Allen & Overy LLP


Please see the ‘Other Developments’ section for an update on the minutes of the meeting between the Governor of the BoE and the Chancellor of the Exchequer on the June Financial Stability Report.

Draft Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 published

On 15 August, HMT published a draft version of the Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018, together with an explanatory information document. The draft Regulations will amend provisions of FSMA, the FS Act 2012, and the DGS Regulations 2015. HMT intends to lay the draft Regulations before Parliament in autumn.

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Chartered Banker: Professional Standards Board (CB:PSB) publishes guidance to support the implementation of advanced standard for banking leaders

On 15 August, CB:PSB published guidance to support the implementation of the advanced standard for professional bankers (dated January). The advanced standard sets out the CB:PSB's expectations for banking leaders' conduct and expertise. The guidance is designed to support CB:PSB firms in implementing the advanced standard. It is intended to be of particular benefit to those engaged in developing policies, procedures and systems to support the achievement of the advanced standard. However, the CB:PSB considers it may also be helpful to a wide range of stakeholders who support and value the learning and development of professional conduct and professional expertise in the banking industry, including non-CB:PSB firms active in the UK.

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FCA publishes its findings following its multi-firm review into complaints handling by non-deposit taking mortgage lenders and mortgage third-party administrators

On 15 August, the FCA published a new webpage summarising the findings of its multi-firm review into complaints handling by Non-deposit Taking Mortgage Lenders (NDTMLs) and Mortgage Third-Party Administrators (MTPAs). The FCA carried out the review to determine how NDTMLs and MTPAs treat their customers, whether their complaint handling arrangements pose any potential consumer harm and what, if anything, they could do to better handle complaints. Based on its findings, the FCA's key messages to firms relate to: (i) collecting, analysing and using management information (MI), including root cause analysis (RCA). Firms should ensure the MI they collect and analyse (including for RCA) is accurate and relevant to their operations. They must have robust RCA capabilities to identify and remedy any recurring systemic problems, and appropriate governance and processes in place to ensure the RCA provides strategic purpose; (ii) establishing and maintaining effective and transparent complaint handling policies and procedures, to ensure the reasonable and prompt handling of complaints. Firms should ensure that they reduce the risk of over-reliance on policies and procedures by considering, for each complaint, whether the customer's outcome and experience shows the firm has put the customer's interests first. Inadequate application of good judgement, and the principle of treating customers fairly, may lead to poor outcomes. Firms must also make sure they assess complaints fairly, consistently and promptly; and (iii) recording complaints. Firms should record complaints accurately, including ensuring their internal systems and controls allow staff to identify and record complaints correctly. They must also have processes in place to make sure the data in their FCA annual or biannual complaints return is accurate. Alongside the findings, the FCA has also published a new webpage containing a hypothetical case study entitled "Understanding complaints root cause analysis". This case study helps firms to distinguish between a symptom and the root cause of a complaint. It also illustrates what complaints RCA looks like and how firms can apply any learning outcomes. The FCA advises that the case study is not sector-specific and may be of use to any regulated firm.

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Please see the ‘Markets and Market Infrastructure’ section for an update on ECON’s draft report on the proposed Regulation on European crowdfunding service providers.

New FCA BCOBS rules come into force requiring publication of standard information enabling comparison between current account providers

On 15 August, the FCA announced that its new rules have come into force requiring current account providers to publish standard information enabling consumers and small businesses to compare the services offered. The new rules are set out in the Banking (Information about Current Account Services) (Amendment) Instrument 2018 (FCA 2018/39), which amends chapter 7 of the BCOBS. These were published on 27 July. The standard information relates to available services and relevant helplines, together with information about the number of major operational and security incidents providers have experienced. Under the new rules in BCOBS 7, providers must publish this information on their websites in a consistent format and large banks must also make this information available electronically via online APIs. Updates must subsequently be provided. In addition, larger banks must publish information on how likely customers would be to recommend their bank to friends, relatives or other businesses. The FCA has published a new webpage "FCA mandated information on current account services", which contains a table of providers' website links and application programming interface (API) locations for each of the different current account brands. In a related press release, the CMA states that the new rules regarding publication of current account information are one of a number of measures required by the FCA and the CMA following the CMA's final report on its market investigation into retail banking, which was published in August 2016. The aim is to promote effective competition by incentivising banks to offer better performance and services in ways that are transparent and noticeable. The FCA advises that, from November, current account providers have agreed to publish, in a common form, information highlighting the support offered to customers who have one of the four main characteristics of potential vulnerability outlined in the FCA’s approach to consumers document, which was published in July. In addition, from 15 February 2019, the FCA will also require providers to publish information quarterly on the length of time it takes to open a current account and to replace a debit card.

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Please see the ‘Pensions’ section for an update on the FCA-TPR’s joint advertising campaign to tackle pension scams.

