updates EU Scrutiny Committee on the implications of Brexit negotiations on UK representation in ESAs

On 13 June, the UK government published a letter (dated 7 June) from John Glen, Economic Secretary to the Treasury, to Sir William Cash, HoC European Scrutiny Committee Chair, on the legislative proposals for reforms to the ESFS, which were published in September 2017. The letter provides an update on the implications of the Brexit implementation period negotiations on the possibility of the UK being represented in the ESAs. Mr Glen states that the text that the UK government agreed in March would enable UK participation in the ESAs during the implementation period. The relevant article in the legal text is Article 123(5). This article sets out that the UK may, by invitation, exceptionally attend meetings or parts of meetings of agencies provided that: (i) the discussion concerns individual acts to be addressed during the transition period to the UK or to natural or legal persons residing or established in the UK; and (ii) the presence of the UK is necessary and in the interests of the EU, in particular for the effective implementation of EU law during the transition period. The UK's presence at such meetings would be limited to agenda items fulfilling either of these conditions, and the UK would not have voting rights. Mr Glen states that the UK will continue to engage with and work alongside the ESAs during the implementation period to help ensure a smooth adjustment to the future relationship. The exact nature of this engagement will be a matter for further discussion with the EC. The letter also informs the committee about the ECB's April opinion on the proposed Regulation amending the EBA Regulation, which forms part of the ESFS reforms package. Mr Glen summarises the contents of the opinion and states that it is broadly in line with the UK government's position on the proposal. The only notable exception is the section on data reporting. Mr Glen explains that the UK government recognises the theoretical efficiencies associated with centralisation of data, but it questions whether these efficiencies would be realised in practice.

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FCA publishes its policy statement on the premium listing category for sovereign controlled companies

On 8 June, the FCA published its policy statement “Sovereign Controlled Companies: Feedback to CP17/21 and Final Rules (PS18/11)” creating a fourth category of premium listing available to companies that have a sovereign controlling shareholder. The FCA's final rules proceed with the proposals in its consultation (CP17/2) with the following notable amendments: (i) related party transactions - while, as proposed, neither a sponsor opinion nor the independent shareholder approval requirements under LR 11's related party rules will apply to sovereign controlled companies, they must announce transactions with their sovereign controlling shareholder as required under LR 11. However, this disclosure requirement is amended so that for the purposes of the aggregation rules in respect of smaller and small related party transactions with the sovereign controlling shareholder, the announcement will represent the cleansing event that resets the aggregation process. The final rules also now retain the LR 12 requirements on the repurchase of its own shares by the sovereign controlled company from its sovereign controlling shareholder for compliance with the related party provisions in LR 11; and (ii) independent vote on election of independent directors - while, as proposed, the sovereign controlling shareholder is not to be required to enter into a relationship agreement, there will be a requirement that the election of any independent directors be subject to separate approval by independent shareholders. As for other premium listed companies, where independent shareholders do not vote in favour of the election, the requirement for a 90-day cooling off period after which the election can proceed without the separate vote of independent shareholders will apply. While the FCA is proceeding with its proposals in relation to depositary receipts, it has made amendments to reflect that there ought to be an explicit eligibility condition and matching continuing obligation on a sovereign controlled company to ensure that the rights attaching to underlying equity shares must pass through to holders of depositary receipts. The eligibility criteria have not been altered in respect of the proposed positions on control thresholds and nationality. Issuers will be able to seek an admission, or transfer, of securities to this new category from 1 July. These issuers or their sponsor should contact the FCA's Listing Transactions department.

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FCA publishes a "Dear CEO" letter to banks on crypto-assets and financial crime

