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Key Regulatory Topics: 30 November - 6 December 2018

07 December 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 product sections for updates on various draft SIs published this week in anticipation of a hard Brexit.

Please refer to the Other Developments section for an update on the CMA’s consultation on its Annual Plan 2019/20, an update on the BoE’s record of its recent FPC meetings, and the FPC’s response to the Chancellor's letter on its remit and recommendations for 2018/19.

Bank of England (Amendment) (EU Exit) Regulations 2018 made
On 5 December, the Bank of England (Amendment) (EU Exit) Regulations 2018 were published, together with an explanatory memorandum. The Regulations amend the Bank of England Act 1998, the Financial Services Act 2012 and secondary legislation including the Bank of England Act 1998 (Macro-prudential Measures) Order 2013. The Regulations were laid before Parliament in November. The Regulations will enter into force on exit day.


ESMA report on market share calculation for CRAs
On 4 December, ESMA published a report (dated 30 November) setting out its annual market share calculation for EU CRAs, as required by Article 8d of the CRA Regulation. The aim of the report is to provide a guide on the requirements of Article 8d of the CRA Regulation, which states that issuers or related third parties are required to consider appointing a CRA with no more than 10% total market share whenever they intend to appoint one or more CRAs to rate an issuance or entity. The report also provides background and guidance as to how the market share calculation is performed and should be used. In particular, it: (i) allows the user to identify CRAs with no more than 10% total market share (section 6); (ii) allows the user to identify the types of credit ratings offered by these CRAs (section 7); (iii) allows the user to assess the market presence of CRAs in different asset classes (section 8); and (iv) provides a link to a standard form and supervisory briefing the user can use for documenting the non-appointment of a CRA with no more than 10% total market share (section 9). ESMA welcomes feedback on the information in the report. It previously published a report on market share calculation for CRAs in December 2017.


Findings from FCA thematic review on managing long-term mortgage arrears and forbearance
On 6 December, the FCA published a webpage setting out the findings from a thematic review on whether customers with long-term mortgage arrears are experiencing harm from extended forbearance. The FCA carried out the review having identified a trend of increasing long-term arrears cases, while the number of homes being repossessed had been falling. Generally, the FCA found that firms treated customers in long-term financial difficulty appropriately. However, it identified some inconsistencies in firms' arrears management practices that have the potential to cause harm and may result in poor customer experience. The FCA previously issued detailed guidance on good and poor arrears management around areas such as customer engagement, quality assurance and customer vulnerabilities. The FCA expects firms offering or administering mortgages to review their practices in line with its rules, guidance and examples of good and poor practice. Where appropriate, firms should make relevant improvements to meet the FCA's expectations of minimising harm to customers. The FCA explains that the review has been carried out against a backdrop of low interest rates where the interest on arrears balances was relatively low. It notes that it is important that customers who are already in long-term arrears, and customers who may go into arrears with an increase in interest rates or a change in personal circumstances, are aware of what actions they should be taking. The FCA has provided feedback to the firms involved in the review, and is also considering whether further regulatory action is necessary. It will continue to monitor and review firms' practices through ongoing supervisory activity, and is prepared to take action against firms where evidence of poor practice is found.

EFDI guidance on deposit guarantee schemes' alternative funding policy
On 5 December, the European Forum of Deposit Insurers (EFDI) published a non-binding guidance paper (dated 18 June) on DGSs alternative funding policy. Under Article 10(9) of the Deposit Guarantee Schemes Directive (DGSD), DGSs are required to have in place adequate alternative funding arrangements to enable them to obtain short-term funding to meet their obligations. EFDI notes that, in practice, DGSs have only a few available options to enable them to implement this requirement: credit lines, bond issuances, repos, ex-post contributions and other private sources. In the guidance paper, EFDI provides a set of recommendations for DGSs alternative funding arrangements on issues including: (i) the size of the alternative funding reserve; (ii) the selection of alternative funding instruments; (iii) alternative funding instruments and ex-post contributions' terms and parameters; and (iv) concentration risks arising from counterparties.

Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 made
On 4 December, the Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 were published, together with an explanatory memorandum. The Regulations will amend provisions of FSMA, the Financial Services Act 2012 (FSA) and the DGS Regulations 2015, relating to deposit protection under the FSCS, the FOS, and certain inquiries and investigations, to address failures of retained EU law to operate effectively, and other deficiencies arising from the UK's withdrawal from the EU. A draft of the Regulations was published on 10 October. No changes appear to have been made. Parts 1 and 2 (amendments of the DGS Regulations 2015) of the Regulations will come into force on 5 December (that is, the day after the day on which the Regulations were made). Parts 3 (amendments of FSMA and the FSA) and 4 (further amendments to the DGS Regulations 2015) will come into force on exit day.

