CAPITAL MARKETS AND MARKET INFRASTRUCTURE
Please see Markets section for an update on EMIR.
Please also see Recovery and Resolution section for updates on the proposed Regulation on the recovery and resolution of CCPs.
ESMA practical guidance on recognition of third country CSDs
On 28 September 2017, ESMA published practical guidance (dated 26 September 2017) on the recognition by it of third country CSDs under Article 25 of the CSDR. The guidance covers the following phases in the application process: (i) Communications with ESMA before submitting an application for recognition; (ii) Timeframe for submission of an application; (iii) Submission of an application, including format, number of copies, language and information to be provided; (iv) ESMA's acknowledgement of the receipt of an application; (v) Information on the calculation of deadlines set by ESMA; (vi) Assessment of completeness, requests for additional information and notification of completeness; (vii) ESMA's examination of the application; and (viii) ESMA's decision on the recognition application.
ESMA template for CSD register notifications under CSDR
On 28 September 2017, ESMA published a template for CSD register notifications under the CSDR. The template comprises three tables: (i) EU CSDs authorised under Article 16 or Article 54 of the CSDR: general information; (ii) EU CSDs authorised under Article 16 or Article 54 of the CSDR: additional information on each CSD; and (iii) Entities allowed to record book entries into securities accounts maintained by CSDs (Article 31 of the CSDR). NCAs must complete the template with the requested information, to enable ESMA to meet its CSD register publication obligations under Articles 21 and 58 of the CSDR.
CPMI-IOSCO technical guidance on harmonisation of unique product identifier
On 28 September, the CPMI and the IOSCO published a report containing technical guidance on a uniform global UPI applying to OTC derivatives transactions. Following a 2014 FSB feasibility study on approaches to aggregate OTC derivatives data, the FSB asked CPMI-IOSCO to develop global guidance on the harmonisation of data elements reported to TRs and important for the aggregation of data by authorities, including UTIs and UPIs. The technical guidance it contains focuses on the harmonised global UPI, the purpose of which is to uniquely identify each OTC derivative product involved in a transaction that an authority requires, or may require in the future, to be reported to a TR. CPMI-IOSCO envisage a UPI system in which a unique UPI code would be assigned to each distinct OTC derivative product, with each UPI code mapping to a set of data comprised of reference data elements with specific values that together describe the OTC derivative product. The technical guidance is global in scale and takes account of relevant international technical standards, where available. It is not specific to any particular jurisdiction(s), which enables the consistent global aggregation of OTC derivatives transaction data.
TARGET 2 – ECB guideline amending guideline on TARGET2
On 27 September, the ECB published a guideline of 22 September, amending guideline ECB/2012/27 on TARGET2 (ECB/2017/28). The amending guideline clarifies certain aspects following completion of the TARGET2-Securities (T2S) migration plan in September 2017 and implementation of a new ancillary system settlement procedure.
Guide for employers and pension trustees on regulatory implications of helping employees with financial matters
On 28 September, the FCA and Pensions Regulator published a joint guide for employers and trustees on providing support with financial matters without needing to be subject to FCA regulation, which takes the form of a factsheet. The factsheet provides a non-exhaustive explanation of the type of assistance that employers and pension trustees may provide to help employees, without needing to be authorised by the FCA under the FSMA 2000. The factsheet: (i) Outlines the type of advice an employer or trustee should not give, as well as the type of general information and support that would be acceptable; (ii) Addresses the extent to which information provided by an employer or pension trustee on a financial product (including different types of pension schemes) might fall within the financial promotion restriction in section 21 of FSMA; and (iii) Includes two practical examples that consider the provision of information by trustees of an occupational pension scheme, and the provision of factual information at an employer-sponsored retirement seminar for employees.
