Key Regulatory Topics: Weekly Update - 15 December 2017 – 21 December 2017

by Allen & Overy LLP
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BREXIT

CBI Brexit guide to EU bodies and regulators: financial services aspects

On 21 December, the CBI published a guide to the EU bodies and regulators that matter to business in the Brexit negotiations, including those relating to the financial services sector. The purpose of the guide is to set out the CBI's findings on the level of involvement that UK industry would like the UK to retain in various EU bodies after Brexit. In the report, the CBI considers the importance to UK industry of: (i) the EPC. The CBI calls for the UK to seek to retain its seats at the EPC and notes that there is precedent for non-EU member states participating in SEPA, provided that the EPC has assessed them as having an EU-equivalent regulatory framework; and (ii) the ESAs. The CBI argues that the UK must maintain a voice in the regulations that apply to the sector, particularly those that could affect the UK's competitive position. It suggests that it would not be a satisfactory outcome for the UK or the EU if the UK effectively became a rule-taker or if UK regulators had only observer status membership.

UK government Brexit sectoral analyses: financial services aspects

On 21 December, the HoC Committee on Exiting the EU announced that it had published the Brexit sectoral analyses produced by the DExEU. The documents include reports relating to the following financial services sectors: (i) asset management; (ii) FinTech; (iii) insurance and pensions; (iv) payment services and systems; (v) retail and corporate banking; and (vi) wholesale capital markets, investment banking and market infrastructure. Each report contains a description of the sector, the current EU regulatory regime and existing frameworks for how trade is facilitated between countries in this sector (that is, structures available to non-EU countries).

EIOPA opinion on service continuity in insurance following UK withdrawal from EU

On 21 December, EIOPA published an opinion (EIOPA-BoS-17/389) on service continuity in insurance following the UK's withdrawal from the EU. The opinion is addressed to insurers and NCAs. In it, EIOPA recommends steps to be taken to ensure service continuity of cross-border business between the UK and the EU27. EIOPA wants to ensure that policyholders and beneficiaries are not exposed to unnecessary uncertainty regarding the status of their contracts. EIOPA underlines the importance of sufficient preparation being carried out so that insurers can continue to service contracts following the UK's withdrawal from the EU, and prevent insurance activities being carried on without authorisation.

FCA statement on UK withdrawal from EU

On 20 December, the FCA published a statement on the UK's withdrawal from the EU. The FCA welcomes the intention to provide for an implementation period to ensure a smooth and orderly exit from the EU. Although the final nature of any implementation period is yet to be agreed, it is anticipated that firms will be able to continue to benefit from passporting between the UK and the EEA during this period. The FCA will monitor negotiations and provide further information to firms, as and when appropriate. The FCA refers to HMT’s announcement that, if necessary, it will legislate for a temporary permissions regime. This regime would enable relevant firms and funds to undertake new business within the scope of their permissions, continue performing their contractual rights and obligations, manage existing business, and mitigate risks associated with a sudden loss of permission. Firms and funds that are solely regulated in the UK by the FCA would need to notify the FCA, before the day that the UK leaves the EU, of their wish to benefit from the regime. However, this notification for temporary permission will not require submission of an application for authorisation.

Government's plans to ensure continuity in financial services in event of no deal with EU

On 20 December, a written statement was made in the House of Commons by Philip Hammond, Chancellor of the Exchequer on behalf of HMT relating to the BoE’s plans to ensure continuity in financial services in the unlikely event of no deal with the EU. Among other things, the government will: (i) if necessary, bring forward legislation that will enable EEA firms and funds operating in the UK to obtain a "temporary permission" to continue their activities in the UK for a limited period after withdrawal from the EU; (ii) alongside the temporary permissions regime, legislate to ensure that contractual obligations, such as insurance contracts that are not covered by the regime, can continue to be met; (iii) bring forward secondary legislation to ensure that UK authorities are able to carry out functions currently undertaken by EU authorities; and (iv) provide the FCA with functions and powers in relation to UK and non-UK credit rating agencies and trade repositories, and any powers necessary to manage the transition post-exit. HMT will work with the BoE and the FCA as they determine how they will use these powers, consistent with their statutory objectives.

PRA and BoE set out updated approach to authorisation and supervision of international banks, insurers and CCPs

On 20 December, the PRA published two consultation papers setting out its proposed updated approach to the authorisation and supervision of international banks (CP29/17) and international insurers (CP30/17), in the light of Brexit and the UK's new relationship with the EU. The PRA has also published a related "Dear CEO" letter to banks, insurers and PRA-designated investment firms undertaking cross-border activities between the UK and the rest of the EU, with a view to ensuring that the process can proceed in an orderly manner. Alongside these documents, the BoE has published a "Dear CEO" letter concerning non-UK CCPs, explaining how it envisages non-UK CCPs will be recognised to provide services in the UK after the UK has withdrawn from the EU.

FIA white paper on impact of a no-deal Brexit on cleared derivatives industry

On 19 December, the FIA published a white paper on the impact of a no-deal Brexit on the cleared derivatives industry. The aim of the paper is to promote a better understanding of the impact of Brexit on cleared derivatives in the event that no agreement is reached between the UK and EU27 before 29 March 2019. It also considers ways in which policymakers and participants in the cleared derivatives industry could seek to mitigate the impacts of a no-deal scenario during a transitional period.

HMT letter on proposed approach to onshoring EU financial services legislation

On 19 December, the HoC Treasury Committee published a letter (dated 12 December) from Stephen Barclay, Economic Secretary to the HMT, to Nicky Morgan, Committee Chair, on UK financial services regulation following the UK's withdrawal from the EU. The letter follows a meeting, on 11 December, at which Mr Barclay and Ms Morgan discussed how HMT intends to use the European Union (Withdrawal) Bill 2017-19 to domesticate the body of EU financial services legislation, and the responsibilities of the EC and the ESAs, with a view to providing a UK regulatory regime that delivers financial stability and certainty for firms and consumers from the first day that the UK is no longer in the EU.
 
CAPITAL MARKETS AND MARKET INFRASTRUCTURE

ESMA final report and technical advice on evaluation of certain elements of Short Selling Regulation

On 21 December, ESMA published a final report containing technical advice to the EC on the evaluation of certain elements of the SSR. In line with the mandate received from the EC in January 2017, and following a consultation process, ESMA proposes in its technical advice a number of key amendments to what it describes as the SSR's "controversial areas". The aim is to improve the SSR's relevance, effectiveness, coherence, and efficiency. The technical advice, which is set out in annex II to the report, includes proposals concerning the three main elements of the mandate, namely: (i) exemption for market making activities; (ii) short-term bans on short-selling; and (iii) transparency of net short positions.