Draft Credit Rating Agencies (Amendments etc) (EU Exit) Regulations 2018 published by HMT
On 30 November, a draft version of the Credit Rating Agencies (Amendments etc) (EU Exit) Regulations 2018 was published by HMT. Key provisions in the draft Regulations will: (i) establish a conversion regime and a temporary registration regime for CRAs, conferring functions and powers on the FCA that are required to start the preparatory work for registering UK CRAs before exit day; (ii) amend the CRA Regulation to enable ratings to be used for regulatory purposes in the UK if those ratings are issued by a CRA established in the UK and registered with the FCA; and (iii) introduce a transitional period to allow for ratings issued before exit day in the EU (by firms who register with the FCA or apply for registration with the FCA) to be used in the UK for regulatory purposes for up to one year. Parts 1 (General provision) and 8 (Transitional provisions) of the Regulations come into force on the day after the day on which they are made. The other Parts come into force on exit day.


BCBS report on cyber-resilience practices
On 4 December, the BCBS published a report that identifies, describes and compares the range of observed bank, regulatory and supervisory cyber-resilience practices across jurisdictions. The aim of the report is to help banks and supervisors navigate the regulatory environment and provide useful input for identifying areas where further policy work by the BCBS may be warranted. The BCBS classifies the expectations and practices into four broad dimensions of cyber-resilience: (i) governance and culture; (ii) risk measurement and assessment of preparedness (both in preventing and recovering/learning); (iii) communication and information-sharing; and (iv) interconnections with third parties. The current challenges and initiatives to enhance cyber-resilience are summarised in 10 key findings and illustrated by case studies, which focus on concrete developments in the jurisdictions covered. The key findings relate to matters including cyber risk management, incident response, cyber strategy and third-party risk. Going forward, the BCBS will integrate the cyber dimension into its broader operational resilience work. For the purpose of the report, the BCBS uses the FSB lexicon definition of cyber-resilience, which defines it as the ability of an organisation to continue to carry out its mission by anticipating and adapting to cyber threats and other relevant changes in the environment and by withstanding, containing and rapidly recovering from cyber incidents. The FSB published the final version of its cyber lexicon on 12 November.

Council of the EU adopts conclusions on AML action plan
On 4 December, the Council of the EU published a press release announcing that the Council has adopted conclusions on an AML action plan and states that the conclusions set out a number of short-term non-legislative actions to address eight key objectives: (i) identify the factors that contributed to the recent money laundering cases in EU banks, to better inform possible actions in the medium and long-term; (ii) map relevant money laundering and terrorist financing risks, and the best prudential supervisory practices to address them; (iii) enhance supervisory convergence and better take into account AML aspects in the prudential supervisory process; (iv) ensure effective co-operation between prudential and money laundering supervisors; (v) clarify aspects related to the withdrawal of a bank's authorisation in case of serious breaches; (vi) improve supervision and exchange of information between relevant authorities; (vii) share best practices and find grounds for convergence among national authorities; and (viii) improve the capacity of the ESAs to make better use of existing powers and tools. The AML action plan (set out in an Annex to the conclusions) sets out specific tasks and a timeline for 2019 and 2020. The Council: (i) urges all member states to swiftly complete the implementation of MLD4; (ii) invites member states to transpose MLD5 ahead of the 2020 deadline; (iii) underlines the importance of achieving rapid progress on further strengthening the EU legislative AML framework, in particular with regard to financial services; (iv) invites the EC to propose, as necessary, longer-term actions to bring about further improvements in the prudential and AML frameworks identified on the basis of a thorough assessment, in consultation with member states. This assessment should be presented to the Council by Q3 2019; and (v) invites the EC to report back every six months on the progress made in the implementation of the action plan, starting in June 2019.

ECB cyber resilience oversight expectations for FMIs
On 3 December, the ECB published a document setting out its cyber resilience oversight expectations (CROE) for FMIs. The aim of the document is to provide: (i) FMIs with detailed steps on how to operationalise the guidance, ensuring that they are able to foster improvements and enhance their cyber resilience over a sustained period of time; (ii) overseers with clear expectations to assess FMIs under their responsibility; and (iii) the basis for a meaningful discussion between the FMIs and their respective overseers. The CROE is set out in chapters that outline five primary risk management categories and three overarching components that should be addressed across an FMI's cyber resilience framework. The risk management categories are governance, identification, protection, detection, and response and recovery. The overarching components are testing, situational awareness, and learning and evolving. The CROE are based on the global guidance on cyber resilience for FMIs, which was published by CPMI-IOSCO in June 2016. In addition, the ECB has published a document summarising responses to its consultation on its expectations, together with a link to published responses. The ECB published its consultation in April. The document also highlights the main amendments made to the CROE in the light of responses. The comments mostly focused on four aspects. These were the level of prescriptiveness of the expectations, the three levels of cyber maturity, the process for oversight assessments against the cyber resilience oversight expectations, and the need for harmonisation across different jurisdictions and amongst regulators.

The Market Abuse (Amendment) (EU Exit) Regulations 2018 published
On 30 November, HMT published the draft Market Abuse (Amendment) (EU Exit) Regulations 2018. They include consequential amendments to the Market Abuse Regulation to: (i) maintain the scope of EU MAR, for example by substituting "regulated market" with "UK regulated market or an "EU regulated market" to capture conduct related to instruments admitted to trading or traded on both UK and EU trading venues; (ii) retain EU MAR's notification requirements for issuers to report certain information to the relevant national competent authorities (including obligations to report manager transactions, any delay in publicly disclosing inside information and provide, on request, insider lists), by, for example, introducing specific references to the UK Market and the UK into the relevant articles. UK MAR will also retain the requirement that firms and venues located in the UK provide suspicious transaction and order reports to the FCA; (iii) transfer ESMA's powers and functions to the FCA by, for example, substituting references to ESMA or to competent authorities with references to the FCA where applicable; and (iv) remove provisions relating to cooperation and information sharing. The changes made in the SI will not take effect on 29 March 2019 if the UK enters an implementation period.