Draft Goods Mortgages Bill – Law Commission revises Bill and publishes consultation
On 22 September, the Law Commission published an updated draft of its proposed Goods Mortgages Bill alongside a consultation by HMT on the Bill and a new registration regime for goods mortgages. The purpose of the Bill is to replace the Bills of Sale Acts 1878 and 1882, to provide a new way for individuals to use their existing goods as security for loans. The revised Bill includes updated provisions: Goods mortgages may be used by high net worth individuals to secure guarantees and "running account credit"; Goods mortgages may be used to secure performance of some services, such as an obligation to return securities under a stock lending arrangement, but may not be used to secure employment-related obligations; a new single register for goods mortgages is to be established with a simplified regime for registering or discharging a mortgage; and a first goods mortgage lender may make further advances (and be given priority over a subsequent lender) in certain circumstances (for example, if the first lender is obliged to make those advances and does not have notice of registration from the subsequent lender). The deadline for comments is 13 October.
CPMI discussion paper on reducing risk of wholesale payments fraud relating to endpoint security
On 28 September, the CPMI published a discussion paper on reducing the risk of wholesale payments fraud relating to endpoint security. It found that fraud in the wholesale payment ecosystem is becoming increasingly sophisticated and that weaknesses in security at one endpoint in the system can be exploited to commit payments fraud. The task force has therefore developed a proposed strategy to reduce the risk of wholesale payments fraud related to endpoint security. There are seven elements to the strategy, which are together designed to address all areas relevant to preventing, detecting, responding to and communicating about wholesale payments fraud. The CPMI is seeking input on the proposed strategy, as outlined in chapter 6 of the discussion paper. Comments can be submitted by 28 November. Once the discussion paper has closed to comments, the CPMI intends to develop guidance, by early 2018, on each of the seven elements.
WTR – Joint Committee of the ESAs final guidelines under revised Wire Transfer Regulation
On 22 September, the Joint Committee of the ESAs published the final guidelines under the revised WTR on the measures that PSPs should take to detect missing or incomplete information on the payer or the payee, and the procedures they should put in place to manage a transfer of funds lacking the required information (JC/GL/2017/16). The guidelines are based on a mandate set out in Article 25 of the revised WTR. They are addressed to national authorities and PSPs on the measures PSPs and intermediary PSPs should take to comply with the revised WTR and in particular Articles 7, 8, 11 and 12. The guidelines state that they will apply from six months after the date on which they are "issued".
Please see the Markets section for an update on funds relationships in the GLEIS.
FCA speech considers developments in investment and asset management regulation
On 28 September, the FCA published a speech by Megan Butler, FCA executive director of supervision: investment, wholesale and specialists, entitled "where next for investment and asset management regulation?”. To help clarify the FCA's supervisory priorities, Ms Butler’s speech includes a series of questions designed to offer a useful way for firms to think about managing conduct risks in their organisation. The FCA expects firms to put an onus on positive customer outcomes and basic integrity. Other points of interest in the speech include: (i) the FCA is establishing an asset management hub to support new entrants to the market. The hub will assist start-ups as they move between pre-authorisation and authorisation, and on to regular supervision. The FCA will launch phase one of the hub in October 2017, offering new firms pre-application meetings, dedicated case officers and access to the website portal. In addition, the FCA will make it easier for firms to engage directly with their supervisors after they become authorised; and (ii) the FCA will take a sensible and proportionate approach to MiFID II’s application in the UK. It recognises that the new reporting requirements place an onus on firms and has identified the two key priorities for industry as submitting suspicious transaction and order reports under the market abuse regulation (regulation 596/2014) (MAR), and recognising that legal entities wishing to trade under MiFID II will need a legal entity identifier (LEI).
IDD – EIOPA launches survey to gather data for its work on developing Q&As
On 25 September, EIOPA published a survey to gather data from market participants to inform its work on developing a set of Q&As on the interpretation and application of the IDD and its implementing measures. EIOPA states that it has already received some questions from individual stakeholders and it is likely that issues about the consistent application of the IDD and the need for co-ordination between NCAs will continue to emerge, before and after the IDD is transposed into national laws. The Q&As EIOPA intends to develop will not be binding and will not be subject to a "comply or explain" process. However, EIOPA and the NCAs will rigorously scrutinise and challenge their application given their practical significance to achieve a level-playing field. The deadline for comments is 11 October.
