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Key Regulatory Topics: Weekly Update - 3 November 2017 – 9 November 2017

15 November 2017

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



HoL EU Financial Affairs Sub-Committee calls for urgent post-Brexit transitional deal
On 9 November, the HoL EU Financial Affairs Sub-Committee published a letter (dated 8 November 2017) from Baroness Falkner of Margravine (on behalf of the Sub-Committee) to Philip Hammond, Chancellor of the Exchequer, calling for urgent agreement on a post-Brexit transition period for the financial services sector. The Sub-Committee aims to bring the Chancellor's attention to the weight of evidence it has received during its current inquiry into the future of financial regulation and supervision following Brexit. In particular, the evidence highlights that: (i) a transitional period needs to be agreed by the end of the year in order for the financial services industry to be able to continue servicing cross-border clients; and (ii) there are concerns over the scale of novations that would be necessary in the absence of a reciprocal agreement to grandfather existing contracts.


BoE working group publishes responses to its white paper on potential approaches to adoption of SONIA as preferred RFR
On 9 November, the BoE published a summary of the responses to the white paper issued by its working group on sterling RFRs. The BoE has also published minutes of the working group's October 2017 meeting, in which the working group reported on the responses it had received to the white paper. It stated that since a significant majority of respondents supported reformed SONIA as the RFR, the group has concluded that there is broad market-wide support for its choice of RFR and will proceed with considering how best to promote adoption of reformed SONIA as the sterling RFR.
Benchmark Regulation – ESMA updates Q&As on third country issues
On 8 November, ESMA published an updated version of its Q&As on the implementation of Benchmarks Regulation. The Q&A includes two new answers on: (i) scope of the BMR: Application of the BMR outside the EU; and (ii) transitional provisions applicable to third country benchmarks.
Central Securities Depositories Regulations 2017 published
On 7 November, the Central Securities Depositories Regulations 2017 (SI 2017/1064) were published. The Regulations were made on 6 November, laid before Parliament on 7 November and come into force on 28 November.
IOSCO reports on updates to 2015 peer reviews of MMFs and securitisation regulation
On 3 November, IOSCO published two reports which provide an update on its peer reviews of the regulation of MMFs and of the implementation of incentive alignment recommendations for securitisation, both of which were published in September 2015. The reports set out the findings of two limited-scope reviews conducted in 2016 and 2017, respectively, by IOSCO to identify progress by IOSCO members in FSB jurisdictions in implementing IOSCO on: (i) reforms regarding the regulation of MMFs; and (ii) incentive alignment for securitisations.


PRA Rulebook Administration Instrument (No. 3) 2017 published
On 6 November, the PRA published PRA Rulebook: Administration Instrument (No.3) 2017 (PRA 2017/34). The instrument makes minor corrections to the PRA Rulebook and are not intended to change PRA policy. The instrument amends the Conduct Rules, the Insurance – Senior Insurance Management Functions, the Regulatory Reporting and Fees provisions. The majority of the amendments come into force on 7 November, with the amendments to the Regulatory Reporting provisions coming into force on two dates: 1 January 2018 and 1 January 2019.
FCA publishes consultation paper on industry-written codes of conduct
On 3 November 2017, the FCA published a consultation paper on industry-written codes of conduct and a discussion paper on FCA Principle 5 (CP17/37). This consultation sets out proposals to address uncertainty around conduct for markets and activities not covered by regulatory rules and principles, in light of the development of voluntary industry-written codes of conduct for unregulated financial markets and, separately, the SM&CR.