Updated draft Collective Investment Scheme (Amendment etc) (EU Exit) Regulations 2018 published by HMT
On 6 December, HMT published updated versions of the draft Collective Investment Scheme (Amendment etc) (EU Exit) Regulations 2018 and the related explanatory information document. It appears that no substantive amendments have been made to the previous draft of the Regulations that HM Treasury published on 8 October. HMT is expected to lay the Regulations before Parliament before exit day. The Regulations will come into force on exit day, except for certain provisions specified in regulation 1(3). These include regulations 59 to 70 (Temporary recognition for the purposes of Part 17 of FSMA), which come into force on the day after the day on which the Regulations are made.

ESMA stakeholder group calls on EC to start mandatory review of PRIIPs Regulation
On 5 December, ESMA published the response of its SMSG to the Joint Committee of the ESAs' consultation on amendments to Commission Delegated Regulation (EU) 2017/653 on KIDs for PRIIPs. The Delegated Regulation supplements the PRIIPs Regulation. While the SMSG appreciates the ESAs' efforts to address the shortcomings in the PRIIPs framework, it: (i) regrets that the consultation's four-week timetable does not allow for a proper stakeholder consultation, given the technical nature of the issues being consulted on; (ii) considers that the current design of the PRIIPs KIDs does not fulfil the main intention behind the PRIIPs Regulation and believes that this needs to be addressed urgently to protect investors; (iii) considers that the ESAs' efforts to fix the Delegated Regulation's shortcomings cannot replace the need for the EC to begin its mandatory review of the Level 1 PRIIPs Regulation; (iv) notes that there will be no time to conduct any consumer testing in the context of amending the Delegated Regulation before the EP elections in May 2019, which raises the risk of rushing to develop solutions that do not address the current concerns; (v) believes there are serious problems in the PRIIPs framework with at least the scope of the PRIIPs Regulation, cost information about funds, and performance scenarios. It regrets that the ESAs' consultation only addresses its concerns about performance scenarios and goes on to outline its additional concerns; (vi) considers that, given that most of its concerns will not be addressed before the EC’s Level 1 review of the PRIIPs Regulation, and given that the current transparency regime for UCITS has proven to be effective, the current exemption of UCITS funds and certain AIFs should be extended until the EC has completed that review and its conclusion been fully reflected in EU rules; and (vii) believes that an interim targeted review (quick fix) of the Delegated Regulation performed in haste is no substitute for the required Level 1 review and urges both legislators and regulators to proceed as soon as possible. The ESAs published their consultation paper in November 2018.

ECON votes to adopt draft reports on proposed Regulation and Directive on cross-border distribution of collective investment funds
On 4 December, ECON announced that it has voted to adopt draft reports on the EC’s legislative proposals for a Regulation and a Directive on the cross-border distribution of collective investment funds. In the press release, ECON highlights changes that it proposes to make to the EC’s proposal, including: (i) marketing communications targeted at small investors in funds should present a detailed account of risks, summary of investors’ rights and information about national collective redress mechanisms in case of litigation. ESMA should produce guidelines on marketing communications; (ii) if a fund makes an offer to repurchase all its UCITS units held by investors in a member state, following a decision to cease activities in that state, it should inform investors of the consequences if they choose to continue to hold the units; and (iii) the exemption for UCITS concerning obligations under the PRIIPs Regulation relating to KIDs should be prolonged for a further two years. The proposed Regulation sets out a harmonised framework concerning certain aspects of the cross-border distribution of funds, such as marketing communications and member states' marketing requirements. The proposed Directive contains amendments to the UCITS Directive and the AIFMD relating to, among other things, pre-marketing and the discontinuation of marketing.

FMLC report on legal uncertainties relating to draft Brexit SIs on funds
On 30 November, the FMLC published a report on legal uncertainties arising from the changes proposed by the draft AIFM Regulations and the draft CIS Regulations. The legal uncertainties relate to: (i) references to other legislation – the FMLC recommends that HMT or the FCA (or both), clarify how subsequent updates to guidelines and rules will be reflected in the legislation; (ii) the new regimes for the temporary recognition of funds and CIS; (iii) arrangements for delegation by AIFMs. The adaptation of conditions for delegation does not make clear whether existing delegation arrangements that are in place as of exit day will be grandfathered, or whether these will have to be re-appraised; (iv) the restriction on the promotion of sub-funds; and (v) the transfer of functions to HMT. In the light of the pace at which new market practices and products emerge, market participants have highlighted to the FMLC the possibility that new statutory instruments might be too cumbersome a mechanism for HMT to discharge its new functions. The FMLC encourages HMT and the government to publish, wherever possible, guidance that might enable impacted funds and managers to begin planning for the future.