IDD – FCA third consultation paper on implementation
On 25 September, the FCA published its third consultation paper on implementing the IDD. CP17/33 contains the FCA's final proposals on how it plans to implement the IDD. It covers the FCA's approach to updating its Handbook to reflect the requirements of the level 2 IDD delegated acts and includes proposals where appropriate for alignment with MiFID II standards. It also includes the FCA's proposals relating to areas within HMT’s February consultation on transposing the IDD. The deadline for comments is 25 November. The FCA will consider all feedback and aims to publish a summary of responses received and a policy statement in January 2018.
IDD – FCA policy statement on first consultation paper on IDD implementation
On 25 September, the FCA published a policy statement on implementing the IDD. PS17/21 sets out the FCA's response to feedback received on its first consultation on the implementation of the IDD (CP17/7). The FCA received 86 responses from a wide variety of stakeholders, including authorised firms, trade bodies, compliance consultants and consumer groups. Based on the feedback received, the FCA intends to implement the rules as set out in CP17/7, but it has made the following changes to chapter 4 of the ICOBS: it has revised its guidance on the choice given to customers on how they receive information; and it has included a new rule and guidance on the means of providing information on renewal to customers who took out their policy before 23 February 2018. Many respondents raised concerns about the limited time available to implement the new requirements. The FCA's response to this is that, while it appreciates that the timeline is challenging, as the IDD is EU law it is not possible for it to grant any extension to the timeline for implementation. The FCA highlighted this in CP17/7 and made clear that firms should already have plans in place to ensure they comply with the requirements from 23 February 2018. It will develop its supervision priorities, including how it ensures firms are complying with the IDD requirements, through its business planning process. This will be communicated to firms using its supervision channels.
Insurance and reinsurance matters – EU and US sign bilateral agreement on insurance and reinsurance prudential measures
On 22 September, the EC published a statement made jointly with the US announcing that the EU and the US signed a bilateral agreement on prudential measures regarding insurance and reinsurance. The EC also published a factsheet containing FAQs on the agreement. The agreement addresses three areas: reinsurance - eliminating collateral and local presence requirements; group supervision; and exchange of insurance information between supervisors. The FAQs explain that the agreement will be "provisionally applied swiftly following the signature". Once the EP and Council of the EU have consented to the agreement, it will fully apply for both sides 60 months after signature.
Statement: Read more
Factsheet: Read more
Please see Prudential Regulation section for new ESMA and EBA final guidelines suitability of management body members.
ESMA and national competent authorities agree updated work plan on MiFID II pre-trade transparency waivers and position limits
On 28 September, ESMA published a public statement (ESMA70-154-356) announcing that, with NCAs, it has agreed an updated work plan for the opinions on pre-trade transparency waivers and position limits that ESMA is required to issue under the MiFID II Directive and the MiFIR. The work plan sets out the following processes: (i) Opinions on pre-trade transparency waivers. Under MiFIR, NCAs must submit pre-trade transparency waivers to ESMA, which subsequently needs to issue opinions on the compatibility of pre-trade transparency waivers with MiFIR and Commission Delegated Regulations (EU) 2017/5871 and (EU) 2017/5832 of 14 July 2016; (ii) Opinions on position limits for commodity derivatives. Under the MiFID II Directive, ESMA is required to publish opinions on the position limits notified by NCAs for commodity derivative contracts, the compatibility with the MiFID II Directive of the limits proposed and the methodology set out in Commission Delegated Regulation (EU) 2017/591 of 1 December 2016. Under the updated work plan, both in relation to pre-trade transparency waivers and position limits, where NCAs intend to amend their initial decision after ESMA has issued a non-compliant opinion, market participants will be given sufficient lead-time to adapt to the revised trading environment. Following ESMA’s announcement, the FCA published a statement in response. In its statement, the FCA explains that, in the light of ESMA's clarification of the opinion issuing process: (i) Pre-trade transparency waiver applications. The FCA will now communicate responses on complete non-equity waiver applications before the ESMA opinions are finalised; and (ii) Commodity position limits. The FCA intends to start publishing in October 2017 the position limits that will come into effect on 3 January 2018 on commodity derivatives contracts traded on UK trading venues.