On 11 June, the FCA published a "Dear CEO" letter to banks on how to handle the financial crime risks posed by crypto-assets. In the letter, the FCA defines crypto-assets as any publicly available electronic medium of exchange featuring a distributed ledger and a decentralised system for exchanging value. The FCA advises banks offering services to current or prospective clients who derive significant business activities or revenues from crypto-related activities that it may be necessary to enhance their scrutiny of these clients and their activities. Appropriate steps include: (i) developing staff knowledge and expertise on crypto-assets to help them identify the clients or activities that pose a high risk of financial crime; (ii) ensuring that existing financial crime frameworks adequately reflect the crypto-related activities that the firm is involved in, and that they are capable of keeping pace with fast-moving developments; and (iii) in relation to clients offering forms of crypto-exchange services, assessing the adequacy of those clients' own due diligence arrangements. The FCA also refers to concerns it has relating to banks' customers that use crypto-assets. It states that banks should assess the risks posed by a customer whose wealth or funds derive from the sale of crypto-assets using the same criteria that would be applied to other sources of wealth or funds. However, one way crypto-assets differ from other sources of wealth is that the evidence trail behind transactions may be weaker. The FCA states that this does not justify applying a different evidential test on the source of wealth and it expects banks to exercise particular care in these cases. It goes on to state that where a bank identifies that a customer is using a state-sponsored crypto-asset that is designed to evade international financial sanctions, it would see this as a high-risk indicator. The letter concludes by noting that retail customers contributing large sums to ICOs may be at a heightened risk of falling victim to investment fraud. The FCA refers to the FSA's review of how banks handled the risk of investment fraud, which was published in June 2012. It advises banks to review the findings for a discussion of good and poor practice that is relevant to ICOs.

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FCA publishes its Primary Market Bulletin No 19 to consult on changes to the UKLA guidance notes

On 11 June, the FCA published its 19th Primary Market Bulletin to consult on changes to the UKLA Knowledge Base. Specifically, the FCA is consulting on a proposed update (FCA/TN/506.2) to the existing technical note on periodic financial information and inside information. The proposed amendments are extensive. They centre on the issue of identifying and handling inside information during the preparation of periodic financial reports. According to FCA/TN/506.2, issuers preparing periodic financial reports should assess on an ongoing and case-by-case basis whether the information they hold fulfils the criteria defining "inside information" as set out in Article 7 of MAR. Issuers should: (i) work on the assumption that information relating to financial results could constitute inside information; (ii) exercise judgment, and conduct the ongoing assessment in good faith; and (iii) record and be able to submit evidence of the assessment process to the FCA upon request. FCA/TN/506.2 gives, as a possible example of a legitimate interest of an issuer that is likely to be prejudiced by immediate disclosure of inside information, the situation where work on preparing a periodic financial report is in process and immediate public disclosure of certain information would impact on the orderly production and release of the report and could result in the incorrect assessment of that information by the public. In PMB 19 the FCA stresses that issuers should not assume, and the FCA does not think, that this interest will always be present. By its nature, this example is limited to the situation in which the inside information emerges as part of the process of preparing a periodic financial report and is to be included in the report. Issuers should also assess on an ongoing and case-by-case basis the extent to which the delay of disclosure of inside information is likely to mislead the public. The deadline for comments on the proposals is 23 July.

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Please see the Financial Cime section above for an update on the FCA’s "Dear CEO" letter to banks on how to handle the financial crime risks posed by crypto-assets.


MMF Regulations 2018 published

On 11 June, the MMF Regulations 2018 (SI 2018/698) (the “Regulations”) were published, together with an explanatory memorandum. The Regulations relate to the MMF Regulation ((EU) 2017/1131). They enable the FCA to authorise MMFs and enforce the provisions of the MMF Regulation when it comes into force on 21 July. Unless otherwise stated, this is the date on which the Regulations come into force. The Regulations amend the: (i) FSMA to provide powers of authorisation and intervention for the FCA in respect of unit trust funds and contractual schemes, both of which may be types of MMF; (ii) Open-Ended Investment Companies Regulations 2001 (SI 2001/1228) to allow funds that are OEICs to apply to become MMFs, or for funds that apply to be authorised as an OEIC to be authorised as an MMF at the same time; (iii) Alternative Investment Fund Managers Regulations 2013 (SI 2013/1773) to make provision for the FCA to direct the manner in which an application may be made for an alternative investment fund to be authorised as an MMF, and the process for intervention by the FCA in respect of such a fund; and (iv) Financial Services and Markets Act 2000 (Qualifying European Union Provisions) Order 2013 (SI 2013/419) to enable the FCA to investigate and bring enforcement action against funds directly for breach of the MMF Regulation. The Regulations include a review provision requiring HMT to carry out a review of the regulations relating to the above from time to time, and publish a report setting out the conclusions of the review by 21 July 2023. The FCA is due to publish its policy statement to its consultation on the changes to the FCA Handbook to reflect the application of the MMF Regulation (CP18/4) in the second quarter of 2018.