FCA advises IDD firms of supervisory focus on adoption of customer-centric culture
On 4 December, the FCA published a new webpage on delivering clear and fair outcomes for consumers under the IDD. The FCA expects firms to have already adapted their processes to meet the IDD requirements, which came into effect on 1 October. However, it calls on them to continue considering how they can improve customer outcomes. The FCA is taking a keen interest in the way firms are applying the IDD-related rules. The FCA identifies the following "important areas" it expects firms to have considered, around which it is focusing its supervision: (i) identifying customers' insurance demands and needs, and ensuring products offered are consistent with them – the FCA explains that firms can still carry out non-advised sales, and it does not always expect them to perform a detailed investigation of a customer's circumstances. However, firms must not offer customers products that do not meet their demands and needs. The FCA reminds firms of the illustrative examples of likely compliant and non-compliant scenarios in this area in its March 2017 consultation paper. Firms should have reviewed their sales process to ensure they are compliant with these requirements; (ii) having in place POG arrangements – one of the FCA's key ongoing aims is to ensure firms place sufficient focus on identifying vulnerable customers and treat them appropriately. All firms that have a role in manufacturing (that is, creating, developing, designing or underwriting) an insurance product, need to meet the POG requirements; and (iii) complying with the customer's best interests rule – this rule extends throughout all elements of insurance products and services. Firms' effective implementation of the new IDD requirements forms an important part of the FCA's focus on firms adopting a customer-centric culture. FCA supervisory teams have been highlighting its significance when engaging with firms in recent months, and will continue to focus on how firms are complying with the IDD requirements in a way that properly considers their customers. The FCA expects firms to have learned lessons from its publication of the difficulties firms found in complying with the renewal transparency rules, and to apply these lessons when approaching any regulatory change. Firms should place sufficient focus on systems, controls and resources to meet new requirements, and should ensure that accountability for responding to changes is clearly allocated to appropriate individuals.

The Credit Institutions and Insurance Undertakings Reorganisation and Winding Up (Amendment) (EU Exit) Regulations 2018 published
On 30 November, the Credit Institutions and Insurance Undertakings Reorganisation and Winding Up (Amendment) (EU Exit) Regulations 2018 (the Regulations) and related explanatory memorandum were published in draft. If made in this form the majority of the regulations would come into force on exit day. The Regulations amend: (i) the Credit Institutions (Reorganisation and Winding up) Regulations 2004; (ii) the Insurers (Reorganisation and Winding Up) Regulations 2004; and (iii) the Insurers (Reorganisation and Winding Up (Lloyd’s) Regulations 2005. The Regulations address the fact that, unless otherwise agreed as part of UK withdrawal from the EU, the remaining EEA member states will no longer recognise the primacy of UK insolvency proceedings for credit institutions, insurance undertakings, investment firms and group companies whose home state is in the UK (UK institutions). Accordingly, the Regulations remove the prohibition on the UK courts making a winding-up or administration order against insolvent institutions whose home state is elsewhere in the EEA (EEA institutions). In the same vein, the Regulations: (i) remove provisions for the UK automatically to recognise EEA insolvency proceedings for EEA institutions; (ii) remove various provisions that apply a relevant EEA member state's law in UK insolvency proceedings. For example, the two 2004 Regulations listed above will no longer apply non-UK law to determine questions that relate to contracts or property located in the EEA, such as employment contracts and relationships, immovable property and registrable rights (among other matters). However, the Regulations retain provisions for the application of EEA law on matters relating to creditors' rights to set off, regulated markets, netting agreements and repurchase agreements; (iii) remove office holder requirements to notify EEA regulators of UK insolvency proceedings, publish arrangements and orders in the Official Journal and accept claims not submitted in English; and (iv) remove a requirement to recognise EEA proceedings opened before exit day if those proceedings have an adverse effect on UK financial stability, materially prejudice UK creditors or are unlawful under section 6 of the Human Rights Act 1998 (Acts of public authorities). These draft Regulations are made under section 8 of the European Union (Withdrawal) Act 2018, which enables a minister to make regulations to deal with deficiencies in retained EU law arising from withdrawal.


Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018 laid before Parliament
On 5 December, a draft version of the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018 was published, together with a draft explanatory memorandum. This is the version that has been laid before Parliament. HMT published a draft of the Regulations on 23 October. Among other things, the Regulations: (i) ensure that requirements imposed by EMIR continue to apply in the UK and transfer responsibilities in this regard to the BoE, PRA and FCA as appropriate; (ii) transfer the power to make third-country regime equivalence decisions from the EC to HMT; (iii) establish a temporary intragroup exemption regime, which will initially last three years, to ensure that intragroup transactions can continue to be exempted from EMIR requirements where this is the case to date; (iv) revoke and replace EMIR provisions relating to TR appeals, fines, supervisory fees, penalties and other supervisory requirements so that they are aligned with relevant provisions in FSMA; and (v) delete provisions relating to sharing information with other EEA authorities and the oversight of CCPs by colleges. The Regulations will come into force on exit day.