ESMA: Read more
FCA response: Read more
GLEIS – LEI ROC consultation on funds relationships
On 27 September, the ROC of the LEI published a consultation document on funds relationships in the GLEIS. In the consultation document, the ROC proposes a limited update to the way in which the relationships that funds have with other entities are recorded in the GLEIS. Its proposals are aimed at capturing at a global level a fund's relationship with its management entity, regardless of the different legal and accounting frameworks, and improving the way in which funds relationships are recorded. To achieve these aims, the ROC proposes to provide a definition of fund relationships, and align the cases where fund relationship information is necessary with those where information is collected for direct and ultimate accounting parent entities, as set out in the ROC's March 2016 report. Specifically, the ROC proposes to replace the current optional reporting of a single "fund family" relationship as part of Level 1 data (that is, reference data of the entity) with the following relationships as part of Level 2 data (that is, relationship data): fund management entity; umbrella funds; master-feeder; and other fund family. The deadline for comments is 26 November.
MiFID II – EC adopts amending Delegated Regulation on RTS on consolidated tape for non-equity products
On 26 September, the EC published the text of Delegated Regulation (C(2017) 6337 final) amending Delegated Regulation (EU) 2017/571 which supplements the MiFID II (2014/65/EU) with RTS on authorisation, organisational requirements and the publication of transactions for data reporting services providers. The amending Delegated Regulation sets out RTS specifying the scope of the consolidated tape for non-equity financial instruments under MiFID II (that is, for bonds, structured finance products, emission allowances and derivatives). The next step will be for the Council of the EU and the EP to consider the Delegated Regulation. If neither of them objects to it, the amending Delegated Regulation will enter into force 20 days after its publication in the OJ. It is stated as applying from 3 January 2018, except for: Article 15a(4) (that is, the transitional provisions relating to the first assessment period for determining the coverage ratios by consolidated tape providers (CTPs)), which will apply from 1 January 2019; and Articles 14(2), 15(1), (2) and (3), and 20(b) (that is, the provisions on the non-equity tape of Article 65(2)), which will apply from 3 September 2019.
MiFID II – ECOFIN non objection to Delegated Regulation amending systematic internaliser definition
On 26 September, ECOFIN published a press release reporting on the outcome of its meeting held on 25 September (12484/17). Among other things discussed at the meeting, the Council decided not to object to the proposed EC Delegated Regulation amending Delegated Regulation (EU) 2017/565 as regards the specification of the definition of systematic internalisers for the purposes of the MiFID II. Unless the EP objects, the Delegated Regulation will be published in the OJ will enter into force the day after.
EMIR and MiFIR – EC adopts Delegated Regulations on indirect clearing arrangements
On 22 September, the EC adopted two Delegated Regulations setting out RTS relating to indirect clearing arrangements for OTC derivatives and ETDs under EMIR and MiFIR: Delegated Regulation (C(2017) 6270 final) amends the EMIR RTS contained in Delegated Regulation (EU) No 149/2013. The RTS in this Delegated Regulation reflect a mandate under Article 4(4) of EMIR; and Delegated Regulation (C(2017) 6268 final) supplements MiFIR. The RTS in this Delegated Regulation reflect a mandate under Article 30(2) of MiFIR to ensure that the requirements under MiFIR remain consistent with those under EMIR. The next step will be for the Council of the EU and the EP to consider the Delegated Regulations. If neither of them objects, the Delegated Regulations will enter into force 20 days after their publication in the OJ. Both Delegated Regulations will apply from 3 January 2018.
Regulation 6270: Read more
Regulation 6268: Read more
ECB speech on European banking supervision highlights need to improve and harmonise rulebook and toolbox
On 28 September, the ECB published a speech by Sabine Lautenschlager, ECB Executive Board Member and ECB Supervisory Board Vice-Chair, on European banking supervision: achievements, challenges and the way forward. Points of interest include: (i) Basel III should be finalised as soon as possible, to ensure harmonisation of standards across the global financial sector; (ii) Parts of the single European rulebook come in the form of EU Directives. To further harmonise the rulebook, there should be a greater reliance on EU Regulations because of their direct applicability; and (iii) The toolbox of European banking supervisors needs expanding, harmonising and streamlining. Moratorium powers (that is, powers allowing supervisors to suspend all the activities of a failing bank for a short period of time to help handle the failure in a timely and orderly manner) should be part of the toolbox. Supervisors should also have a tool enabling them to impose prudential deductions from own funds, and the overlap between early intervention tools and standard tools should be removed.