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Please see our eAlert: PRA consultation paper on the revised EU securitisation framework and significant risk transfer

Council publishes revised compromise proposal on Regulation amending EMIR supervisory regime for EU and third-country CCPs

On 14 June, the Council of the EU published a revised Presidency compromise proposal for a consolidated compromise text on recognition and supervision of third-country CCPs. The cover page to the compromise proposal states that the text underlined and in bold indicates the new amendments to the previous compromise proposal.

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FCA publishes list of co-operation agreements with third-country regulators in context of outsourcing portfolio management services under MiFID II

On 14 June, the FCA published a list of third-country supervisory authorities with which it has co-operation agreements that meet the requirements set out in Article 32(2) of Commission Delegated Regulation (EU) 2017/565 supplementing MiFID II as regards organisational requirements and operating conditions for investment firms (the “MiFID Org Regulation”). The FCA also reminds firms to consider the outsourcing requirements set out in Articles 30 and 31 of the MiFID Org Regulation and in Chapter 8 of SYSC.

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ESMA publishes its first annual report on the supervisory measures and penalties under EMIR

On 13 June, ESMA published its first report on the supervisory measures and penalties that NCAs have imposed under EMIR. The report, which is based on the results of a survey of NCAs, focuses on NCAs' monitoring of compliance with four articles of EMIR: (i) Article 4 (the clearing obligation); (ii) Article 9 (the reporting obligation); (iii) Article 10 (non-financial counterparties); and (iv) Article 11 (risk mitigation techniques). The report's conclusions include: (a) ESMA has identified a large range of practices being applied by NCAs. Overall, NCAs have focused on raising awareness of EMIR requirements. This has then gradually shifted to the monitoring and the enforcement of, first, the implementation of the requirements, and then, ongoing compliance with them; (b) some areas appear to be highly harmonised, such as the sources of information used by NCAs to verify compliance with EMIR provisions. Other areas, such as the enforcement procedures, although following different systems, do show a common underlying pattern; (c) the aspect that appear less harmonised concerns the amounts of fines, with amounts ranging between a minimum of 125 euros and a maximum of 100 million euros; (d) seven countries envisage the possibility of criminal sanctions related to EMIR infringements in their legislation; (e) to date, NCAs have imposed three sanctions under EMIR; and (f) one area where NCAs seem not to have prioritised specific supervisory actions concern third country entities trading contracts with substantial effect in the EU, which would be subject to the clearing obligation if established in the EU. ESMA considers that this could be considered further. ESMA is required under Article 85(5) of EMIR to submit the report to the EP, the Council of the EU and the EC on an annual basis. ESMA expects the first report to be the baseline for future reports on penalties and supervisory measures, which will help monitor compliance in the different member states and possibly identify areas where a higher level of harmonisation could be considered to ensure a level playing field.

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EP adopts the EMIR Refit Regulation and publishes the provisional text of its legislative resolution

On 12 June, the EP announced that it had voted in plenary to adopt the proposed Regulation amending EMIR and published the provisional edition (P8_TA-PROV(2018)0244) of the text of the legislative resolution adopted by it on the same day. The proposed Regulation will simplify clearing rules for small and non-financial counterparties and provide a temporary exemption for pension scheme arrangements from the mandatory clearing of derivatives. ECON published its report on the proposed Regulation on 25 May. The next step is for the proposed Regulation to be considered by the Council of the EU and the EC, which is due to happen in July. The Regulation will enter into force 20 days after it has been published in the OJ.

EP adopts the EMIR Refit Regulation

Provisional text of its legislative resolution of EMIR Refit Regulation


EBA publishes draft guidelines and an opinion on the implementation of Delegated Regulation setting out RTS on SCA and CSC under PSD2

On 13 June, the EBA published: (i) a consultation paper (EBA/CP/2018/09) on draft guidelines on the conditions to be met to benefit from an exemption from contingency measures under Article 33(6) of Delegated Regulation (EU) 2018/389, which sets out RTS on SCA and CSC under PSD2. The draft guidelines propose a pragmatic and consistent approach to the four conditions that an ASPSP must meet if it wishes to benefit from an exemption from the fallback option envisaged under Article 33(6) of the Delegated Regulation. The EBA considers that the draft guidelines provide clarity for all parties involved on the information to be considered to determine whether an exemption request meets the Article 33(6) conditions. In particular, the guidelines will enable NCAs to carry out a quick assessment of exemption requests, especially during the time when the bulk of these requests are received. The EBA plans to hold a public hearing to discuss the draft guidelines on 25 July. The deadline for comments on the draft guidelines is 13 August; and (ii) an opinion (EBA-Op-2018-04) on implementation of the RTS on SCA and CSC. The opinion focuses on implementation of the RTS. It sets out the EBA's views in "pressing" areas identified by the market and NCAs, including on exemptions to SCA, consent, the scope of data sharing, and requirements for APIs and dedicated interfaces to take into account. Although the opinion is addressed to NCAs, given the supervisory expectations it is conveying, the EBA advises it should prove useful for PSPs, among others. In the opinion, the EBA explains that it will provide further clarification on interpretation of the RTS on SCA and CSC through its online interactive single rulebook and Q&A tool. The tool will be extended to PSD2-related queries by the end of June. Both the draft guidelines and the opinion are designed to clarify a number of issues identified by market participants relating to the RTS on SCA and CSC, which will apply from 14 September 2019.