Tenth Implementing Regulation extending transitional periods related to own fund requirements for CCP exposures published in OJ
On 5 December, Commission Implementing Regulation (EU) 2018/1889 on the extension of the transitional periods related to own funds requirements for exposures to CCPs, set out in the CRR and EMIR has been published in the OJ. In June 2014, the EC adopted an initial Implementing Regulation extending the 15-month periods referred to in Article 497(1) and (2) of the CRR and in the first and second subparagraphs of Article 89(5)(a) of EMIR by six months. Further Implementing Regulations that extended the transitional periods by an additional six months have subsequently been published, the latest of which extended the transitional periods to 15 December. The Implementing Regulation extends the transitional periods by an additional six months, to 15 June 2019. The Implementing Regulation will enter into force three days after publication in the OJ (that is, 8 December).

ICE Benchmark Administration launches survey on the use of LIBOR
On 4 December, IBA launched a survey to identify the LIBOR settings that are most widely used. The IBA intends to use the results of the survey to inform its work in seeking the support of globally active banks for the publication of certain LIBOR settings after year-end 2021, with the aim of providing those LIBOR settings to users with outstanding LIBOR-linked contracts that are impossible or impractical to modify. Any such settings would need to be compliant with relevant regulations, in particular those regarding representativeness. The IBA states that work on the possible continued publication of certain LIBOR settings is not intended as an alternative to the transition to risk-free reference rates for new business. The survey is open to all users of LIBOR until 15 February 2019.

Securitisation Regulations 2018 published
On 4 December, the Securitisation Regulations 2018 were published, together with an explanatory memorandum. The Regulations reflect the application of the Securitisation Regulation in the UK. The Securitisation Regulation harmonises and reforms existing rules on due diligence, risk retention, disclosure and credit-granting that will apply in a uniform way to all securitisations, securitising entities and all types of EU regulated institutional investors. It also creates a new framework for simple, transparent and standardised long-term securitisations and asset-backed commercial paper programmes. Among other things, the Regulations designate the FCA and PRA as the competent authorities in relation to the Securitisation Regulation, and require the FCA to maintain and update a register of all persons it has authorised as third-party verification agents. They also amend FSMA, and other UK legislation, to create the new supervisory, investigative and sanctioning powers required by the Securitisation Regulation and ensure UK legislation is compatible with the Securitisation Regulation. The Regulations will come into force on 1 January 2019.

Council of the EU agrees position on proposed Regulation amending EMIR supervisory regime for EU and third-country CCPs
On 3 December, the Council of the EU announced that it has agreed its position relating to the proposed Regulation amending EMIR as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs. Among other things, the proposed Regulation introduces a mechanism within ESMA to bring together expertise in the field of CCP supervision, and ensure closer co-operation between supervisory authorities and central banks responsible for EU currency. It also strengthens the existing system for recognising and supervising third-country clearing houses. In particular, it introduces a two-tier system differentiating between non-systemically important CCPs and systemically important CCPs (tier 2 CCPs). Tier 2 CCPs would be subject to stricter rules in order for them to be recognised and authorised to operate in the EU. There are currently 16 CCPs established and authorised in the EU. An additional 32 third-country CCPs have been recognised under EMIR's equivalence provisions. Following Brexit, the three CCPs based in the UK will become third-country CCPs. ECON published a report on the proposed Regulation in May. The press release states that the Council and the EP are now able to begin trilogue negotiations. The EC published its legislative proposal to amend the supervisory regime for CCPs under EMIR in June 2017.

ESMA updates Q&As on EMIR implementation
On 3 December, ESMA published an updated version of its Q&As on the implementation of EMIR. ESMA has amended the answer to question 9, which relates to the margin requirements under Article 41 of EMIR. The aim of the Q&As is to promote common supervisory approaches and practices in the application of EMIR.

Joint Committee of ESAs clarify securitisation disclosure requirements and consolidated application of securitisation rules for credit institutions
On 30 November, the ESAs published a statement clarifying securitisation disclosure requirements and consolidated application of securitisation rules for credit institutions. The statement is in response to industry concerns relating to severe operational challenges. This is with regard to both meeting the transitional provisions of the disclosure requirements under the Securitisation Regulation, as well as complying with the EU requirements on risk retention, transparency, re-securitisation and criteria for credit-granting obligations on a consolidated basis by EU credit institutions engaged in local securitisation activities in third countries. In light of the difficulties and market concerns, the ESAs expect competent authorities to apply their supervisory powers in their day-to-day supervision, and enforcement of applicable legislation, in a proportionate and risk-based manner. The ESAs and competent authorities expect that the difficulties will be solved with the subsequent adoption of the ESMA disclosure templates and therefore the expiry of the transitional arrangements involving certain templates in the Securitisation Regulation. ESMA published its final reports on technical standards and technical advice under the Securitisation Regulation, including an interim notification template, on 13 November. The ESAs have also been made aware of challenges that EU banking entities face with regard to complying with specific provisions of the proposed Regulation amending the CRR. These relate to the scope of the Chapter 2 (due-diligence, risk retention, transparency, re-securitisation and criteria for credit-granting) requirements in the Securitisation Regulation. Again, the ESAs expect competent authorities to apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportional manner. The ESAs and competent authorities expect that the difficulties will be solved with the adoption of CRR II, as the scope of Article 14 of the CRR is expected to be reduced and references to Chapter 2 will be replaced with reference to Article 5 (due-diligence requirements) only.