Household debt – HoC Treasury Committee launches inquiry
On 8 November, the HoC Treasury Committee announced the launch of an inquiry into household finances. The Committee intends to scrutinise problematic indebtedness, inter-generational issues, lifetime financial planning and the effectiveness of the market in financing solutions and products to low income households. The aim of the inquiry is to examine what policies could support households in achieving appropriate levels of saving, and the sustainability of the UK's household debt and consumer credit. The deadline for comments is 31 December.
Financial exclusion – UK Government publishes response to report from Financial Exclusion Select Committee
On 7 November, the Government published its response to the final report of the HoL Select Committee on Financial Exclusion. The document outlines the Government's approach and steps taken to ensure that people have access to useful and affordable financial services. Each of the 22 recommendations made by the Committee is addressed in the response, including any other points of interest.
FCA publishes consultation paper on its approach to consumers
On 6 November, the FCA published for consultation a document entitled "FCA Mission: Our Future Approach to Consumers". This consultation explores the FCA's approach to regulating for retail consumers and sets out the FCA's vision for well-functioning markets and its initial views on what "good" looks like for all retail consumers. The deadline for comments is 5 February 2018. The FCA will publish its final approach to consumers in summer 2018. The FCA hopes that, by engaging and collaborating, it can develop a final document that provides clarity, sets clear expectations and explains how it will deliver public value.


FCA publishes form for Annex I financial institutions to register key individuals under MLRs 2017
On 8 November, the FCA published the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017: MLR individual form, together with related guidance notes. The FCA explains that businesses offering certain financial need to register with it under MLRs 2017. The FCA refers to these businesses as "Annex I financial institutions". The "Annex I" referred to is Annex I to the CRD IV, an extract of which is set out in Schedule 2 to the MLRs 2017. Businesses that need to register are required to complete at least one MLR individual form with their general registration form.
FATF publishes guidance on information sharing between financial institutions
On 3 November 2017, FATF published the final version of its guidance for private sector information sharing. The aim of this Guidance is to: (i) highlight the usefulness of information sharing among entities of the private sector (particularly financial institutions) to increase the effectiveness of their ML/TF prevention efforts; (ii) identify key challenges that inhibit sharing of information group-wide and between financial institutions not part of the same group; (iii) clarify FATF Standards on information sharing regarding: (a) group-wide AML/CFT programmes and within its context, sharing of information on suspicious transactions within the group, and how STR confidentiality and tipping-off provisions interact with such sharing; and (b) between financial institutions not part of the same group; (iv) highlight country examples of collaboration between data protection and privacy and AML/CFT authorities to serve mutually inclusive objectives; (v) provide country examples to facilitate sharing of information within group, between financial institutions not part of the same group; and (vi) support the effective implementation of the AML/CFT regime, through sharing of information, both in the national and international context.
FATF publishes updated guidance on AML and CTF measures and financial inclusion with customer due diligence supplement
On 3 November, FATF published an updated version of its 2013 guidance on anti-money laundering AML and CTF measures and financial inclusion. It provides country examples of customer due diligence measures adapted to the context of financial inclusion. The examples illustrate how a simplified set of CDD measures or alternative forms of identity verification, for example the use of e-identity tools, can support financial inclusion, while appropriately mitigating the ML/TF risks.
FATF publishes outcomes of joint FATF/GAFILAT plenary meeting
On 3 November, FATF published details of its plenary meeting, which was held jointly with Financial Action Task Force of Latin America (GAFILAT) between 1 and 3 November. In particular, the main issues dealt with by this Plenary were: (i) combatting terrorist financing, including the adoption of a report on the financing of recruitment for terrorist purposes; (ii) information sharing, including the adoption of revisions to Recommendations 18 and 21 on information sharing, and the adoption of guidance on private sector information sharing; and (iii) adoption of a supplement to the 2013 FATF Guidance on AML/CFT Measures and Financial Inclusion.


FCA publishes speech on robo advice
On 3 November, the FCA published a speech by Bob Ferguson, FCA Head of Department, Strategy Competition Division, giving the FCA's perspective on robo advice at the Westminster and City 2017 Annual conference. In particular, Mr Ferguson states that: (i) the FCA views automated advice as a valuable vehicle to help tackle the issues faced by those consumers who are unserved or underserved by more traditional advice models, as well as promoting competition in the UK financial advice market; (ii) the FCA Advice Unit continues to be active in providing regulatory feedback and external tools to firms developing an automated advice (or guidance) model; (iii) automated advice brings its own risks, but well-designed models have great potential for compliance risk reduction; and (iv) the FCA will supervise the suitability of recommendations for the consumer, acting where it identifies harm.