Consultation paper


PSR publishes a discussion paper on how data is used in the payments industry

On 12 June, the PSR published a discussion paper (DP18/1) about how data is used in the payments industry. The PSR explains that the UK payments sector is rapidly evolving, and data is becoming increasingly important. The way payments data is collected, used and shared presents opportunities for PSPs and end users. However, some of the opportunities, particularly those that could benefit end users, might not happen through market forces alone. Because of this, the PSR is keen to understand the opportunities and risks of the changing treatment of data in the industry, and what role it could play to make sure new uses of data work well for people and businesses that use payment systems. This could be through removing barriers to setting up new services, or mitigating risks associated with evolving uses of payments data. The PSR has identified three key areas that could directly affect its objectives, and which it plans to explore in more detail: (i) some people may have concerns about sharing the data attached to their payments with third-party companies providing other payments-related services (overlay services) if they believe their data may not be treated appropriately. This could slow the development of innovative products and services, meaning people using payment systems may be less likely to see benefits; (ii) potential providers of new services may have limited access to data about transactions across a whole payment system (global datasets), including data needed to develop new industry AML and anti-fraud measures. Access to certain global transaction data can potentially allow for the development of new ways to detect and combat fraud and financial crime, new methods for avoiding scams, and new approaches to AML compliance; and (iii) there are potential barriers that could stop customers and businesses getting the benefits from additional "enhanced" data attached to transactions. This data could make processing payments cheaper and more efficient, leading to cheaper services. The PSR has also identified a number of issues that could potentially affect its objectives indirectly. It proposes, where appropriate, to work with other regulators to take joint action. The deadline for comments on the discussion paper is 3 September.

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HoC European Scrutiny Committee considers the proposed Regulation amending Regulation on cross-border payments.

On 12 June, the HoC European Scrutiny Committee published its thirtieth report of the 2017-19 parliamentary session, in which, among other things, it considers the proposed Regulation amending the Regulation on cross-border payments as regards certain charges on cross-border payments in the EU and currency conversion charges adopted by the EC on the 28 March. Having considered the proposed Regulation and the UK government's position, as set out in a memorandum (dated 26 April) from John Glen, Economic Secretary to HMT, the committee has decided not to clear it from scrutiny, to request further information, and to draw it to the attention of the HoC Treasury Committee. In particular, the committee requests that, given the uncertainty around Brexit and the UK's future participation in the SEPA, Mr Glen write to the committee by 22 June to: (i) confirm whether the UK government agrees that the UK's exit from the single market will result in termination of its current SEPA membership at the end of the post-Brexit transitional arrangement, and the estimated cost for UK businesses and consumers; (ii) clarify whether the UK government intends to ensure that the UK's SEPA membership is preserved so that British PSPs can continue to interact with counterparts in other SEPA countries on current terms; (iii) clarify how the EU's regulatory measures on cross-border payments would apply to the UK if it remained in SEPA after leaving the single market in a manner similar to Switzerland (that is, without direct applicability of the Regulation on cross-border payments, as amended); (iv) explain whether the UK government intends to use the process of converting the Regulation on cross-border payments into domestic UK law as part of Brexit, to require UK banks to treat euro transfers or payments with an EEA counterparty as if they were denominated in sterling (and, if so, whether it intends to make this dependent on continued UK access to SEPA's clearing and settlement infrastructure). The committee expects HMT to alert it to publication of the EC’s Delegated Act on the transparency of currency conversions, since the UK is unlikely to have a vote when the Council of the EU considers this, but it may still apply in the UK under the terms of the post-Brexit transitional arrangement.