Draft Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 published by HMT
On 30 November, HMT published a draft of the Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, together with a draft explanatory memorandum. In particular, the Regulations will amend: (i) Parts 18 and 18A of, and Schedule 17A to, FSMA, which outline the regulatory regime for RIE, EEA market operators, clearing houses (including CCPs) and CSDs providing services in the UK; and (ii) the RRRs, which are made under Part 18 of FSMA. The changes to be made under Part 3 of the Regulations include: (i) removing passport rights for EEA market operators in the UK and RIEs operating in EEA states; (ii) transferring responsibility for recognising third-country CSDs and CCPs from ESMA to the BoE; and (iii) removing information sharing and co-operation requirements. Much of this domestic law is derived from, or refers to the MiFID II Directive, MiFIR, EMIR, CSDR and SFTR, among other pieces of EU law. These are being onshored by way of a number of other SIs. HMT has published a draft version of the Regulations ahead of formally laying them before Parliament. Regulation 1 and Part 2 of the Regulations will come into force 21 days after the day on which the Regulations are laid before Parliament. The remaining provisions come into force on exit day. HMT published an explanatory information note relating to the Regulations on 22 November.


PSR signs MoU to monitor IFR compliance
On 6 December, the PSR published a MoU (dated September) that it has entered into. The MoU sets out the framework that the PSR and the other EU competent authority signatories will use to co-operate with one another to monitor compliance by international payment card schemes and their processing entities with Article 7(1)(a) of the IFR and Commission Delegated Regulation (EU) 2018/72. Article 7 of the IFR requires the separation of payment card schemes and processing entities. Article 7(1)(a) sets out the principle that payment card schemes and processing entities need to follow when organising their separation. It states that payment card schemes and processing entities "shall be independent in terms of accounting, organisation and decision-making processes." Commission Delegated Regulation (EU) 2018/72 lays down RTSs establishing the requirements to be complied with by payment card schemes and processing entities to ensure the application of the independence requirements. The competent authorities are responsible for monitoring and enforcing compliance with Article 7 of the IFR and the RTS in their respective jurisdictions. They will endeavour to co-operate through appropriate procedures for sharing information, views and assessments to reach a consensus position on the compliance of international payment card schemes and processing entities. Currently, eight competent authorities have signed the MoU, including the PSR. Any competent authority that is not yet a signatory may ask to join at a later date. On a related webpage, the PSR states that it will monitor its involvement in the MoU in the light of ongoing EU withdrawal negotiations.

Article 27(4) notices to consult on commitments offered by Visa and MasterCard published in Official Journal
On 5 December, the EC published in the Official Journal notices published under Article 27(4) of Regulation 1/2003 to seek comments on commitments offered by Visa and MasterCard under Article 9 of Regulation 1/2003.

EC consults on commitments offered by Visa and Mastercard in relation to inter-regional interchange fees
On 4 December, the EC announced that it is market-testing commitments offered separately, under Article 9 of Regulation 1/2003 by Visa and Mastercard to address competition concerns relating to inter-regional interchange fees for debit and credit payment card transactions. Inter-regional interchange fees are those fees charged on payments made with cards issued outside the EEA for purchases in the EEA. These payments are most typically made by tourists or other travellers. The EC’s previous decisions relating to Visa and Mastercard interchange fees have related to the multi-lateral interchange fees for payment cards issued in the EEA. In addition, the Interchange Fee Regulation (Regulation 2015/751) does not apply to cards issued outside the EEA. To address the EC’s concerns that their inter-regional interchange fees infringe Article 101 of the TFEU, Visa and Mastercard have both agreed to cap the level of the interchange fees (for a period of five years and six months) to 0.2% of the value of the transaction for debit cards and 0.3% of the value of the transaction for credit cards for card payments carried out in a shop, and 1.15% and 1.5% respectively for online debit and credit card transactions. The EC invites comments on the proposed commitments within a month of publication of the required notice in the Official Journal. 

EBA final guidelines on ASPSP conditions to benefit from exemption from contingency mechanism under PSD2
On 4 December, the EBA published a report on its final guidelines on the conditions that ASPSPs must meet to benefit from an exemption from the contingency mechanism under Article 33(6) of Regulation (EU) 2018/389. Regulation (EU) 2018/389 sets out regulatory technical standards under the revised PSD2 on strong customer authentication and common and secure communications. It applies from 14 September 2019. The EBA consulted on the draft guidelines in June. Feedback to the consultation is set out in section 5 of the report. The EBA agreed with some of the proposals raised by respondents, and their underlying arguments, and has consequently made a number of changes to the draft guidelines. In particular, the EBA has made amendments relating to the following: (i) the involvement of third-party payment service providers in the exemption process; (ii) clarifying how to assess whether an ASPSP fulfils the wide usage condition; (iii) increasing transparency about the availability and performance of ASPSPs' dedicated interfaces; and (iv) further clarifying how to assess obstacles to the provision of account information services and payment initiation services. The guidelines will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether or not they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply from 1 January 2019. In an accompanying press release, the EBA acknowledges that the timelines for meeting the conditions for an exemption are tight and, therefore, strongly encourages ASPSPs to start testing, to launch their production interfaces and to engage with their competent authority as soon as possible, before the September 2019 deadline.