ESMA annual peer review of EU CCP supervision

On 21 December, ESMA published a report (ESMA70-151-812) following its annual peer review of EU CCP authorisation and supervision under Article 21 of EMIR. The report assesses the overall functioning of CCP colleges and provides an in-depth analysis of the supervisory activities of NCAs on CCPs with respect to requirements set out in EMIR relating to default management procedures (DMPs). Overall, ESMA found that NCAs supervise DMPs adequately and that most EU CCPs have performed fire drills. ESMA will use the findings of the peer review to enhance supervisory convergence between NCAs.

FCA policy statement and near final rules on Handbook changes to reflect application of Benchmarks Regulation

On 20 December, the FCA published a policy statement on Handbook changes to reflect the application of the BMR. PS17/28 illustrates that most of the respondents to CP17/17 supported the FCA's overall approach, particularly the disapplication of areas of the Handbook that overlap with the BMR. One important theme was the need to be clear how the Handbook would apply to certain commodity benchmarks, which the FCA explains in chapter 2 of PS17/28. Chapter 3 relates to mortgage disclosure requirements, forms and fees, while chapter 4 sets out the parts of the Handbook that the FCA is applying in addition to the BMR, to enable it to supervise firms under, and enforce, the BMR. The near final rules are set out in the Benchmarks Regulation Amendment Instrument 2018 (FCA 2018/XX), the text of which is found in Appendix 2 to PS17/28.

Council of EU Presidency compromise proposal on Regulation on CCP recovery and resolution

On 20 December, the Council of the EU published its second Presidency compromise proposal (15432/17) on certain elements of the proposed Regulation on the recovery and resolution of CCPs. The proposed Regulation also amends the ESMA Regulation, EMIR and the SFTR. The second compromise proposal includes amendments to the following Directives: (i) Settlement Finality Directive; (ii) Financial Collateral Directive; (iii) Takeover Directive; (iv) Cross-Border Mergers Directive; (v) Shareholder Rights Directive; (vi) Third Company Law Directive; and (vii) Directive relating to certain aspects of company law (codification).

ESMA 2017 report on market share calculation for CRAs

On 20 December, ESMA published a report setting out its annual market share calculation for EU CRAs, as required by Article 8d of the CRA Regulation. The report contains: (i) a list of CRAs registered in the EU, together with their percentage of total market share; (ii) an overview of the type of credit ratings offered by each CRA registered in the EU; and (iii) a breakdown by type of credit ratings as a percentage of each CRA's overall issuance.

ESMA consults on draft technical standards implementing the Securitisation Regulation

On 19 December, ESMA published three consultation papers on draft technical standards implementing the Securitisation Regulation. Among other things, the consultation papers seek stakeholder views on the underlying exposures and investor report templates, the operational standards for providing these reports to, and accessing the information from, securitisation repositories, and the notification to ESMA of a securitisation's status as a simple, transparent and standardised securitisation. The consultation is open for feedback until 19 March 2018.

ESMA register of administrators and third country benchmarks under BMR

On 19 December, ESMA published a press release providing an update on the register of administrators and third country benchmarks that it must establish under Article 36 of the BMR. ESMA will start publishing the register of administrators and third country benchmarks on 3 January 2018. It is currently working on a new release of the register. Until the new register release is fully available on its website, ESMA will provide an interim solution. This involves it publishing, on a daily basis (that is, on ESMA working days), the latest register information listing benchmark attributes in csv format, which will be available for download. The following files will be made available on a daily basis in csv format: (i) administrators file; and (ii) third countries benchmarks. The new register will be available from the third quarter of 2018.

ESAs final draft RTS amending margin requirements for non-centrally cleared OTC derivatives

On 18 December, the Joint Committee of the ESAs published a final report containing draft RTS (JC/2017/79) amending the framework of EMIR with regard to physically settled FX forwards. The draft RTS aim to align the treatment of variation margin for physically-settled FX forwards with the supervisory guidance applicable in other key jurisdictions. They amend the risk mitigation techniques related to the exchange of collateral to cover exposures arising from non-centrally cleared OTC derivatives with respect to physically settled FX forwards. The draft RTS have been developed under Article 11(15) of EMIR, which establishes provisions aimed at increasing the safety and transparency of OTC derivatives markets in the EU. The ESAs did not publicly consult on the draft RTS, although they did consult with various stakeholder groups. Their feedback is set out in the report together with an impact assessment. The Regulation containing the draft RTS will enter into force on the day following its publication in the OJ.

EC consultation on access to public markets for SMEs

On 18 December, the EC published a consultation on how to make it easier for SMEs to access public markets. The EC notes that, despite the strong benefits of stock exchange listings, EU public markets for SMEs are struggling. The three main drivers appear to be: (i) a weak pipeline of companies seeking a listing; (ii) the fact that the local ecosystems that support companies at the IPO stage, meaning the network of SME specialists surrounding the local exchanges, are under pressure in many member states; and (iii) a lack of institutional and retail investors for financial instruments in SMEs. The consultation aims to address these challenges and look at how changes to the legislation may impact on SMEs access to public markets. The deadline for comments is 26 February 2018.

EBA consults on homogeneity of underlying exposures for STS securitisations and risk retention

On 15 December, the EBA launched two consultations, publishing draft RTS relating to: (i) the homogeneity of underlying exposures for simple, transparent and standardised securitisations; (ii) the risk retention requirements for securitisation originators, sponsors and original lenders. The consultations close on 15 March 2018.

CONSUMER/RETAIL

Draft Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018 published

On 21 December, a draft version of the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018 was published. The draft Order clarifies the circumstances in which a person who carries on the specified activity of accepting deposits does not do so "by way of business" where that activity is facilitated by a person operating an electronic system in relation to lending. Operating an electronic system in relation to lending is a regulated activity under article 36H of the RAO, which concerns peer-to-peer (P2P) platforms. Where a specified activity is not carried on by way of business, the activity is not a regulated activity under FSMA. This means a person carrying on that activity does not need to be authorised by the FCA or the PRA. P2P platforms facilitate lending to private individuals and businesses. Where a business borrows funds via a P2P platform there is a risk that in some circumstances they might be carrying on the specified activity of accepting deposits under article 5 of the RAO. This creates uncertainty for businesses borrowing via P2P platforms and for the platforms themselves. The government believes that this is inappropriate as most P2P borrowers are unlikely to be financial services businesses. The draft Order makes it clear that businesses meeting the conditions specified are not to be properly regarded as accepting deposits by way of business and therefore do not need to be authorised or exempt persons to carry on that activity lawfully.