CCR – PRA supervisory statement on compliance with EBA guidelines on disclosure on composition of collateral for exposures
On 27 September, the PRA issued a supervisory statement on compliance with the EBA's guidelines on disclosure in relation to the composition of collateral for exposures to CCR (SS6/17). SS6/17 sets out a waiver for the requirement to disclose template in the EBA’s Guidelines on disclosure requirements under Part 8 of the CRR. SS6/17 also sets out the PRA's expectations regarding certain aspects of firms' compliance with the waiver and clarifies how the waiver threshold should be calculated. It aims to help the PRA meet its primary objective of promoting the safety and soundness of firms. In particular, it seeks to reduce the risk that firms' compliance with the EBA Guidelines could enable the use, or non-use, of liquidity assistance to be deduced.
CRD – PRA updates webpage on forecast capital data
On 27 September, the PRA added new information on its requirements relating to forecast capital data (known as Capital+). The requirements, which were previously set out in a November 2016 policy statement (PS32/16) come into effect on 1 October. The PRA advises that it will contact firms with a reporting deadline in December 2017 during the week commencing 25 October to provide them with information on what they need to know and do to use the live BoE Electronic Data Submission (BEEDS) portal to report their data; it will contact firms with a reporting deadline in January and February 2018 during the week commencing 9 October to confirm User Acceptance Testing (UAT) dates and provide details of what firms need to know and do ahead of UAT and BEEDS on-boarding; and for firms with a reporting deadline in March 2018 and beyond, the PRA will aim to provide an opportunity for UAT once a quarter in 2018. It will contact firms directly with any details on UAT and what they need to know and do ahead of their reporting deadline. Between 1 October 2017 and the first time a firm's return is due under the new rules, the PRA asks firms to continue to submit Capital+ returns under any current voluntary arrangements.
CRD IV – ESMA and EBA final guidelines on assessment of suitability of management body members
On 26 September, the EBA and ESMA published final guidelines (EBA/GL/2017/12) on the assessment of the suitability of members of the management body and key function holders in accordance with the CRD IV and the MiFID II. The EBA and ESMA were required by Article 91(12) of the CRD IV and Article 9(1) of the MiFID II to develop guidelines on the suitability of members of the management body. The guidelines specify that all institutions are required to assess the members of the management body. Institutions that are subject to the CRD IV must also assess all key function holders that have a significant influence over the institution under the overall responsibility of the management body. The aim of the guidelines is to set out harmonised criteria for the assessment of the suitability of the members of the management body and key function holders. The guidelines will enter into force on 30 June 2018. The EBA's existing guidelines on the assessment of the suitability of members of the management body and key function holders (EBA/GL/2012/06), which were published in November 2012, will be repealed on the same date.
CRD IV – EBA final guidelines on internal governance
On 26 September, the EBA published its final guidelines on internal governance under the CRD IV (2013/36/EU) (EBA/GL/2017/11). The EBA was required by Article 74(3) of the CRD IV to develop guidelines on internal governance arrangements, processes and mechanisms that credit institutions and investment firms must implement to ensure effective and prudential management. The guidelines cover: the role and composition of the management body and committees (including risk and audit committees); the governance framework, including firms' outsourcing policies; risk culture and business conduct, including the management of conflicts of interest and the reporting of breaches to competent authorities; internal control framework and mechanism, including the risk management function, the compliance function and the internal audit function; and business continuity management. The guidelines will enter into force on 30 June 2018. The EBA's existing guidelines on internal governance (GL44), which were published in September 2011, will be repealed on the same day.
CRR – ECB final version of guide on materiality assessment for changes to counterparty credit risk models
On 25 September, the ECB published the final version of its guide on the materiality assessment for changes to counterparty credit risk models. The ECB refers to the guide as the "ECB Guide on materiality assessment" or "EGMA". The purpose of the guide is to assist significant credit institutions in the SSM in their self-assessment of the materiality of changes and extensions to IMM and A-CVA models. The guide indicates how the ECB intends to interpret the existing legal framework.