Please see our eAlert: Pensions: what's new this week

Council of EU Presidency publishes a compromise proposal on PEPP Regulation

On 14 June, the Council of the EU published a compromise proposal (10073/18) on the proposed Regulation on PEPP. The Council published the previous version of the compromise proposal (9857/1/18 REV 1) on 11 June. The cover page to the compromise proposal dated 14 June states that, with respect to the 11 June compromise proposal, the new text is marked in underlined bold and deletions are indicated in strikethrough. In respect of the 11 June compromise proposal, the new text introduced for the second and third compromise proposals is marked in underlined bold and deletions are indicated in strikethrough.

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ECB publishes a letter on its new pre-application process for significant institutions

On 13 June, the ECB published a letter (dated 7 June) relating to internal model requests by significant institutions. In the letter, the ECB explains the set of documents and processes that firms are invited to use when communicating any applications for initial internal model approvals, material model changes and extensions, reversions to less sophisticated approaches, and modifications to the scope of assets for which permanent partial use of the standardised approach is permitted. The letter also contains links to the set of documents to be used when communicating any non-material model changes or extensions. The ECB explains that firms are invited to follow a pre-application process, which aims to increase the efficiency of the assessment of internal model requests. The letter provides detail on the scope, process and timeline for the pre-application process. Participation in the pre-application process is not a legal requirement, but information that firms provide in this process is key to enabling the ECB to efficiently plan its assessment of internal model requests. If firms do not use this process, the ECB can only carry out its preparation once it has received the formal application. The ECB also points out that the level of information requested after submission of the formal application is at least equivalent to that foreseen in the pre-application process. The ECB believes that significant institutions that follow the pre-application process will benefit from a more certain and transparent time plan. Significant institutions are invited to follow the pre-application process for applications from 1 July onwards, using the forms referred to in the letter. The ECB advises that the pre-application process may be updated and enhanced in the light of post-implementation experience, and changes in the applicable legal framework. For communicating non-material model changes, institutions are asked to start using the forms referred to as of 1 July. 


BoE publishes a SoP on valuation capabilities to support resolvability

On 13 June, the BoE published a document that sets out (in the Appendix) its statement of policy on valuation capabilities to support resolvability. The SoP sets out the BoE's expectations for the capabilities firms should have in place to support timely and robust resolution valuations. These capabilities include the data, systems and processes that collectively support valuations of a firm's assets, liabilities, and equity. Non-compliance with the statement of policy may constitute a barrier to resolvability, and may result in the BoE directing firms to improve their valuation capabilities to ensure resolvability. The BoE consulted on its proposed policy in August 2017 and the document discusses the main themes raised in consultation responses and clarifies the BoE's policy approach where relevant. Following its review of the consultation responses, the BoE has decided to maintain the principles-based approach to the proposed policy consulted on. The key policy updates made in response to consultation are: (i) extending the timeline for compliance to 1 January 2021 and introducing a provision for firm-specific compliance dates to be set in certain cases; (ii) explicitly requiring operational documentation of how capabilities would be used in a resolution scenario; and (iii) including a provision whereby certain smaller and simpler firms may not need to have resolution valuation models in place in business-as-usual. The BoE is considering providing further guidance to help firms implement the policy. The BoE expects to send an information request to in-scope firms, which will ask them to carry out a more detailed gap analysis of existing capabilities and provide their plans for complying with the policy by 2021. The BoE also intends to provide further detail on its expectations for how resolvability will be assessed, including in respect of firms' valuation capabilities. As noted in its response to the Independent Evaluation Office's evaluation of its resolution arrangements, the BoE has committed to publish summaries of major UK firms' resolution plans and its assessment of their effectiveness. It will consult by the end of 2018 on the approach to ensuring that banks have implemented policies that have been set to remove barriers to their resolvability, which is central to the BoE's strategic goal of making the resolution framework operational.