MAS document setting out strategic approach to debt advice commissioning

On 18 December, MAS published a document setting out its strategic approach to commissioning free client debt advice services between 2018 and 2023.The document follows a consultation by MAS on its future commissioning strategy. It summarises feedback on each of the commissioning intentions that MAS consulted on and incorporates changes in the light of the consultation. It also sets out MAS' high-level sourcing plan between 2018 and 2023.The strategy is built around six principles, which include enhancing the quality of debt advice provision across MAS funded services and developing services that make the best possible use of existing and emerging technologies. MAS expects that the single financial guidance body, which will replace MAS, will be established during the period of the strategy (late 2018), at which point it may be subject to review.

ESMA statement on preparatory work relating to CFDs and binary options offered to retail clients

On 15 December, ESMA published a statement providing an update on its work relating to the provision of contracts for differences (CFDs), including rolling spot forex, and binary options to retail clients. ESMA has been concerned about the provision of such speculative products to retail clients for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area. ESMA remains concerned that the risks to investor protection are not sufficiently controlled or reduced. It is considering the possible use of its product intervention powers under Article 40 of MiFIR to address the investor protection risks. In particular, ESMA is considering measures to prohibit the marketing, distribution or sale to retail clients of binary options and restrict the marketing, distribution or sale to retail clients of CFDs, including rolling spot forex. The FCA has published a statement supporting ESMA's potential product intervention work. It notes that the FCA's domestic policy work on permanent product intervention measures applicable to firms offering CFDs and binary options to retail clients is ongoing. Any permanent FCA policy measures would take into account any prospective ESMA measures.

CORPORATES/ISSUERS

Transparency Directive – ESMA final report on RTS on European Single Electronic Format

On 18 December, ESMA published its final report on the draft RTS on the European Single Electronic Format (ESEF). The ESEF is the format in which issuers with securities listed on regulated markets will, for financial years beginning on or after 1 January 2020, prepare annual financial reports. The draft RTS differ substantially from the version first published in 2015 .ESMA has submitted its final report to the EC. The EC has three months to decide whether to endorse the RTS.

Prospectus Regulation: ESMA consultation on draft RTS

On 15 December, ESMA published a consultation paper seeking views on its proposed draft RTS under the new Prospectus Regulation. The proposed draft RTS include standards in the following areas: (i) key financial information for the prospectus summary; (ii) provisions concerning advertisements; (iii) obligation to publish a supplement to the prospectus; (iv) publication of prospectuses; and (v) data for classification of prospectuses and the practical arrangements to ensure the machine readability of such data. The consultation closes on 9 March 2018.

FINANCIAL CRIME

COREPER approves final MLD5 compromise text

On 20 December, the Council of the EU published a press release announcing that COREPER has confirmed the political agreement reached on the proposed MLD5 with the EP. The Council and the EP reached political agreement on MLD5 on 15 December 2017. Once both the Council and the Parliament have formally adopted MLD5, it will enter into force 20 days after its publication in the OJ. Member states will have 18 months from that date in which to bring into force national law and regulation implementing MLD5.

Government Consultation on the Anti-money laundering supervisory review concluded on 18 December

On 21 July 2017, HMT launched an open Consultation on the Anti-money laundering supervisory review, concerning the formation and operation of the Office for Professional Body AML Supervision (OPBAS). HMT has now published a response to the Consultation. Several issues were raised in the consultation period such as concerns that OPBAS could impose disproportionate burdens, including through excessive requests for information, issuing multiple directions, and by requiring consultants be appointed to carry out skilled persons reports. The Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017 make provision for the FCA oversight of relevant professional bodies and were laid in Parliament on 18 December. They will take effect on 17 January 2018 when OPBAS will become operational.

FINTECH

FCA feedback statement on distributed ledger technology

On 15 December, the FCA published a feedback statement (FS17/4) on its April discussion paper on distributed ledger technology (DLT). The aim of the discussion paper was to stimulate a dialogue on the regulatory implications of current and potential developments of DLT in the financial market. The FCA reports that respondents to the discussion paper were supportive of the FCA's "technology-neutral" approach to regulation and welcomed its open and proactive approach to new technology, including its regulatory sandbox and RegTech initiatives. The feedback also indicated that the FCA's current rules were sufficiently flexible to deal with DLT without requiring any specific rule changes. However, there was some doubt about the compatibility of permissionless networks. The FCA explains that permissionless networks allow general public visibility of transactions online and are open for broad participation within the regulatory regime. Permissioned networks, on the other hand, typically feature a "gatekeeper" who controls access. The FCA concludes that, overall it is open to all forms of deployment of DLT (including both permissioned and permissionless DLT networks) provided the operational risks are properly identified and mitigated.

FUND REGULATION

Updated FCA documents on reporting transparency information under AIFMD

On 20 December, the FCA published: (i) an updated version of its Q&A paper on reporting transparency information to the FCA; (ii) a document setting out the transparency reporting obligations under Annex IV of the AIFMD; and (iii) an updated data reference guide.

INSURANCE

EIOPA Q&A on comprehension alert in KID for insurance-based investment products

On 21 December, EIOPA published a Q&A (EIOPA-BoS-17/375) (dated 19 December 2017) on the comprehension alert in the KID for insurance-based investment products (IBIPs). EIOPA explains that the notion of a comprehension alert is provided for in Article 8(3)(b) of the PRIIPs Regulation. Article 1(2)(a) of the PRIIPs KID Delegated Regulation ((EU) 2017/653) provides that a comprehension alert needs to be included in the KID where an IBIP does not meet the requirements on non-complexity set out in Article 30(3)(a)(i) and (ii) of the IDD. These requirements are supplemented by criteria on non-complex IBIPs in Article 16 of Delegated Regulation (EU) 2017/2359, which supplements the IDD with regard to information and conduct of business rules applicable to the distribution of IBIPs. They are also further clarified by EIOPA's guidelines on IBIPs that incorporate a structure that makes it difficult for the customer to understand the risks involved. Article 30(3)(a) of the IDD and Article 16 of the IDD Delegated Regulation will apply, for the purposes of determining whether to include a comprehension alert in the KID for an IBIP, from 1 January 2018, by virtue of the entry into force of the PRIIPs Regulation and the PRIIPs Delegated Regulation.