EC adopts Delegated Regulation on RTS on EBA electronic central register under PSD2
On 29 November, the EC adopted a Delegated Regulation supplementing the revised PSD2 with regard to RTS setting technical requirements on the development, operation and maintenance of an electronic central register relating to payment services. Under Article 15(1) of PSD2, the EBA is required to develop, operate and maintain an electronic central register that contains information as notified by competent authorities. The details and structure of the information that will be contained in the electronic central register, as notified by competent authorities, including the common format and model in which this information is to be provided, are specified in implementing technical standards that are being submitted separately under Article 15(5) of PSD2. The Delegated Regulation will enter into force on the twentieth day following its publication in the OJ. The EBA submitted its final draft RTS to the EC in December 2017.


Findings from FCA work on pension transfer advice
On 6 December, the FCA published a new webpage setting out key findings from its recent work on pension transfer advice.

Pensions dashboards: DWP publishes feasibility report and consultation
On 3 December, the DWP published a feasibility report and consultation paper about pensions dashboards. The report envisages an industry-led system of multiple dashboards, allowing consumers to access their pension information in a single place online. The government’s role will be limited to: (i) facilitating creation of the dashboard framework. In particular, the new single financial guidance body (SFGB) will convene and oversee an industry delivery group, which will be charged with implementing the plans; and (ii) legislating to compel pension schemes to provide their data for dashboards, when parliamentary time allows. State pension data will also be included. The DWP seeks respondents’ views on the scope of exemptions from compulsory participation, for example for Small Self-Administered Schemes. The DWP proposes a phased approach under which a non-commercial dashboard hosted by the SFGB is established first, followed by commercial dashboards provided by industry. Underlying the dashboards, pension schemes will be required to provide their data to a single “pension finder service”, the creation of which will be overseen by the industry delivery group. The infrastructure will be underpinned by “architectural principles” designed to ensure the industry adheres to its obligations under the Data Protection Act 2018 (reflecting the EU General Data Protection Regulation). These include the individual’s right to data portability and principles of accuracy, storage, access and security. Subject to the outcome of its consultation, the DWP expects that some schemes (such as master trusts) will start to supply data to dashboards on a voluntary basis from 2019/20. The majority of schemes should be incorporated in the compulsory framework within three to four years after the first dashboards are introduced. Consultation on the proposals runs until 28 January 2019.


PRA policy statement on regulatory reporting
On 5 December, the PRA published a policy statement on regulatory reporting following its consultation paper, which was published in July. The consultation paper proposed various changes to the PRA's reporting requirements, including changes to templates and instructions. The PRA received no responses to the consultation. However, during the consultation period, the PRA identified some additional minor changes to be made in relation to the initial proposals. The final rules take these into account. The policy statement contains: (i) the PRA's final rules, which are set out in the PRA Rulebook: CRR Firms: Regulatory Reporting (Amendment) Instrument 2018. The rules come into force on 1 January 2019; (ii) updated supervisory statement: Pillar 2 reporting, including instructions for completing data items FSA071 to FSA082, and PRA111, which comes into force on 1 January 2019; and (iii) updated supervisory statement: Guidelines for completing regulatory reports. Different sections of the Guidelines have different effective dates, which are set out in Appendix 4 to the policy statement. To assist firms, there is a mapping table in Appendix 4 to the policy statement, outlining the templates and instructions in the Pillar 2 reporting and in the Guidelines. Specific changes to the RFB004 template are outlined in Appendix 5. The changes to the reporting level of consolidation in PRA110 rules are subject to the outcome of CP22/18, which closed on 12 November.

Provisional political agreement reached on BRRD II, SRM II Regulation, CRR II and CRD V
On 4 December, the EP published a press release announcing that it and the Council of the EU have reached a provisional political agreement on the proposed BRRD II, the proposed SRM II Regulation, the proposed CRR II and the proposed CRD V. Details of the agreement are set out in a separate press release published by the EP earlier on the same day. The EC’s legislative proposals for the BRRD II, the SRM II Regulation, the CRR II and the CRD V contain revisions to the BRRD, the SRM Regulation, the CRR and the CRD IV respectively. The EP highlights amendments made to the proposals relating to: (i) the eligibility criteria for instruments and items that count towards compliance with MREL; (ii) the rules on when moratorium power to suspend payments by banks that are getting into difficulty can be activated; (iii) protections for retail investors on holding bail-inable bank debt when it is an unsuitable retail instrument; (iv) simplified requirements for banks that are "small and non-complex institutions", as defined in the proposals; (v) the introduction of the binding 3% leverage ratio and an additional 50% buffer for G-SIIs; (vi) the extension of reduced capital requirements for SME exposures beyond EUR2.5 million; and (vii) an EBA report on the introduction of ESG risks in the risk management process. The Council agreed its general approach on the proposals in May. ECON voted to adopt reports on the proposals in June. COREPER invited the Council to endorse the reforms on 3 December. In its press release on the agreement, the Council states that work on remaining outstanding issues will continue at the technical and political level with the aim of finalising the proposals by the end of the year. The EP and the Council will then aim to adopt the legislation at first reading. The EP states that its plenary vote on the proposals will take place early in 2019.


