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Key Regulatory Topics: Weekly Update - 6 October 2017 – 12 October 2017

13 October 2017

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



Uncorrected evidence relating to Brexit from House of Lords Select Committee on European Union

On 12 October, the HoL Select Committee on the EU published an uncorrected transcript of oral evidence taken from a hearing on 10 October on consumer protection rights in relation to Brexit. Giving evidence was Chris Woolard, FCA director of strategy and competition. A number of consumer protection issues were raised at the hearing, including the continuity of consumer contracts post Brexit and compensation, particularly the use of EU compensation schemes by UK consumers post Brexit.

Opinion on Brexit published by the EBA

On 12 October, the EBA published an opinion on issues relating to the departure of the UK from the European Union (EBA/Op/2017/12). The opinion examines the following areas: (i) authorisation; (ii) internal models; (iii) internal governance, outsourcing, risk transfers and "empty shell" companies; and (iv) resolution and deposit guarantee schemes.

Brexit – Chancellor letter to Treasury Committee on impact of Brexit on insurance contracts

On 11 October, the UK Parliament published a letter (dated 20 September) from Philip Hammond, Chancellor of the Exchequer, to Nicky Morgan, HoC Treasury Committee Chair, on the impact of Brexit on cross-border insurance contracts. The letter is in response to a letter sent by Ms Morgan to Mr Hammond on 14 September. Mr Hammond notes that the nature of the final EU-UK relationship will be a matter of negotiation. He adds that a mutual process to maintain coherence between the regulatory regimes will be an essential component of the deep trading relationship in financial services. This is likely to mean agreeing supervisory arrangements that are symmetrical, reciprocal and reliable, and that address legitimate financial stability concerns. Mr Hammond also states the government is clear that, whatever the ultimate outcome of the negotiations, an integral part of delivering Brexit will be the negotiation of a time-limited interim period. This is to provide certainty and avoid a cliff-edge for business and individuals during the transition from the current structures of membership to the new relationship. Mr Hammond concludes the letter by saying that the issues would be further discussed at a meeting with Ms Morgan on 11 October.

Brexit – ESMA speech on exit preparations

On 9 October, ESMA published a speech by Steven Maijoor, ESMA Chair, given to the EP ECON as part of the annual hearing of the chairs of the three ESAs. In the speech Mr Maijoor states that ESMA has been looking closely at the areas where, in the event that the UK would leave without any arrangements in place, a cliff-edge effect could mean higher risks for investors and markets as a whole, and, together with other relevant authorities, is working on possible mitigating actions.


CRAs – IOSCO final report on other CRA products

On 11 October, IOSCO published a final report (FR18/2017) on "Other CRA Products" (OCPs), which aims to provide market participants with a better understanding of certain non-traditional products and services offered by CRAs. The work carried out by IOSCO resulted in three main observations: some OCPs share similar processes and features as traditional CRAs; CRAs tend to create separate structures or business line organisation; and common features can be identified among OCPs that, for the purposes of the report, can be categorised into six primary groups (see chapter 4 for a description of each category). The report concludes that OCPs should be responsive to the spirit of the four high level objectives set out in IOSCO's Statement of Principles regarding the activities of CRAs. These relate to the quality and integrity of the rating process, independence and conflicts of interest, transparency and timeliness of ratings disclosure, and confidential information.

SONIA – FMLC letter on the legal uncertainty arising from SONIA as the preferred risk-free reference rate

On 11 October, the FMLC published a letter (dated 9 October) relating to the SONIA interest rate benchmark. The letter is written in light of the white paper on potential approaches to broader adoption in sterling markets of SONIA, which was published by the BoE working group on sterling RFRs. In the white paper, the working group invited suggestions of additional topics for discussion. Given this, the FMLC is drawing the working group's attention to its previous comments on legal risk arising in the context of benchmark reform in respect of legacy contracts. This includes the FMLC's contribution to the final report of the market participants group on reforming interest rate benchmarks, which was published in July 2014. The FMLC takes the view that the issues of legal risk that have previously been raised by the FMLC could be relevant to further discussion and consideration in the context of some of the issues addressed in the white paper. In particular, with respect to exploring the working group's recommendation of the potential scope for the transition of legacy contracts that currently reference the LIBOR to SONIA.