EIOPA annual reports for 2017 on use of exemptions and limitations from regular supervisory reporting and use of capital add-ons by NCAs

On 21 December, EIOPA published the following annual reports for 2017: (i) report on the use of limitations and exemptions from reporting 2017 (EIOPA-BoS/17-340 rev2). This report covers reporting on exemptions for the whole of 2016, and on limitations for the first quarter of 2017. EIOPA found that 21 NCAs have not authorised any undertaking to use exemptions or limitations because many of them were planning to collect at least one complete set of annual reports before taking a decision on limitations or exemptions; and (ii) report on the use of capital add-ons 2017 (EIOPA-BoS/17-336 rev2). The report highlights that, at year-end 2016, four member states have imposed a total of 20 capital add-ons (CAO) at individual undertaking level. One member state has imposed a total of four CAOs at group level.

EIOPA opinion on supervisory assessment of internal models including dynamic volatility adjustment under Solvency II

On 21 December, EIOPA published an opinion (EIOPA-BoS-17/366) (dated 30 November 2017) on the supervisory assessment of internal models including a dynamic volatility adjustment. The opinion is addressed to NCAs and in it, EIOPA stresses the importance of common supervisory practices and approaches throughout the EU on the use of internal models under Solvency II. EIOPA plans to monitor developments in this area and assess implementation of the opinion during the course of 2019.

EIOPA report for 2017 on long-term guarantees measures and measures on equity risk

On 21 December, EIOPA published its annual report for 2017 (dated 20 December 2017) on long-term guarantee measures and measures on equity risk (EIOPA-BoS-17/334). In its second annual report, EIOPA analyses the impact of measures on the financial position of all (re)insurance undertakings from the EEA. The analysis includes the impact of the extrapolation of risk-free interest rates and the symmetric adjustment mechanism to the equity risk charge. The results show that, similar to the 2016 analysis, most of the measures are widely used. 783 (re)insurance undertakings in 23 countries with a European market share of 74% use at least one form of voluntary measure. EIOPA has identified that the volatility adjustment and the transitional measure on technical provisions are particularly widely used.

FSB consults on key attributes assessment methodology for insurance sector

On 21 December, the FSB published a consultation on a proposed key attributes assessment methodology for the insurance sector. The aim of the consultation is to set out a methodology to guide the assessment of a jurisdiction's compliance with the FSB's key attributes of effective resolution regimes for financial institutions with respect to the insurance sector. The document also contains material on the conduct of a compliance assessment, the assessment of policy measures relating to G-SIIs and preconditions for effective resolution regimes. The deadline for responses to the consultation is 28 February 2018.

EC adopts legislative proposals to delay application date for IDD and IDD Delegated Regulations to 1 October 2018

On 20 December, the EC adopted a legislative proposal for a Directive (COM(2017) 792/2) amending the IDD as regards the date of application of member states' transposition measures. The EC has decided to extend the IDD application date to 1 October 2018, following a request from the EP, to give the sector more time to prepare. However, it believes that the sector has already been given considerable time to adapt. The EP did not ask the EC to extend the IDD transposition date and, as a result, the EC is not proposing to change the transposition date. Member states are still required to transpose the IDD into national law by 23 February 2018.

IDD Delegated Regulations on POG and IBIPs requirements published in OJ

On 20 December, the following Commission Delegated Regulations under the IDD were published in the OJ: (i) Delegated Regulation (EU) 2017/2358 supplementing the IDD with regard to product oversight and governance (POG) requirements for insurance undertakings and insurance distributors. It lays down rules for the maintenance, operation and review of POG arrangements for insurance products, and for significant adaptations to existing insurance products before these products are brought to the market or distributed to customers. It also lays down rules for product distribution arrangements for these products; and (ii) Delegated Regulation (EU) 2017/2359 supplementing the IDD with regard to information requirements and conduct of business rules applicable to the distribution of insurance-based investment products. It provides detailed criteria and practical details for the application of the IDD requirements aimed at addressing IBIPs. The requirements include provisions on conflicts of interest and inducements, and the assessment of suitability and appropriateness. Both Delegated Regulations will enter into force on 9 January 2018 (that is, 20 days after publication in the OJ), and are stated to apply from 23 February 2018. However, the EC has (on 20 December 2017) adopted a new Delegated Regulation amending this application date to reflect a legislative proposal to delay the IDD application date to 1 October 2018.

IAIS reports on 2017 G-SII identification process

On 19 December, the IAIS published a report on the 2017 G-SIIs identification process. The IAIS participates in a global initiative with other standard setters to identify G-SIFIs. It focuses on identifying G-SIIs. These are a class of G-SIFIs who are insurers whose distress or disorderly failure would potentially cause significant disruption to the global financial system and economic activity. The IAIS developed its initial G-SII assessment methodology in 2013 and used this methodology to identify a recommended list of G-SIIs each year from 2013 to 2015. In November 2015, as part of its scheduled three-year review, the IAIS published a consultation paper setting out proposed revisions to the 2013 methodology. After considering stakeholder comments, it published an updated methodology in June 2016. This methodology adds an extra layer of transparency to the annual G-SII identification process for both participating insurers and the public. The IAIS used the 2016 methodology to complete the 2017 G-SII identification exercise. Ultimately however, it is the FSB who identifies G-SIIs in November every year.

EIOPA supervisory statement on solvency and financial condition reports

On 18 December, EIOPA published a supervisory statement (EIOPA-BoS/17-310) on solvency and financial condition reports (SFCRs) under Solvency II. This statement outlines the outcome of EIOPA's analysis of the first supervisory experiences regarding the application of the Solvency II rules on the SFCR that is published annually by insurance and reinsurance undertakings and insurance groups. EIOPA's assessment is based on its observations from the analysis of a sample of published group SFCRs and observations regarding the 2016 group and solo SFCRs collected by the NSAs in the EEA.

FCA policy statement on second consultation on IDD implementation

On 15 December, the FCA published its second policy statement on implementing the IDD (PS17/27). In PS17/27, the FCA responds to feedback it received to its second consultation paper on IDD implementation (CP17/23) and summarises its approach to making: changes to its rules to implement the IDD requirements for life insurance business generally, including additional requirements related to the distribution of insurance-based investment products; changes to its rules to implement IDD requirements that apply to life and non-investment insurance business; additional Handbook changes relating only to non-investment insurance business, including information disclosure requirements and the insurance product information document; and consequential amendments to other parts of the Handbook. The FCA aims to publish its third and final IDD policy statement, together with its final rules, in January 2018. It does not expect to make any substantive changes to the near-final rules.

