UK Financial Regulatory Developments - May 2016 #11

by Dentons

The Law Society responds to ESMA’s EU MAR consultation

The Law Society has published the Law Society and City of London Law Society Company Law Committees Joint Market Abuse Working Party’s response to ESMA’s now-closed consultation on EU MAR (see FReD 5 February). The proposed guidelines relate to persons receiving market soundings, legitimate interests of issuers to delay inside information and situations in which the delay of disclosure is likely to mislead the public. The main comment is that recipients of market soundings will often not be regulated entities, and so applying the same rules to them as to regulated firms may be disproportionate. (Source: The Law Society responds to ESMA’s EU MAR consultation)


The CityUK reports on resilience against cyber crime

The CityUK has published a report on making the UK financial and professional services sector more resilient to cyber attack. It makes practical recommendations for financial firms, individually and collectively, to improve their cyber resilience in line with existing initiatives. This includes a checklist for firm boards to challenge management with on the treatment of cyber risk and guidelines for best practice. The report recommends firms ensure:

  • the main cyber threats for the firm have been identified and sized;
  • there is an action plan to improve defence and response to these threats;
  • data assets are mapped and actions to secure them are clear;
  • supplier, customer, employee and infrastructure cyber risks are being managed;
  • the plan includes independent testing against a recognised framework;
  • the risk appetite statement provides control of cyber concentration risk;
  • insurance has been tested for its cyber coverage and counterparty risk;
  • preparations have been made to respond to a successful attack;
  • cyber insights are being shared and gained from peers; and
  • regular Board review material is provided to confirm status on the above.

(Source: The CityUK reports on resilience against cyber crime)


IOSCO holds annual conference

IOSCO’s annual conference for 2016 focused on SME financing, investor protection and education, and the opportunities and challenges of FinTech. It also agreed:

  • an enhanced multilateral memorandum of understanding, including new powers for obtaining and sharing information;
  • to focus its asset management sector work on liquidity risk management and leverage, and on gaps in collection of appropriate data;
  • a report on audit committee oversight of auditors;
  • updates on central counterparty resilience and recovery, market conduct in wholesale markets and revisions to its objectives and principles of securities regulation and supporting methodology;
  • to carry out a review of industry practices on senior investor vulnerability;
  • to apply behavioural economics insights to investor programmes and initiatives;
  • to design a pilot IOSCO World Investor Week for 2017;
  • to set up a working group to consider issues relevant to market-based finance for infrastructure development;
  • the continued preparation of a report on how capital markets regulators can apply OECD corporate governance principles to ensure more resilient capital markets; and
  • to publish a consultation paper on corporate bond market liquidity.

(Source: IOSCO holds annual conference)


CMA recommends revocation for NI PCA order

CMA has published its provisional decision following a review of the 2008 Northern Ireland (NI) PCA banking order as amended in 2011 alongside the review of the 2002 SME banking undertakings and the retail banking market investigation (see above). CMA has provisionally decided that market and regulatory developments and the retail banking market investigation’s proposed remedies package represent a change of circumstances such that the order in its entirety can be revoked. CMA provides an assessment of each of the order’s articles. (Source: CMA recommends revocation for NI PCA order)


CMA publishes provisional decision on PCA and SME remedies

CMA has published its provisional decision on remedies, outlining a wide-ranging package of proposals to tackle the issues hindering competition in personal current accounts (PCA) and in banking services for SMEs. CMA considered a requirement to break up big banks, but said this would not help the underlying competition issues, which arise because customers do not have information that enables them to understand which is the best account for them. It also considered whether to ban “free if in credit” accounts – on the grounds that they are not in fact free to most of the customers who use them – but again decided against this. Instead, the proposals focus on ways in which information can be given more clearly to customers, and the use of online and other tools to enable customers to compare providers and products more easily, including requiring banks to introduce an interface so customers can allow their personal information to generate accurate comparisons with other products. The proposals also include requiring banks to set a monthly maximum charge for unarranged overdrafts on PCAs. Regarding SMEs, it is hoped that the culmination of proposals will make it easier for SMEs to shop around and thus reduce business owners’ reliance on their personal bank when choosing a bank for their business. (Source: CMA publishes provisional decision on remedies)