Executive remuneration – IA issues revised principles of remuneration for 2018
On 3 November, the IA published a revised version of its 2016 principles of remuneration for 2018. The guidance is set out to help Remuneration Committees apply the IA Principles of Remuneration and ensure a proper level of shareholder protection.


PRA consults on effective financial management and planning by insurers
On 9 November, the PRA published a consultation paper (CP23/17) on a draft supervisory statement (SS) on effective financial management and planning by insurance firms and groups. The draft SS is set out in the Appendix to CP23/17 and sets out the PRA's expectations for financial management and planning by insurers. These include the framework for the development and maintenance of a risk appetite statement by an insurer, the application of this risk appetite to an insurer's business and financial plans, and the assessment of the suitability and sustainability of capital distribution plans in the context of this risk appetite. The deadline for comments is 9 February 2018.
IAIS publishes updated version of its ICP document
On 8 November, the IAIS published an updated version of its ICPs document. The document sets out the 26 adopted ICPs, and has been updated to reflect amendments made to: (i) ICPs 13 (reinsurance and other forms of risk transfer); (ii) ICPs 18 (intermediaries); and (iii) ICPs 19 (conduct of business) in November.
IAIS consultation on draft revised ICPs 8, 15 and 16, integrated ComFrame material and proposed definitions of enterprise risk management terms
On 8 November, the IAIS published a public consultation covering revisions to: (i) revised ICP 15 Investments and ComFrame material integrated with ICP 15; (ii) revised ICP 16 Enterprise Risk Management for Solvency Purposes and ComFrame material integrated with ICP 16; (iii) proposed definitions of ERM-related terms; and (iv) revised ICP 8 Risk Management and Internal Controls and additional ComFrame material integrated with ICP 8. The aim of the consultation is to remove overlap and duplications between ICP 8 and ICP 16 and also to improve efficiency across the ICPs. The deadline for comments is 8 January 2018.
IAIS releases draft revised ICPs for information purposes pending adoption at 2019 AGM
On 8 November, the IAIS published the following draft revised ICPs for information purposes: (i) draft revised ICP 1: Objectives, powers and responsibilities of the supervisor; (ii) draft revised ICP 2: Supervisor; (iii) draft revised ICP 3: Information sharing and confidentiality requirements; (iv) draft revised ICP 9: Supervisory review and reporting; (v) draft revised ICP 10: preventive measures, corrective measures and sanctions; (vi) draft revised ICP 12: Exit from the market and resolution; and (vii) draft revised ICP 25: Supervisory co-operation and co-ordination. The IAIS has also published a draft revised introduction and assessment methodology document.
FCA launches market study on competition in the wholesale insurance broker sector
On 8 November, the FCA published the terms of reference for and formally launched its market study on competition in the wholesale insurance sector. The aim of the market study is to establish how well competition is working in the wholesale insurance broker sector. The focus is on the broker sector and to see how this sector influences competition in the underwriting sector. The purpose of the market study is to ensure that consumers get good value for money. The deadline for comments is 19 January.
Notice confirming provisional application date of EU and US bilateral agreement on insurance and reinsurance prudential measures published in OJ
On 7 November, a notice confirming the provisional application date of the bilateral agreement between the EU and the US on prudential measures regarding insurance and reinsurance was published in the OJ.
Solvency II – EIOPA consultation on second set of technical advice on Delegated Regulation
On 6 November, EIOPA published a consultation paper (EIOPA-CP-17-006) on a second set of advice to the EC on specific items in the Solvency II Delegated Regulation ((EU) 2015/35). The consultation focuses on the remaining elements in the review of the SCR standard formula not covered by the advice EIOPA submitted to the EC in October and seeks feedback on areas such as: (i) recalibration of standard parameters of premium and reserve risks; (ii) volume measure for premium risk; (iii) interest rate risk; (iv) market risk concentration; (v) currency risk at group level; (vi) unrated debt; (vii) unlisted equity; and (viii) simplification of the counterparty default risk. The deadline for comments is 5 January 2018. EIOPA will send its final advice on the areas covered by the consultation paper to the EC by the end of February 2018.
Solvency II – PRA consultation on clarifying expectations for firms seeking approval for use of volatility adjustment
On 3 November, the PRA published a consultation paper on the supervisory approval for the volatility adjustment (VA) under Solvency II. In CP22/17, the PRA sets out proposals to clarify its expectations in respect of firms seeking approval to apply a VA to insurance and reinsurance business. The proposals clarify the risks that may arise from use of the VA, and how firms are expected to consider those risks. The PRA plans to update Supervisory Statement 23/15: Solvency II: supervisory approval for the volatility adjustment. The PRA explains that, in the course of reviewing firms' VA applications, it has identified particular areas of prudential risk that may arise from using the VA. These have had to be addressed in the review process. The CP22/17 aims to alert all firms considering submitting VA applications to these risks, and to help them to produce high-quality applications that successfully address these risks. The deadline for comments is 9 February 2018.