For reference, FMLC 2014 report

Benchmarks – FSB third interim progress report on reforming major interest rate benchmarks

On 10 October, the FSB published a third interim progress report on reforms to existing major interest rate benchmarks and the development and introduction of alternative near risk-free interest rate benchmarks (RFRs). The findings of the report include: since the 2016 progress report, the administrators of the three major "IBORs" (that is, LIBOR, EURIBOR and TIBOR) have continued to take important steps towards implementing the FSB's recommendations; member authorities have noted that changes in the structure of funding markets may affect the long-term sustainability of benchmarks such as LIBOR; and RFRs have been identified in major markets, but work remains to be done on an effective transition from major IBORs to RFRs, both for derivatives and other products referencing IBORs more broadly. The FSB concludes by explaining that the various work streams are at crucial stages in their progress, and further work is warranted, both by the public and private sectors. It is therefore not in a position to publish the final report in 2017, as envisaged in the July 2016 progress report. The OSSG will continue to monitor progress in reforms to interest rate benchmarks and publish a progress report in 2018.

EMIR – Delegated Regulation on access to data and aggregation and comparison of data published in OJ

On 7 October, Delegated Regulation (EU) 2017/1800, which amends EC Delegated Regulation (EU)151/2013 with regard to RTS specifying the data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing data under EMIR, was published in the OJ. The Delegated Regulation enters into force on 27 October (that is, 20 days after its publication in the OJ). It applies from 1 November.


Please see our Insurance section for an update on PRIIPS.


BoE’s FinTech Accelerator: what have we done and what have we learned? - speech by Andrew Hauser

On 6 October, Andrew Hauser, executive director for banking, payments and financial resilience gave a speech to FinTech firms reflecting on the work of the BoE’s FinTech Accelerator since its launch in June 2016. 200 firms have applied to work with the Accelerator, and with the latest projects announced today, 13 PoCs will have been completed in a year and a half. Those PoCs have focused on four main technologies particularly relevant to central banks: distributed ledger technology, large-scale data storage and analysis, machine learning and cyber security.


IDD – EIOPA final guidelines on complex insurance-based investment products

On 11 October, EIOPA published its final guidelines on complex insurance-based investment products (IBIP) under the IDD. The guidelines are intended to minimise risk of consumer detriment arising from mis-selling of IBIPs, applying to execution-only sales. Typically, these IBIPs are sold via telephone or online and where the insurance distributor does not provide advice or verify the customer's knowledge of the product and the risks involved. NCAs will be required to confirm their compliance, or intent to comply, to EIOPA within two months of the guidelines being translated into all the official languages of the EU.

EIOPA speech on future challenges and opportunities

On 10 October, EIOPA published a speech (dated 9 October) by Gabriel Bernardino, EIOPA Chair, given to the ECON as part of the annual hearing of the chairs of the three ESAs. In the speech Mr Bernardino set out his views on the future challenges and opportunities facing EIOPA and explained how it can address them. He focused on the following matters: (i) a stable financial system; (ii) CMU; (iii) cross border activities; and (iv) supervisory independence and conflict of interests.

PRIIPS – Insurance Europe and EFAMA revise templates for PRIIPs information exchange

On 6 October, EFAMA published a press release announcing that it and Insurance Europe have updated their PRIIPs information exchange templates: The European PRIIPs template (EPT) and the “Comfort” EPT (CEPT). EFAMA states that the EPT template has been amended by two optional parts (items 82 to 101). The first addition is relevant only for funds or structured products offered in the German market and the second part amends the EPT for data fields related to structured products that were not addressed in the first version of the template. With respect to the "Comfort" EPT, EFAMA states that the content of this template has not changed, although it now provides two possible methods for the VaR-equivalent volatility (VEV) calculation for regular premiums. The aim of the templates is to facilitate the exchange of information between insurers and asset managers, which is required under the PRIIPs Regulation, in relation to multi-option products. The first versions of the templates were published in June.