MARKETS

EC adopts Implementing Decision under MiFID II Directive on equivalence of Swiss stock exchanges

On 21 December, the EC adopted an Implementing Decision on the equivalence of the legal and supervisory framework applicable to stock exchange in Switzerland in accordance with MiFID II, together with an annex. Under the decision, the EC recognises trading venues in Switzerland as eligible for compliance with the trading obligation for shares set out in MiFID II and MiFIR. The annex lists the stock exchanges in Switzerland that are considered equivalent to regulated markets as defined in the MiFID II Directive as: (i) SIX Swiss Exchange AG; and (ii) BX Swiss AG. In a related press release, the EC states that the decision ensures that businesses and markets can continue to operate smoothly and without any market disruptions after 3 January 2018. The decision is limited to one year, expiring on 31 December 2018. It will be published in the OJ on 23 December, and will come into force on 24 December.

PRA MIFID II Passporting Amendment Instrument 2017

On 21 December, the PRA published PRA Rulebook: MIFID II Passporting Amendment Instrument 2017 (PRA 2017/43). The Instrument contains amendments to the Passporting Part of the PRA Rulebook relating to the implementation of MiFID II (2014/65/EU) and the IDD. Annex A to the instrument, which relates to MiFID II, comes into force on 3 January 2018 and Annex B, which relates to the IDD, comes into force on 23 February 2018. The PRA has also updated its policy statement (PS31/17) to refer to the instrument. Commission Implementing Regulation (EU) 2017/2382, which contains these ITS, was published in the OJ on 20 December. The webpage for PS31/17 states that the policy statement is near-final and will be updated in due course to include the reference to Regulation 2017/2382.

ESMA instructions on download and use of full and delta transparency results and double volume cap results files for MiFIR purposes

On 20 December, ESMA published the following sets of instructions: (i) FIRDS transparency system: instructions on download and use of full and delta transparency results (ESMA65-8-5240) (dated 18 December). These instructions provide details on the files containing the transparency calculation results that ESMA will be publishing, together with information on how to access them and how to use them. They are aimed at EU market participants and NCAs that need to make use of the results of transparency calculations for the purposes of MiFIR; and (ii) double volume cap system: instructions on download and use of double volume cap results files (ESMA65-8-5257) (dated 18 December). These instructions provide details on the files containing double volume cap calculation results that ESMA will be publishing, together with information on how to access them and how to use them. They are aimed at EU market participants and NCAs that need to make use of the results of double volume cap calculations for the purposes of MiFIR.

ESMA statement on LEI implementation under MiFIR

On 20 December, ESMA published a statement relating to the implementation of the MiFIR LEI requirements. Under MiFIR, EU investment firms must identify their clients that are legal persons with LEIs for the purpose of transaction reporting. In addition, trading venues must identify each issuer of a financial instrument traded on their systems with an LEI code when making daily data submissions to the financial instruments reference data system. ESMA, together with NCAs, has learnt that not all investment firms will be able to obtain LEI codes from all of their clients before 3 January 2018. This may also be the case for trading venues' non-EU issuers whose financial instruments are traded on European trading venues. Consequently, to support the smooth introduction of the LEI requirements, for six months after 3 January 2018, ESMA will allow: (i) investment firms to provide a service triggering the obligation to submit a transaction report to the client, from which it did not previously obtain an LEI code, under the condition that before providing such service the investment firm obtains the necessary documentation from this client to apply for an LEI code on their behalf; and (ii) trading venues to report their own LEI codes instead of the LEI codes of non-EU issuers that do not currently have their own LEI codes. The FCA has published a statement in response to ESMA's statement. It explains that ESMA's approach requires the FCA to temporarily amend a validation rule in its transaction reporting system (the market data processor).

Implementing Regulation on ITS on standard forms, templates and procedures for the transmission of information under MiFID II published in OJ

On 20 December, Commission Implementing Regulation (EU) 2017/2382 laying down ITS with regard to the standard forms, templates and procedures for the transmission of information under MiFID II, was published in the OJ. The EC adopted the Implementing Regulation on 14 December. It enters into force on 21 December and applies from 3 January 2018.

Advocate General proposes widest possible interpretation of scope of Article 54(1) MiFID professional secrecy requirements

The Advocate General’s opinion on Bundesanstalt fur Finanzdiebstlestungsaufsicht v Ewald Baumeister (Case C-15/16) (dated 12 December 2017) has been published. The case considers the interpretation of Article 54(1) of MiFID as regards the scope of the professional secrecy obligation imposed on NCAs, and the concept of "confidential information" in this context. Advocate General Bot believes that the ECJ should give the widest possible scope to the concepts of professional secrecy and confidential information. He proposes that the ECJ should reply to the questions referred for a preliminary ruling by stating that all information (including correspondence and statements) relating to a supervised entity and received or drawn-up by an NCA is included (without any other requirement) in the concept of confidential information within the meaning of Article 54(1) of MiFID. As a consequence, the information is protected by the professional secrecy obligation under this Article. The opinion of Advocate General Bot is not binding on the ECJ, but opinions are usually, if not invariably, followed. It is currently unclear when the ECJ's final judgment is expected. Although the opinion is focused on MiFID, it is of wider interest as there are other pieces of EU financial services legislation that contain similar professional secrecy obligations, including the UCITS Directive and the CRD IV Directive.

MiFID II – ESMA updates trading halts procedure

On 19 December, ESMA published a revised procedure (ESMA70-156-181) and template for NCAs to use when reporting to ESMA the parameters used by trading venues under their jurisdiction for halting trading in accordance with Article 48(5) of MiFID II. The final report relating to the guidelines established the template and procedure for the submission of the parameters of mechanisms to halt or constrain trading. However, it has been decided not to include the reporting standards and procedure in the guidelines, but instead have them in an ESMA procedure that is approved by the board. The procedure document enters into force on the day following its publication on the ESMA website (that is, 20 December).

MiFID II – ESMA updates Q&As on investor protection

On 18 December, ESMA published an updated version of its Q&As on investor protection topics under MiFID II and MiFIR. ESMA has added new Q&As covering: (i) suitability and appropriateness; (ii) inducements; (iii) the provision of investment services and activities by third country firms; and (iv) the application of MiFID II after 3 January 2018 (the date of transposition), including issues of late transposition.
MiFID II – ESMA updates Q&As on market structures and transparency
On 18 December, ESMA published updated versions of its Q&As on market structures and transparency under MiFID II and MiFIR. ESMA has added new Q&As covering: (i) the scope of the tick size regime; (ii) the application of MiFID II after 3 January 2018 (the date of transposition), including issues of late transposition; (iii) equity transparency; (iv) non-equity transparency; and (v) pre-trade transparency waivers.