ESMA publishes consultation paper on systematic internalisers' quote obligations under MiFID II
On 9 November, ESMA published a consultation paper on a proposed amendment to RTS 1. ESMA proposes to amend RTS 1 to clarify that systematic internalisers' quotes should reflect the price increments applicable to EU trading venues. The deadline for comments is 25 January 2018.
FCA publishes guidance on MiFID II trading venue notifications
On 6 November, the FCA published a guide to trade venue notifications under MiFID II. The guide covers the notifications that should be made by trading venues (that is, regulated markets (RMs), MTFs and OTFs). It sets out the FCA's expectations of what trading venues should notify, why the information is required, the form in which notifications should be made and the timings for notification.
FIA and EFET industry standard on position reporting
On 3 November, the FIA and the European Federation of Energy Traders (EFET) published common schema for commodity derivatives position reporting under MiFID II. In a related press release, the EFET-FIA states the schema is a result of close co-operation between EFET, FIA, Europex, LEBA and a number of trading venues. They explain that the EFET-FIA schema builds upon the UK FCA schema designed for the reporting of positions by trading venues to the NCA. The EFET-FIA schema adds some additional fields to allow for the delivery of supplementary information from market participants to the trading venues that are subject to the commodity derivative position reporting obligation.


EBA publishes Official EU language translations of final guidelines on authorisation and registration under PSD2
On 8 November, the EBA updated its webpage on its final guidelines (EBA/GL/2017/09) on the information to be provided by applicants intending to obtain authorisation as payment and e-money institutions, or to register as AISPs under PSD2, to make available the official EU language translations of the guidelines. Competent authorities and financial institutions must make every effort to comply with the guidelines, which apply from 13 January 2018. The EBA has also published a form for use by competent authorities to notify the EBA they comply or intend to comply with the guidelines, or otherwise give reasons for non-compliance. This notification must be made by 8 January 2018.
PSR publishes report and consultation on authorised push payment scams
On 7 November, the PSR published a paper containing a report and consultation on authorised push payment (APP) scams (CP17/2). The paper sets out the work the PSR has done over the last year to reduce the harm to consumers from APP scams. The report sets the various initiatives the PSR has taken along with the payments industry to prevent these scams and it stresses the point that there is not one single solution but a diverse approach has to be taken. The consultation focuses on the development of a contingent reimbursement model. This is a process that sets out the circumstances when the victims of APP scams would get their money back and whether it would come from either their PSP (the sending PSP) or the PSP that received the money on behalf of a fraudster (the receiving PSP). Reimbursement would be contingent on whether these PSPs had met the required standards and whether the victim had taken a requisite level of care. The standards that PSPs need to meet would include processes, such as use of technology, rules and procedures that help prevent and respond to APP scams. The deadline for comments is 12 January 2018 and if a model is introduced, the PSR plans to implement it by the end of September 2018.
HM Treasury publishes consultation paper on draft legislation to support introduction of cheque image clearing system
On 3 November, HM Treasury published a consultation on proposals to make provision for two measures in secondary legislation. The aim of the proposed legislation is to ensure that the Image Clearing System (ICS) for cheques has no detrimental impact on the existing position of cheque users. The proposed legislation would provide: (i) that a copy of a paid cheque (or other paper instrument) be provided to the payer upon his or her request, and that the copy can be used as evidence of payment; and (ii) that if a customer incurs a loss in connection with the presentment of a cheque under the ICS, and has not received compensation, the payee's bank must compensate the customer for this loss. The deadline for comments is 1 December.