CRR – IFRS9 PRA "Dear CEO" letter on transitional arrangements for expected credit loss accounting
On 25 September, the PRA published a "Dear CEO" letter from Sam Woods, PRA Chief Executive Officer sent to firms on transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. In the letter, the PRA encourages UK firms to use transitional arrangements from the first date of IFRS 9 application (that is 1 January 2018), assuming that the final CRR amendment establishes transitional arrangements broadly similar to those currently being considered. The PRA intends that all aspects of supervision of a firm using the transitional arrangements will be carried out using "transitional" data on capital resources and not "fully-loaded" figures. The PRA advises firms' boards to be in a position, if necessary, to make a final decision on the use of transitional arrangements "in a compressed timescale across the year-end". This is because the final amendment to the CRR may not become available until the end of 2017. The PRA requests each firm to submit to their supervisor by a specified date a statement of whether it intends to use the IFRS 9 transitional arrangements. If a firm plans not to use these arrangements, it should include a full explanation as to how its board will have adequate financial resources, including in stressed scenarios.
CRD IV – EBA consultation on draft amendments to ITS on supervisory disclosure
On 22 September, the EBA published a consultation paper (EBA/CP/2017/14) on amendments to EC Implementing Regulation (EU) No 650/2014 which contains ITS on the format, structure, contents and annual publication date of information to be disclosed by competent authorities under crd iv. It has also published a press release on the consultation that contains links to proposed revisions to the Annexes to Implementing Regulation (EU) No 650/2014. In the consultation paper, the EBA sets out proposals to the ITS intended to take into account changes to the EU legal framework since June 2014, including: the Delegated Regulation on the LCR ((EU) 2015/61), which was published in the OJ in January; the EBA's guidelines for common procedures and methodologies for the SREP (EBA/GL/2014/13); and the establishment of the SSM and, in particular, the division of responsibilities between the ECB and NCAs. The deadline for comments is 22 December.
RECOVERY AND RESOLUTION
CCP recovery and resolution – ECON draft report on Proposed Regulation
On 27 September, ECON published its draft report (dated 25 September) on the proposed Regulation on the recovery and resolution of CCPs (PE610.797v01-00). The explanatory memorandum to the report states that ECON's amendments improve the legal protection for the relevant resolution authority if a decision is taken to accelerate the move from recovery of a CCP to its resolution. ECON advises that during resolution, the resolution authority must have full discretion to use the resolution tools it believes to be most effective to achieve the resolution objectives in a timely manner, while addressing systemic problems and protecting taxpayers. It stresses that all tools, including those in the CCP rulebook, should be at the disposal of the resolution authority. The report goes on to explain that, as well as protecting the tax payer and the general public from systemic risk, there must be adequate protection for clients of clearing members and indirect clients. This needs to be recognised within the resolution colleges, the resolution committee within ESMA, and in the general transparency requirements.
CCP recovery and resolution – ECB opinion on proposed Regulation on CCP recovery and resolution
On 25 September, the ECB published its opinion (dated 20 September) on the proposed Regulation on the recovery and resolution of CCPs (CON/2017/38). In the opinion, the ECB states that it strongly supports the EC’s initiative to establish a dedicated EU framework for the recovery and resolution of CCPs. It highlights a number of areas where it believes that improvements could be made.
FCA finalised guidance on streamlined advice and consolidated guidance
On 28 September, the FCA published finalised guidance on streamlined advice and consolidated guidance (FG17/7), which includes its response to the recommendations of the FCA's financial advice and markets review (FAMR) on streamlined advice (FAMR recommendation 4) and the fact find process (FAMR recommendation 5). The finalised guidance on streamlined advice is set out in chapter 2 of FG17/7. It includes examples of information required for particular streamlined advice scenarios (including in relation to funds within a stocks and shares ISA, workplace pensions, purchasing of an annuity, and pension accumulation). It includes two examples of good practice: by a firm that has a relationship with a client for ongoing advice, and by a firm giving a personalised recommendation through an automated streamlined service.