MiFIR – ESMA updates data reporting Q&As

On 18 December, ESMA published an updated version of its Q&As on data reporting under MiFIR. The document includes updated Q&As relating to: (i) an unknown date of admission; (ii) the concept of underlying; and (iii) transactions executed through non-EU branches of EU investment firms.

MiFID II and MiFIR – ESMA updates commodity derivatives

On 15 December, ESMA published an updated version of its Q&As on commodity derivatives topics under MiFID II and MiFIR (ESMA70-872942901-28). The update includes new answers relating to position limits (see section 2) and position reporting (see section 4).

MiFID II – ESMA revised opinions on transactions on third-country trading venues for post-trade transparency and position limits

On 15 December, ESMA published the following revised opinions: (i) Determining third-country trading venues for post-trade transparency under MiFIR (ESMA70-154-467); and (ii) Determining third-country trading venues for the purpose of position limits under MiFID II (ESMA70-154-466). The opinions addressed the treatment of transactions executed by EU investment firms on third-country trading venues, for post-trade transparency under MiFIR, and the treatment of positions held in contracts traded on those venues for the position limit regime under MiFID II. They specified that, subject to third-country trading venues meeting a set of criteria, investment firms trading on those trading venues are not required to make transactions public in the EU via an approved publication arrangement. Similarly, commodity derivatives contracts traded on those trading venues are not considered as economically equivalent over-the-counter contracts for the purpose of the position limit regime. ESMA will carry out the determination of the third-country trading venues and publish the results in the course of 2018.

ESMA agrees MiFID II position limits on ICE Brent Crude contracts proposed by FCA

On 15 December 2017, ESMA published an opinion (dated 7 December 2017) (ESMA70-155-1535) on position limits on ICE Brent Crude contracts. ESMA received a notification from the FCA in October under Article 57(5) of MiFID II relating to the exact position limits the FCA intends to set for the ICE Brent Crude commodity futures and options contracts in accordance with the methodology for calculation established in Commission Delegated Regulation (EU) 2017/591 (RTS 21) and taking into account the factors referred to in Article 57(3) of MiFID II. ESMA concludes in its opinion that both the spot month position limit and the other months' position limit comply with the methodology established in RTS 21 and are consistent with the objectives of Article 57 of MiFID II.

ESMA overview of MiFID II deferral regimes

On 15 December, ESMA published a table providing an overview of the status of implementation by different member states of the regimes relating to deferred publication of trade data under MiFIR. In an accompanying press release, ESMA explains that MiFIR provides a number of options to NCAs in the context of deferred publication of trade data in, among other instruments, bonds and derivatives. It is up to the NCA to decide if, for example, the volume of large trades can be masked for an additional four weeks following the conclusion of the trade. The purpose of the table is to give market participants an overview of the different regimes for supplementary deferral that NCAs have opted for to facilitate compliance and convergent application. The list is based exclusively on voluntary contributions from the relevant NCAs, and is subject to change. ESMA warns that it is therefore advisable to check the list regularly and contact the relevant NCA for further confirmation.

PAYMENTS

EPC updates interbank implementation guidelines for SEPA credit transfer scheme: December 2017

On 20 December, the EPC published an updated version (2017 v2.0) of its interbank implementation guidelines for the SEPA credit transfer scheme (SCT). The updated guidelines set out the SEPA rules for implementing the interbank ISO 20022 XML message standards, based on version 1.1 of the 2017 SCT rulebook, which took effect on 19 November. They introduce the "candidate" ISO 20022 messages related to the SCT inquiry processes (that is, claim non-receipt, claim for value date correction and response to the SCT inquiries). The EPC expects to publish another updated version of the guidelines (2017 v2.1), to replace v2.0, before summer 2018. This further update will include the approved SCT inquiry-related ISO 20022 messages. The SCT inquiry processes will only become effective in November 2019, as stated in v1.1 of the 2017 SCT scheme rulebook.

HMT derecognition order for CHAPS and amending designation order for Cheque & Credit

On 20 December, HMT published: (i) a derecognition order under which it revokes the recognition order of 5 January 2010 specifying CHAPS as a recognised payment system for the purposes of Part 5 of the Banking Act 2009; and (ii) a designation order amending an earlier order made on 19 March 2015 designating Cheque & Credit as a regulated payment system for the purposes of Part 5 of the Financial Services (Banking Reform) Act 2013. The amending order widens the arrangements that constitute the Cheque & Credit system to include the processing of images of cheques and other paper instruments and to refer to participants as well as members of Cheque & Credit. Both orders were made on 19 December 2017 and came into force on 20 December 2017.

FCA statement on EBA guidelines on operational and security risks

On 19 December, the FCA published a statement relating to the EBA's guidelines on operational and security risks under the revised PSD2. In the statement the FCA says it will comply with the guidelines and will consult on the FCA’s approach to applying these guidelines and our expectations on PSPs’ future reporting requirements in 2018. Businesses wishing to apply for authorisation or registration (and PSPs re-applying) should bear in mind that applications must contain a statement of the applicant’s security policy, including a description of the applicant’s measures to comply with Regulation 98(1), taking into account the guidelines. All PSPs will be expected to comply with the guidelines from 13 January 2018 in addition to the requirements set out in Regulation 98 (Management of operational and security risks) of the PSR 2017. This includes firms undertaking account information and payment initiation services.

EBA opinion on transition from PSD to PSD2

On 19 December, the EBA published an opinion (EBA/Op/2017/16) on the transition from the PSD to the revised PSD2.In the opinion, which is addressed to NCAs, the EBA clarifies a number of issues identified by market participants and NCAs relating from the transition from the PSD to PSD2, which will apply from 13 January 2018. Given the cross-border nature of retail payments, the EBA recognises that it and the NCAs have a shared interest in ensuring that these issues are addressed consistently across the EU, and that the transition proceeds smoothly and transparently for PSPs. The EBA explains that under PSD2 it has obligations to develop 12 BTSs and guidelines covering a number of different areas. However, by the PSD2 application date, some of these will not yet be applicable either because they have not been completed or because PSD2 envisages that certain security-related provisions will be applicable after its application date. PSD2 also foresees that some groups of providers will not have to comply with all the PSD2 requirements from its application date. This misalignment, whether explicitly foreseen in PSD2, or a result of the delayed entry into force of BTS and guidelines, has led to a number of additional transitional issues that both market participants and NCAs have approached the EBA about.