MiFID II and MiFIR post-trading issues – ESMA updates Q&As

On 10 October, ESMA published a new set of Q&As (ESMA70-151-957) on post-trading issues under MiFID II and MiFIR. The Q&As published relate to straight through processing.

MiFID II – ESMA briefing on importance of LEI for compliance under MiFID

On 9 October, ESMA published a briefing (ESMA70-145-238) on the LEI highlighting its importance to enable firms to comply with their obligations under MiFID II and MiFIR. Based on its previous experience with firms reporting under EMIR, ESMA advises reporting entities not to delay in addressing the MiFID II reporting requirements. It goes on to state that advance preparation will help in avoiding backlogs and ensuring that all market participants are ready for the new regime.

MiFID II – ESMA speech on MiFID preparations

On 9 October, ESMA published a speech by Steven Maijoor, ESMA Chair, given to the EP’s ECON as part of the annual hearing of the chairs of the three ESAs. Mr Maijoor remains optimistic about ESMA's overall readiness to operate within the MiFID II framework by the implementation deadline of 3 January 2018. However, he adds that the size and complexity of the project should not be underestimated and there is a risk of potential glitches in the initial operational period.

MiFIR – Delegated Regulation exempting certain third countries' central banks from pre- and post-trade transparency requirements published in OJ

On 7 October, Delegated Regulation (EU) 2017/1799 supplementing MiFIR as regards the exemption of certain third countries' central banks in their performance of monetary, FX and financial stability policies from pre- and post-trade transparency requirements, was published in the OJ. The Delegated Regulation includes the BIS in the list of 13 central banks set out in an Annex as exempt from transparency requirements and enters into force on 27 October (that is, 20 days after its publication in the OJ).


EBA corrects portfolio identifiers for 2018 benchmarking exercise to ensure effective data validation

On 12 October, the EBA published a press release announcing that it has made corrections to Annex 1 of its ITS on benchmarking of internal approaches under Article 78(8) of the CRD IV Directive (2013/36/EU). The corrections eliminate some duplicate portfolio identifiers (IDs) in Annex 1 of the ITS, which might lead to technical and practical problems for data validation and when mapping portfolio IDs to the relevant internal models applied by banks. The corrections however, do not entail any change to the policy or legal content of the technical standards but facilitate effective data validation. The revised portfolio IDs should be used for data submissions in April 2018.

CRR – Council of EU non-objection to Delegated Regulation on own funds

On 10 October, the Council of the EU published the minutes of the meeting held in its configuration as the Economic and Financial Affairs Council on 10 October. Among other things, at the meeting the Council decided not to object to the following EC Delegated Regulation: Delegated Regulation amending the CRR as regards the waiver on own funds requirements for certain covered bonds. The EC adopted this Delegated Regulation in August. The Delegated Regulation can now enter into force unless the EP objects. If the EP does not object, the Delegated Regulation will be published in the OJ. The Delegated Regulation will enter into force 20 days after their publication in the OJ. The CRR Delegated Regulation will apply from 1 January 2018.

Basel III – BCBS statement on treatment of derivative liabilities under NSFR

On 6 October, the BCBS published a press release on the treatment of derivative liabilities under the NSFR. In the BCBS' standards on the NSFR (BCBS295), which were finalised in October 2014, derivative liabilities are assigned a 20% required stable funding (RSF) factor. In the press release, the BCBS states that it has agreed to allow national discretion for the NSFR's treatment of derivative liabilities. Jurisdictions will be permitted to lower the value of the RSF factor for derivative liabilities, with a floor of 5%. The aim of this change is to facilitate the implementation of the NSFR, which the BCBS intends should become a minimum standard for its members by 1 January 2018.


BRRD – EBA consults on draft ITS on reporting for resolution plans

On 11 October, the EBA published a consultation paper (EBA/CP/2017/15) on the revised draft ITS on reporting for resolution plans under Article 11(3) of the BRRD. It has also published separately Annex I (Resolution templates), Annex II (Instructions) and a press release. The consultation seeks views on content changes to many of the original templates, the deletion of some templates and the addition of one new template to collect information about relevant deposit guarantee scheme arrangements. The consultation paper also seeks views on a planned review of the reporting framework for resolution planning, which takes the form of a new delegated regulation. The review aims to: (i) clarify the scope of the reporting framework in line with the BRRD; (ii) specify minimum procedural and technical reporting requirements; and (iii) allow for simplified reporting obligations for small firms. The deadline for comments is 11 December. The new framework could be operational in 2019 when resolution authorities collect information as of 31 December 2018.