PSR finalises guidance for switching accounts under PARs

PSR has published its finalised policy statement and guidance relating to the application of the Payment Accounts Regulations 2015 (PARs) on alternative arrangements for switching accounts. The provisions of the PARs which relate to PSR’s role come into force on 18 September and so this guidance covers:

  • PSR’s approach to evaluating an application for designation as an alternative switching scheme;
  • the application process for a switching scheme to be designated as an alternative switching scheme;
  • PSR’s approach to collecting fees under the PARs;
  • PSR’s approach to monitoring compliance with PARs requirements after designating an alternative switching scheme;
  • PSR’s powers and procedures under the PARs; and
  • PSR’s approach to applying penalties for PARs non-compliance.

PSR reminds operators of alternative switching schemes that wish to be designated under the PARs by 18 September 2016 to submit their application by 10 June. (Source: PSR finalises guidance for switching accounts under PARs)


PRA finalises policy for implementing audit committee requirements

PRA has published a policy statement on implementing audit committee requirements under the revised Statutory Audit Directive to apply to financial years commencing on or after 17 June. In light of the responses received to PRA’s consultation on these requirements PRA has amended its proposals as follows:

  • the smallest firms can apply for a waiver or modification of the rules, having regard to the Directive minimum requirements;
  • PRA has introduced transitional arrangements for a period of two years; and
  • PRA has amended the independence of membership requirements for significant subsidiaries of parent undertakings in the EEA and also non-EEA. The requirement in the final rules is for a majority of, rather than all, the members of the subsidiary audit committee to be independent, including the chairman, provided that the audit committee of the subsidiary’s parent is comprised fully of independent non-executive directors.

It also includes the Rulebook instrument for CRR and Solvency 2 firms. As a consequence, PRA has updated its supervisory statement on internal governance to remove paragraphs on audit committees as the new instrument sets out the applicable rules. (Source: PRA finalises policy for implementing audit committee requirements and PRA updates internal governance supervision)


PRA publishes FX minutes

PRA has published the minutes from the additional meeting of the Foreign Exchange Joint Standing Committee (FXJSC) held on 22 April. The meeting approved the fatal flaw feedback for submission to the DBIS FX Working Group (FXWG) on the draft sections of the Global FX Code. There was also a presentation by FCA’s Edwin Schooling Latter in which he noted that ancillary FX derivative and spot transactions to transactions in MiFID are subject to best execution rules. He also discussed the different obligations arising from various types of relationship between market participants, namely agents, principals or principals with some discretion. (Source: PRA publishes FX minutes)


PRA consults on Pillar 2 liquidity

PRA has published the first of two proposed consultation papers on Pillar 2 liquidity under the CRR. It proposes a statement of policy on its approach to three aspects of Pillar 2 liquidity: intraday risk, debt buyback and non-margined derivatives. PRA seeks views on its proposals that:

  • in general, the level of application for setting requirements under Pillar 2 will be aligned to the Pillar 1 approach;
  • in disclosing information about their liquidity position, firms should note that their publicly disclosed Liquidity Coverage Ratios (LCRs) include high quality liquid assets (HQLA) required to cover Pillar 2 risks, with no further specific disclosure on their Pillar 2 requirements unless required by law;
  • its approach to assessing liquidity risk associated with debt buyback and non-margined derivatives will be based on supervisory discretion guided by the firm’s outstanding debt or exposures; and
  • its approach to assessing intraday liquidity risk will be based on the firm’s maximum net debits, the firm’s stress testing framework, the firm’s key characteristics such as whether it is a direct or indirect participant in payment and settlement systems, and the markets it operates in.

The draft statement of policy specifically addresses franchise viability – debt buyback, early termination of non-margined derivatives and intraday liquidity. PRA will implement the Pillar 2 regime only when all individual elements are finalised, and will consider whether it needs a transition path. The paper also outlines the PRA’s Pillar 2 objectives and scope and indicated PRA’s plans for future work. The consultation closes on 12 August.  (Source: PRA consults on Pillar 2 liquidity)

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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