PSR consultation and decision paper on regulatory fees

On 15 December, the PSR published a combined consultation and decision paper on PSR regulatory fees (CP17/44). In the paper, the PSR sets out its decision on its fees collection method that it consulted on in its August 2017 consultation on regulatory fees (CP17/30). Chapter 3 provides details on how the fees collection method is being implemented, including what operators and fee payers will be expected to do. It also sets out the amendments to the Fees manual (FEES 9) to implement the decision. In addition, the PSR asks further questions that it hopes will help refine the fees collection method. Separately, the FCA has published the Fees (Payment Systems Regulator) Instrument (No 5) 2017 (FCA 2017/72), made by the FCA Board on 7 December. The instrument came into force on 15 December and makes amendments to FEES 9. The FCA will calculate, bill and collect PSR fees from PSR fee payers directly, and the operators of payment systems will no longer be required to bill and collect fees from PSR fee payers. The deadline for comments is 26 January 2018.

PENSIONS

Government interim response to Law Commission report on pension funds and social investment: financial services aspects

On 20 December, the government published its interim response to the Law Commission's report on pension funds and social investment. Among other things, the Commission made recommendations relating to contract-based pension schemes. In relation to these, the following points are made in the interim response: (i) the FCA is already carrying out work that considers the role and focus of independent governance committees. The work may lead to rule changes in COBS at COBS 19.5; (ii) the FCA agrees with the Commission that it is important to evaluate long-term risks to an investment that is to be held for the long term, in particular when making investment decisions for default investment strategies and in the selection of "chosen funds" offered to members of defined contribution workplace pension schemes. The FCA will consider whether to include explicit additional guidance on financial and non-financial factors for firms operating workplace personal pension schemes in its Handbook; and (iii) in assessing the feedback to its discussion paper, Illiquid assets and open-ended investment funds (DP17/1), the FCA will consider any changes necessary to its existing rules and guidance on permitted links. The government will publish its full response by June 2018.

PRUDENTIAL REGULATION

BCBS consults on technical amendment to net stable funding ratio standards

On 21 December, the Basel BCBS published a consultative document on a technical amendment to its standards on the NSFR (BCBS429). The BCBS' amendment relates to the treatment of extraordinary monetary operations in the NSFR. The BCBS is proposing to add additional text to paragraph 29 in BCBS295 to allow for reduced required stable funding factors for central bank claims with a maturity of more than six months. The deadline for responses is 5 February 2018.

SRB issues MREL policy for 2017 and next steps

On 21 December, the SRB has published a document setting out its policy on MREL for 2017, which will be implemented in 2018, and next steps. The document sets out the SRB's approach to, among other things, setting binding MREL targets, the quality of MREL and the use of bank-specific transition periods. It also contains details of how the SRB intends to react to future developments that might affect MREL, including the potential consequences of Brexit (which will lead to issuances under UK law being treated like other third-country issuances). In 2018, the SRB intends to continue to develop its policy on MREL. It will focus on: (i) the analysis of the consequences of its resolvability assessment, including the definition of impediments; (ii) the calibration of MREL targets; (iii) the development of a specific policy for resolution strategies not relying on the sole use of the bail-in tool; and (iv) the development of a policy to address individual and internal MREL.

BCBS progress report on implementation of principles for effective supervisory colleges: December 2017

On 21 December, the BCBS published a progress report on the implementation of its principles for effective supervisory colleges (BCBS430). In BCBS430, the BCBS considers progress on the implementation of the principles since July 2015. It found that there had been progress on enhanced information-sharing, on co-ordinated risk assessment activities and on colleges' contribution to crisis preparedness. However, it also found challenges relating to college activities, including legal constraints on information-sharing, absence of formal protocols among different crisis preparedness forums, resource constraints and expectation gaps between home and host supervisors.

BCBS consults on stress testing principles and issues range of practices report

On 20 December, the BCBS published a report (BCBS427) on the range of practices on supervisory and bank stress testing, together with a consultative document (BCBS428) on stress testing principles. The report describes and compares supervisory and bank stress testing practices and highlights areas of evolution. The report finds that, in recent years, both banks and authorities have made significant advances in stress testing methodologies and infrastructure, and banks have been making improvements to their governance structures. Key challenges that remain for banks include finding and maintaining sufficient resources to run stress testing frameworks, and improving data quality, data granularity and the systems needed to efficiently aggregate data from across the banking group for use in stress tests. The consultation proposes to replace the current set of principles with a new streamlined version. The proposed new version states the principles at a high enough level to be applicable across many banks and jurisdictions and remain relevant as stress testing practices continue to develop. Comments can be made on the consultation until 23 March 2018.

EBA ad hoc cumulative impact assessment of Basel III reform package

On 20 December, the EBA published an ad hoc cumulative impact assessment of the Basel III reform package, with a related press release. In the report, the EBA assessed the impact of the reforms finalised by the BCBS on 7 December, including the BCBS' revisions to the credit and operational risk approaches and to the process for the estimation of the leverage ratio. The EBA concluded that: (i) EU banks' minimum tier 1 capital requirement would increase by 12.9% at the full implementation date (14.1% for the large and internationally active banks and 3.8% for all other banks); (ii) EU banks would need EUR17.5 billion of additional common equity tier 1 capital and the total capital shortfall would be EUR39.7 billion; and (iii) 20.5% of the banks in the sample would be constrained by the output floor, set by the BCBS at 72.5% of the standardised approach requirements.

EBA updates quantitative analysis in MREL final report

On 20 December, the EBA published a report updating the quantitative analysis of its December 2016 final report on MREL. The latest report updates the quantitative analysis of MREL ratios, MREL capacity, MREL quality and the estimated MREL funding needs of the full sample of 112 EU banks as of the end of December 2016. Data relating to the full sample shows that there was a significant variance of MREL ratios across individual banks, especially among non G-SIIs. On average, the updated analysis shows that banks in the consistently monitored sample: (i) improved their risk profile, significantly as measured by risk weighted assets (RWAs) contributing to improved (lowered) estimated MREL funding needs; (ii) marginally increased the stack of MREL eligible instruments, both in absolute and relative amounts. This was largely driven by global systemically important institutions (G-SIIs) that have been actively issuing MREL in 2016 and early 2017; and (iii) slightly improved the quality of MREL, as captured by the increase of the stock of subordinated MREL instruments.