EBA publishes consultation paper on RTS specifying methods of prudential consolidation
On 9 November, the EBA published a consultation on the draft RTS specifying the different methods of prudential consolidation which can be applied when certain conditions and criteria are met. The aim of these draft RTS is to ensure that the appropriate method of prudential consolidation is applied for the calculation of the CRR requirements on a consolidated basis. The deadline for comments is 9 February 2018.
EBA publishes opinion on non-bank financial intermediaries and regulatory perimeter issues under CRD IV and CRR
On 9 November, the EBA published an Opinion addressed to the EP, Council and EC, on matters relating to the regulatory perimeter under CRD IV/CRR. These include the use of Articles 2(5) and 9(2) CRDIV and the interpretation of the terms 'financial institution' and 'ancillary services undertaking' as defined in the CRR. The Opinion is based on the results of a detailed assessment across the EU of the prudential treatment of other financial intermediaries. The results of the assessment are set out in a report, which has been published alongside the opinion.


SSM – ECB publishes report on supervision of less significant institutions
On 8 November, the ECB published a report on the supervision of less significant institutions (LSIs) in the SSM. Chapters include: (i) Chapter 1: Organisation of banking supervision in the SSM; (ii) Chapter 2: Description of the LSI sector and recent developments; (iii) Chapter 3: challenges facing LSIs and implications for supervision; (iv) Chapter 4: Main supervisory activities conducted on LSIs by NCAs; and (v) Chapter 5: Promoting the convergence of LSI supervision across the SSM.
Ring fencing – BoE speech on role and actions of FPC
On 7 November, the BoE published a speech by Martin Taylor, FPC member, entitled "The committee of public safety". In his speech, Mr Taylor focuses on the role of the FPC and its actions and policies since being established. Points of interest include: (i) the FPC's contributions to the post-crisis reforms which have included recommending a leverage ratio for UK banks, establishing a framework to capitalise domestically important banks and addressing the calibration of the capital framework; (ii) the FPC’s implementation of a credible resolution regime, which will be further enhanced by the ring-fencing of retail banks when this comes into force in January 2019; (iii) in 2014 and 2017, the FPC’s "modest interventions" to prevent the mortgage and consumer credit markets overheating; (iv) the FPC’s criticism of regulations and practices on the grounds of procyclicality and its active deployment of the CCyB; (v) the FPC's judgement that the gross burden of higher capital requirements on banks' funding costs is very low: in the single-digit basis points; and (vi) unlike the MPC, the FPC is focused on tail risks.


PRA policy statement on adjustments to fee and levy rates for 2017/18
On 6 November, the PRA published a policy statement (PS27/17) on adjustments to fee and levy rates for 2017/18. PS27/17 provides feedback to responses to CP17/17 'Regulated fees and levies: Adjustment to rates for 2017/18'. It sets out final rules intended to correct the fee rates for the PRA's AFR for 2017/18 published in PS17/17 'Regulated fees and levies: rates for 2017/18'. The appendix to this PS contains an update to Table III of the Periodic Fees Schedule in the Fees Part of the PRA Rulebook. The table sets out the final periodic fee rates applicable to PRA fee blocks other than the minimum and transition costs fee blocks for the fee year 2017/18. The PRA states that the final version of the rules will be implemented unchanged from the version set out in CP17/17.


FSB and IOSCO reports on implementation of G20-FSB recommendations
On 8 November, the FSB published a report on the status of G20-FSB recommendations covered by the 2017 FSB Implementation Monitoring Network (IMN) survey. IOSCO has also published a report on the implementation of G20-FSB recommendations related to securities markets (FR21/2017) based on the findings of the IMN survey. In the reports, the FSB and IOSCO set out findings on the implementation of recommendations in areas, such as: (i) hedge funds; (ii) structured products and securitisation; and (iii) commodity derivative markets. The reports also give an overview of the implementation of reforms in a number of jurisdictions, including the UK, the EU and the US.
European system of financial supervision – ECOFIN discusses reforms
On 7 November, the Council of the EU published a press release concerning a meeting of the Council, in its configuration as the EC​