BRRD – ECON votes to adopt draft report on proposed BRRD Insolvency Hierarchy Directive

On 10 October, the EP published a press release announcing that its ECON has voted to adopt its draft report on the proposed Directive amending the BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy. The press release notes that, among other things, ECON has adopted the proposed amendments to the EC’s original legislative proposal to introduce a "grandfathering regime" that would take into account national laws of member states adopted before the entry into force of the new rules and governing normal insolvency proceedings.


Banking union – EC communication on completing the banking union

On 11 October, the EC published a communication outlining its plans to complete the missing parts of the banking union (COM(2017)592). In the communication, the EC calls for all parts of the banking union to be completed by 2018 and sets out a plan to ensure agreement on all the outstanding elements, based on existing commitments by the Council of the EU. The EC believes that a complete banking union will promote a stable and integrated financial system in the EU, while limiting the need for public risk-sharing.

ECB – EC opinion backing increased regulatory powers for ECB published in OJ

On 11 October, an EC opinion (dated 3 October) on the recommendation by the ECB of 23 June was published in the OJ. In the ECB's recommendation, it asked for a greater role in regulating clearing systems for financial instruments, including CCPs, by amending Article 22 of the Statute of the European System of Central Banks (ESCB). The EC has issued a favourable opinion and strongly welcomes the initiative to provide the ECB with a clear regulatory competence in the area of central clearing. It fully supports the ECB in its wish to amend Article 22 of the Statute.

SSM – EC report on SSM

On 11 October, the EC published a report on the SSM that assesses the setting up and functioning of the SSM (SWD(2017)591), together with a staff working document (SWD(2017)336). The report aims to determine the effectiveness of the SSM as the first pillar of the banking union and is part of a broader assessment of progress achieved in relation to the banking union. The report represents the first review by the EC of the application of the SSM Regulation. The review focuses on the most important aspects of the functioning of the SSM and covers five themes: (i) the governance of the SSM; (ii) the key tools developed by the ECB to perform its supervisory tasks; (iii) the performance of supervisory tasks by the ECB; (iv) the interaction with relevant EU and international bodies; and (v) the cost-effectiveness of the SSM. The EC concludes that the SSM has been implemented successfully, with clear benefits in terms of financial stability and market integration. This conclusion supports the EC’s aim of completing the banking union before the end of 2019, as set out in its communication published at the same time as the report.

Voluntary jurisdiction – FOS consultation on amendments to voluntary jurisdiction

On 10 October, FOS published a consultation paper on amendments to its voluntary jurisdiction in light of recent legislative changes, including the UK implementation of the Benchmarks Regulation and MiFID II. The proposals amend the FCA's Dispute Resolution: Complaints sourcebook (DISP) and relate to: (i) Benchmarks Regulation. The FCA consults on removing complaints about "administering a regulated benchmark" from the compulsory jurisdiction so that complaints about this will not be within the FOS' compulsory jurisdiction from 1 January 2018; and (ii) MiFID II. The FOS proposes to insert a new section after DISP 1.1 following the implementation of MiFID II. The FCA is also amending DISP 2 to add activities in a new DISP 2.3.1A and 2.3.1B in the compulsory jurisdiction, which reflect the requirements of MiFID II. These changes come into force on 3 January 2018, which is the date from which MiFID II applies. The deadline for comments is 6 November.

GDPR – Insurance Europe publishes template for data breach notifications under GDPR

On 6 October, Insurance Europe published a template for data breach notifications under the GDPR.

On a new cyber insurance webpage, Insurance Europe explains that the template is easy to use and allows information to be compared across sectors. The data gathered would be anonymised, but would be sufficiently granular to be of use to insurers. Insurance Europe would like the Article 29 Working Party to use the template as "inspiration" for its work on guidelines for data breach notification templates.