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EC adopts legislative proposals for revised EU prudential framework for investment firms

On 20 December, the EC published legislative proposals for a Regulation and a Directive that it has adopted introducing a revised EU prudential framework for investment firms. Under the proposals: (i) systemically important investment firms will be subject to equivalent prudential requirements as large credit institutions under the CRR and the CRD IV Directive; (ii) other investment firms will be brought out of the scope of the CRR and the CRD IV Directive and become subject to a new prudential framework, set out in the Regulation and the Directive. This will include revised governance and remuneration requirements. Small and non-interconnected firms will be subject to a light-touch regime; and (iii) the provisions in MiFIR on assessing the equivalence of third country's regulatory frameworks will be tightened.

EBA fourth report on impact assessment for liquidity measures

On 18 December, the EBA published its fourth report on the impact assessment for liquidity measures under Article 509(1) of the CRR. The report shows that banks have continued to improve their LCR since 2011. At the reporting date of 31 December 2016, EU banks' average LCR was significantly above the 100% minimum requirement, which will have to be fully implemented by 1 January 2018.

EBA consultation on draft ITS amending Implementing Regulation on benchmarking of internal models

On 18 December, the EBA published a consultation paper on draft ITS amending EC Implementing Regulation (EU) 2016/2070 with regard to the benchmarking of internal models under the CRD IV. The EBA proposes to amend Implementing Regulation (EU) 2016/2070 to adjust the benchmarking portfolios and reporting requirements in the light of the benchmarking exercise that it will carry out in 2019. The text of the proposed draft Implementing Regulation amending Implementing Regulation (EU) 2016/2070 is set out in section 4 of the consultation paper. Based on feedback received from firms during interviews held as part of past market risk benchmarking exercises, the EBA explains that the proposals aim to enhance market risk portfolios, as well as simplify some hypothetical trades. In addition, minor changes to the reporting templates and instructions have been included both to keep the portfolios up-to-date and the reported data relevant for the 2019 assessment. These amendments are designed to foster a common and coherent interpretation and implementation of the reporting requirements across EU firms. The deadline for comments is 31 January 2018. The EBA plans to hold a public hearing, on 23 January 2018, to discuss the proposals.

EBA discussion paper on EU implementation of revised market and counterparty credit risk frameworks

On 18 December, the EBA published a discussion paper (EBA/DP/2017/04) on the EU implementation of the revised market risk and counterparty credit risk frameworks. The discussion paper considers some of the most important technical and operational challenges for banks to implement the FRTB and SA-CCR due to the need to introduce changes to infrastructures, IT systems, data management, pricing models or approximating techniques. It sets out the EBA's preliminary views on how the implementation issues could be addressed. A formal consultation process on proposed RTS will be undertaken following conclusion of the CRR II negotiations and confirmation of EBA mandates. The discussion paper also outlines a roadmap and the priorities for the development of the regulatory deliverables on FRTB and SA-CCR included in the CRR II proposal. The deadline for comments is 15 March 2018. The EBA will hold a public hearing on 5 February 2018.

ESRB Recommendation amending 2015 Recommendation on EU macroprudential policy framework published in OJ

On 15 December, Recommendation of the ESRB (ESRB/2017/4) (dated 20 October) amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of, and voluntary reciprocity for, macroprudential policy measures was published in the OJ. The 2017 Recommendation explains that the framework on the voluntary reciprocity for macroprudential measures set out in the 2015 Recommendation should ensure that all exposure-based macroprudential policy measures activated in one member state are reciprocated in the other member states to the greatest extent possible. Relevant authorities in member states may exempt an individual firm with non-material exposure from the application of the reciprocating measures. This is referred to as the de minimis principle.

Council of EU publishes corrigendum to CRR IFRS 9 Regulation

On 15 December, the Council of the EU published a corrigendum to the text of the Regulation amending the CRR as regards the transitional period for mitigating the impact on own funds of the introduction of IFRS 9 and the large exposures treatment of certain public sector exposures denominated in non-domestic currencies of member states.

RECOVERY AND RESOLUTION

EBA final draft RTS and reports on simplified obligations

On 19 December, the EBA published two reports and RTS relating to Article 4 of the BRRD: (i) a report on the application of simplified obligations and waivers in recovery and resolution planning. The report provides an overview of how competent and resolution authorities have applied the simplified obligations and principle of proportionality in recovery and resolution planning since the BRRD entered into force in January 2015. It shows that, as of 30 April 2017, around only a half of the competent and resolution authorities across the EU had granted simplified obligations or waivers to institutions in their respective jurisdictions; and (ii) a report (EBA/RTS/2017/11) that includes final draft RTS specifying the eligibility criteria to determine whether institutions could be subject to simplified obligations when drafting recovery and resolution plans. The draft RTS promote convergence of practices among authorities by creating a common framework for assessing institutions' eligibility for simplified obligations. They are also intended to facilitate co-operation among the competent and resolution authorities in conducting these assessments, including as regards cross-border groups. The draft RTS are set out in section 3 of the report. The EBA will submit the final draft RTS to the EC for approval.

STRUCTURAL REFORM

ECB adopts supervisory priorities for 2018

On 18 December, the ECB published a document setting out its priorities for the SSM for 2018.
The four priorities are: business models and profitability drivers; credit risk; risk management; and activities comprising multiple risk dimensions. The first three priorities have been carried over from 2017. The fourth priority is new for 2018. The document explains that supervisory activities planned for 2018 in relation to this priority include stress testing and the ongoing preparations for Brexit.

OTHER

EBA final recommendations on outsourcing to cloud service providers

On 20 December, the EBA published a report setting out its final recommendations on outsourcing to cloud service providers (EBA/REC/2017/03). The recommendations are addressed to credit institutions, investment firms and competent authorities. They specify the supervisory requirements and processes that apply when financial institutions outsource to cloud service providers and build on the general outsourcing guidelines developed by the EBA's predecessor, the CEBS, which have been in place since 2006. The report highlights there is currently a high level of uncertainty regarding the supervisory expectations that apply to outsourcing to cloud service providers, which forms a barrier to the adoption of cloud solutions in the EU and to institutions realising the full benefits of cloud services. The recommendations will now be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether they comply with them will be two months after the publication of the translations. The recommendations will apply from 1 July 2018.

Delegated Regulation on system of contributions to expenditures of SRB published in OJ

On 19 December, Commission Delegated Regulation (EU) 2017/2361 on the final system of contributions to the administrative expenditures of the SRB was published in the OJ. Under Article 65(5) of the SRM Regulation, the EC has the power to adopt delegated acts on contributions to the administrative expenditures of the SRB to determine (among other things) the type of contributions and the matters for which contributions are due, the manner in which the contributions are calculated, and the way in which they are to be paid. The EC adopted the Delegated Regulation on 14 September. The Delegated Regulation comes into force on 8 January 2018 (that is, 20 days after publication in the OJ).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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