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PRA publishes a policy statement and an updated supervisory statement on MREL reporting

On 13 June, the PRA published a policy statement (PS11/18) on reporting MREL. Separately, the PRA has published an updated version of its January 2015 supervisory statement on resolution planning (SS19/13), together with final versions of its MREL reporting templates and related guidance. In PS11/18, the PRA provides feedback to responses to its January consultation paper (CP1/18). It also sets out the PRA's final expectations for MREL reporting. Respondents were broadly supportive of the proposals. However, some questioned whether the frequency of reporting would place a disproportionate burden on certain firms. Some sought further clarity on the details of the draft templates and guidance. In light of the comments, the PRA has made minor amendments to the draft supervisory statement it consulted on to take a more proportionate approach to the frequency of reporting, and to add further clarity on the templates and guidance. The issues raised by respondents and the subsequent changes made by the PRA are explained in chapter 2 of PS11/18. The PRA has also made some amendments to the draft supervisory statement as a result of further analysis. It advises that these are minor amendments, including changing the numbering of the templates. These changes are explained in chapter 3. The PRA believes that the changes made enhance the clarity and proportionality of its expectations and, as a result, will reduce the burden on firms relative to the original proposals consulted on. The updated version of SS19/13 will take effect from 1 January 2019. Firms are expected to use the BoE’s electronic data submission (BEEDS) portal for submitting all returns. The BoE is planning to have this available for firms to submit MREL returns from January 2019, and will contact firms in preparation for reporting. The PRA will provide further information and materials (as needed) on the BoE's website.

Policy Statement

Updated Supervisory Statement

BoE publishes a policy statement and an updated SoP on its approach to setting MREL

On 13 June, the BoE published a policy statement on its approach to setting a MREL. In the policy statement, the BoE provides feedback on the main issues raised in responses to its October 2017 consultation paper. It also explains where it has made changes to its policy, and clarifies its policy approach, where relevant. The BoE has decided to retain the general approach it consulted on. However, it has modified aspects of its approach in a small number of areas, identified in section 2 of the policy statement. An updated version of the BoE's November 2016 SoP on its approach to setting MREL has been published separately. In the second half of the year, the BoE will communicate the interim internal MREL it expects to apply from 1 January 2019 for relevant subsidiaries of G-SIBs. In early 2019, it will communicate the interim internal MREL that it expects to apply from 1 January 2020 for relevant subsidiaries of non-G-SIBs. MREL, including internal MREL, must be set on an annual basis. The BoE will engage with relevant persons to consider whether the transitional arrangements for meeting the interim or end-state MRELs remain appropriate. The BoE plans to keep the SoP under review and update it where necessary. In particular, it will review the MREL calibration and the final compliance date before setting end-state MRELs and, in any case, before the end of 2020.

Policy Statement

Updated SoP

FSB publishes a speech on effective global resolution schemes

On 12 June, the FSB published a speech by Dietrich Domanski, FSB Secretary General, on effective global resolution schemes. The speech covers matters including the following: (i) bail-in execution - in November 2017, the FSB consulted on guidance to assist authorities in making G-SIB bail-in resolution strategies operational. Generally, respondents expressed support for the guidance and its focus on the operational aspects of a bail-in; (ii) funding in resolution - also in November 2017, the FSB consulted on guidance on the development of a plan for funding in resolution. Many respondents welcomed the focus on firm capabilities and the operational aspects of a funding strategy. With regard to both consultations, the FSB intends to reflect suggestions for changes in the final guidance, which it expects to publish in the coming weeks; (iii) open issues in implementation. Although the publication of the above two guidance papers will assist authorities and firms in their work to operationalise resolution plans, they do not consider many of the details that will need to be worked through at a jurisdictional level, taking into account local legal and regulatory frameworks. These details will need to be considered as part of resolution planning to ensure that resolution strategies can be credibly and feasibly implemented. The FSB is also carrying out work on two other aspects of authorities' resolution planning work. It is comparing approaches in FSB jurisdictions to the public disclosure of information on resolution planning and resolvability. It is also looking at trading book wind-down. The wind-down of trading book activity may form part of a restructuring plan for a firm in resolution. The FSB expects to report its findings later in the year; and (iv) monitoring and evaluation - the FSB has started work on a thematic peer review of resolution regimes. A report on the peer review will be published in early 2019. The FSB also plans to evaluate the effects of the reforms aimed at ending "too-big-to-fail". The key objective of the evaluation is to assess whether reforms have accomplished their objective, or whether there are any unintended consequences that may call for adjustments in regulation.