Andrea Enria appointed as SSM supervisory board chair
On 6 December, the Council of the EU published a press release announcing that it has adopted a decision appointing Andrea Enria, the current chair of the EBA, as chair of the supervisory board of the SSM at the ECB. Mr Enria will hold the position for five years, starting from 1 January 2019. He replaces Daniele Nouy, who was the first ever chair of the SSM. The EP approved the ECB's proposal for Mr Enria's appointment on 29 November 2018.

Financial Services (Banking Reform) Act 2013 (Commencement No 12) Order 2018 published
On 5 December, the Financial Services (Banking Reform) Act 2013 (Commencement No 12) Order 2018 was published. The Order was made on 4 December. It brings into force on 1 January 2019 provisions in the Financial Services (Banking Reform) Act 2013 (Banking Reform Act) relating to the ring-fencing regime, to the extent that they were not already in force (that is, sections 1 to 5, 7 to 12 and 133 of the Banking Reform Act). The effect of the Order is to bring into force Part 9B of FSMA (ring-fencing) and other amendments to FSMA relating to ring-fencing.


BoE speech on why the buy-side should sign up to the FX global code
On 6 December, the BoE published a speech by Andrew Hauser, Executive Director, Markets, on why the buy-side should sign up to the FX global code. Points of interest in Mr Hauser's speech include: (i) strengthening buy-side adoption is one of the GFXC top priorities for 2019 and it has asked senior figures from both sides of the market to lead that work, working either as individual liaison representatives or as members of a new buy-side outreach working; (ii) adoption of the code is now widespread among banks and other sell-side firms, with the largest 30 firms by asset size all now signed up to it. Progress on the buy-side has been slower, with 11 of the largest 30 asset managers so far committed to the code. That number is expected to rise as firms currently working towards adoption reach the end of their internal processes; (iii) despite this, more clearly needs to be done to secure the same degree of sign-up to the code as there has been on the sell-side. Mr Hauser discusses what the remaining obstacles are and how they can be addressed; (iv) as well as a lack of awareness of the code and a perception that it lacks relevance for the buy-side, a significant obstacle is that the buy-side is uncertain about the business case for them signing up to the code. Mr Hauser stresses five points related to this. In particular, he refers to the extension of the SM&CR to asset managers in December 2019 and comments that behaving in accordance with a recognised market code will help senior managers demonstrate that they are observing "proper standards of market conduct", which is a key requirement of the regime. He considers that this is a significant positive benefit to signing up to the code and states that, to ensure firms can take full advantage of it, the code has been submitted to the FCA for formal recognition; and (v) Mr Hauser also mentions that the Investment Association is finalising a guide that is intended to help firms to navigate their own assessment of the code's requirements against existing requirements. It expects to publish this in early 2019.

FPC record of 20 and 27 November policy meetings
On 5 December, the BoE published the record of its FPC meetings held on 20 and 27 November. An overview of the FPC's discussions at the meetings was set out in issue 44 of the BoE's financial stability report, which was published on 28 November. The record summarises the discussions and outlines the latest progress made on implementing the FPC's existing recommendations and directions. Much of its content is reflected in the financial stability report, but more detail is provided, particularly on the FPC's analysis of material risks arising from Brexit. The record also summarises the outcome of the 2018 annual stress test of the UK banking system, which was also published on 28 November. The FPC's next policy meeting will be on 26 February 2019 and the record of that meeting will be published on 12 March 2019.

FPC responds to Chancellor's letter on remit and recommendations for 2018/19
On 5 December, the BoE published a letter from Mark Carney, BoE Governor and Chairman of the FPC, responding to a letter from Philip Hammond, Chancellor of the Exchequer, on the remit and recommendations for the FPC for 2018/19 that was published in October. In the covering letter, Dr Carney summarises the FPC's ongoing work to prepare for risks of disruption to the financial system that could arise from Brexit. In particular, he considers the disorderly Brexit scenario that formed part of the 2018 stress test of the UK banking system and the FPC's checklist of actions to mitigate risks of disruption to financial services, which was most recently updated in the November financial stability report. The formal response to the remit and recommendations for 2018/19 does not contain any substantive changes to the FPC's response published in July 2017 on its remit and recommendations for 2017/18.

CMA consults on Annual Plan 2019/20
On 3 December, the CMA issued a consultation on its proposed Annual Plan for 2019/20. Given the uncertainty over Brexit, the CMA has decided to consult on a set of priority themes rather than specific objectives, namely, protecting vulnerable consumers; improving trust in markets; promoting better competition in online markets; and supporting economic growth and productivity. The CMA will enter 2019/20 with a substantial volume of ongoing work. It is currently conducting 23 competition enforcement cases, five consumer enforcement cases, one super-complaint investigation, 17 merger investigations, one market investigation and two market studies. It notes that, if the UK were to leave the EU without a deal, the CMA would take on a great deal of new, complex work from March 2019. It would be obliged by statute to investigate all qualifying mergers and state aid cases. Discretion to carry out other work, such as market studies and further enforcement, would narrow considerably, and the CMA would "need to take tough decisions on priorities, at pace, to be flexible to new circumstances". The CMA invites comments on the draft Plan, by 13 January 2019.

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