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Council of EU publishes a progress report on the EC’s work to strengthen the banking union

On 14 June, the Council of the EU published a report (dated 12 June) on the progress of the EC’s initiatives to strengthen the banking union, including the proposed Regulation establishing the EDIS. The report highlights a number of issues under discussion within the Council, including: (i) the technical issues linked to different alternatives for the initial model of the EDIS, such as consideration of the re-insurance phase, and mandatory lending as a possible alternative to the re-insurance phase; (ii) the methodology for calculating risk-based contributions and the possible use of alternative measures; and (iii) the treatment of euro area and non-euro area member states, and the need to analyse the possible impact of the proposed EDIS Regulation on the functioning of the internal market. The EC is to perform an analysis of the effects of the proposed EDIS on non-banking union member states and the internal market as soon as possible. The report also refers to an analysis carried out by the ECB that considered whether the size of a fully-fledged EDIS according to the EC’s proposal was adequate to absorb potential losses stemming from pay-out events and whether there would be cross-subsidisation by country. The ECB concluded that the size of a fully-fledged EDIS would be sufficient to cover pay-out events in a very severe crisis, and there was no evidence of unwarranted systematic cross-country subsidisation within EDIS, including when considering country-specific shocks.

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BoE publishes its annual report and accounts 2018

On 14 June, the BoE published its annual report and accounts for 2018. The report covers the year ending 28 February. It includes information on the BoE's new three-year strategic plan, Vision 2020, and its strategic goals for the next three years. The BoE’s strategic goals for the next three years are to: (i) deliver a post-EU framework for financial stability; (ii) establish operational resilience in its prudential frameworks; (iii) understand the causes and implications of a "lower for longer" interest rate environment; (iv) catalyse structural reforms in fixed income, currency and commodity markets; (v) make the resolution framework operational; (vi) understand and apply FinTech to help fulfil the BoE's mission; and (vii) deliver the medium-term blueprint for the governance and infrastructure of the RTGS system.

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BoE publishes a speech on resilience and continuity in an interconnected and changing world

On 13 June, the BoE published a speech by Lyndon Nelson, Deputy CEO and Executive Director, on resilience and continuity in an interconnected and changing world. In the speech, Mr Nelson discusses the need for financial sector firms to be able to deal with operational shocks and their consequences. He considers that operational resilience will soon be seen to be on a par with financial resilience and a key part of a firm's risk profile. The cyber threat, in particular, brings operational resilience into greater focus and requires organisations to understand themselves and their most critical assets and functions. Mr Nelson considers that regulators need to set out clear expectations of firms as regards their operational resilience. He states that the BoE: (i) has been developing a suite of supervisory tools that can be used to assess firms' resilience against its expectations and inform the supervisory priorities it agrees with firms; (ii) will continue with its CBEST programme of threat-led penetration testing and is also trialling some other diagnostic tools; and (iii) intends to publish a joint discussion paper with the FCA, which will set out the regulators' expectations in this area. He would like firms to be on a WAR footing to: (a) withstand - firms will be expected to set their own tolerances for key business services, which should take the form of clear metrics indicating when a disruption would represent a threat to a firm, to consumers or to financial stability. Firms will be expected to test their tolerances and demonstrate to their supervisors that they have concrete measures in place to deliver resilient services. Firms' boards will also be expected to play a key role as they develop their operational and cyber resilience strategies; (b) absorb - firms will be expected to build into their approach that operational incidents will occur and that they will need to absorb such shocks. Firms will therefore need to clearly define and regularly test their approaches to incident management; and (c) recover - firms need to be able to recover from an operational incident. This requires viable, tested contingency plans for the resumption of critical functions.

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UK Government responds to its report on the growing culture of social impact investing in the UK: financial services aspect.

On 12 June, the Department for DCMS published the UK government’s response to the November 2017 report by an independent advisory group on growing a culture of social impact investing in the UK. The response sets out the government's position on each of the five themes outlined in the report, and any specific policy work that will help drive these areas forward. Among other things, the UK government is committed to: (i) partnering with and providing support to the financial services industry to help build social impact capabilities among investment professionals. It will work closely with regulators and statutory bodies to ensure that, as relevant to their respective mandates, social impact is considered in regulatory frameworks and understanding; (ii) consulting on changes to regulation to allow for consideration of broader financial risks and opportunities, including those related to environmental, social and governance issues. The FCA is also considering what form of rule changes may be appropriate to address proposals relating to requiring independent governance committees to report on firms' policies on evaluating long-term investment risks; and (iii) considering what more can be done to increase consideration of the wider impacts of pension investments, environmental and social, as well as financial. The UK government will focus on ensuring that current work is capitalised upon, identifying and (where appropriate) proposing the removal of longer-term behavioural and legislative barriers, and improving investor consideration and communication of impact issues. The UK government will continue to work alongside the financial services industry and regulators and will provide a progress update this winter.

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