UK Finance publishes an interpretative guide on the revised Wire Transfer Regulation

On 13 August, UK Finance published a guide on the revised Wire Transfer Regulation (WTR) (which UK Finance refers to as the Funds Transfer Regulation). The new guide is designed to supplement the guidelines issued by the Joint Committee of the ESAs under Article 25 of the WTR, which have applied since 16 July. Having reviewed the draft Joint Committee guidelines with its members, UK Finance found that there were certain areas which required more clarity. There were also areas where firms were taking different approaches as to the implementation of the WTR requirements. This led to a lack of harmonisation that increased the volume of stopped and rejected payments, and resulted in inconsistent treatments. As a result, UK Finance has worked with its members to produce an additional voluntary guidance document. The new guide is intended to support focused efforts by the industry to meet their AML and compliance objectives by ensuring that: (i) systems and processes can identify the highest risk transactions; (ii) false-positives are reduced; and (iii) wherever possible, straight-through-processing is not hindered. The guide has been prepared as general guidance only. The application of the issues the guide covers can vary widely depending on the specific facts and circumstances concerned, including the different activities, relationships and roles of the parties involved. UK Finance will review the guide periodically to ensure that it is both accurate and still adding value for firms in the market.

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Commission Delegated Regulation setting out RTS on the central contact points under MLD4 published in OJ

On 10 August, Commission Delegated Regulation (EU) 2018/1108 setting out RTS relating to central contact points (CCPs) under Article 45(11) of MLD4, was published in the OJ. The Delegated Regulation sets out criteria for determining the circumstances in which the appointment of CCPs for electronic money issuers and payment service providers is appropriate. It also sets out the functions a CCP must have to fulfil its duties. The Delegated Regulation will enter into force on 30 August (that is, 20 days after its publication in the OJ).

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FCA responds to Freedom of Information request on cryptocurrencies

On 10 August, the FCA published a letter in response to a Freedom of Information (FOI) request under the Freedom of Information Act 2000, for the following information: (i) how many investigations has the FCA opened relating to cryptocurrencies in the last 5 years?; and (ii) how many whistleblower reports related to cryptocurrencies has the FCA received in the last 5 years? The FCA confirms that: (1) they do not currently have any investigations in relation to cryptocurrencies which investigators have been formally appointed under section 168(2)(a) FSMA. However, they are making enquiries into the activities of 24 unauthorised firms that are involved in some form of cryptocurrency business to determine whether they might be carrying on regulated activities that require FCA authorisation. The FCA states that if they conclude that the firms are carrying on regulated activities that require FCA authorisation, then the FCA may investigate and take action against those firms, identifying and determining the most serious matters which pose the greatest risk to consumers; and (2) no whistleblower reports were opened in 2014, 2015, 2016 and 2017. However, 7 whistleblower reports related to cryptocurrencies have been opened this year.

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PRA asks for feedback on the working draft of insurance XBRL taxonomy

On 10 August, the PRA updated its webpage on regulatory reporting in the insurance sector. The PRA explains (in the section headed "Taxonomy") that it has published a public working draft (PWD) of the standalone national specific templates (NSTs) and standard formula reporting for firms with an approved internal model (SF.01) taxonomy, alongside related technical "artefacts", that will make up part of the PRA's insurance XBRL taxonomy. (The materials can be accessed from the webpage.) The PWD follows publication of PS21/18 in July. The taxonomy, data point model (DPM) dictionary, annotated templates and validation rules, represent the reporting requirements set out in PS16/18 and the latest version of the PRA’s supervisory statement: Solvency II: monitoring model drift and standard formula SCR reporting for firms with an approved internal model (SS15/16) (which were also published in July). The DPM extends EIOPA's Solvency II version dictionary. The deadline for comments is the 24 August. The PWD should not be used for reporting. The PRA advises that the PWD for internal model outputs and market risk sensitivities will be released in early September. The final live release will consolidate all frameworks. More information on planned dates for the availability of required information is set out in reporting schedules accessible from the PRA’s webpage.

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EIOPA publishes Q&As on Solvency II

On 10 August, EIOPA published new sets of Q&As on: (i) templates for the submission of information to the supervisory authorities; (ii) lists of regional governments local authorities exposures; (iii) Commission Delegated Regulation (EU) 2015-35 supplementing Directive 2009-1; (iv) Guidelines on the loss-absorbing capacity of technical provisions and deferred taxes; and (v) Directive 2009-138-EC of 25 of November of 2009 of the EP.

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Please see the ‘Other Developments’ section for an update on the minutes of the meeting between the Governor of the BoE and the Chancellor of the Exchequer on the June Financial Stability Report.

FSB launches a thematic peer review into the LEI implementation

On 16 August, the FSB announced that it has launched a thematic peer review into the implementation of the LEI. The aim of the review is to evaluate the progress made by FSB members in implementing the LEI, including its adoption for regulatory requirements. The FSB will: (i) assess whether current levels and rates of LEI adoption are sufficient to support the ongoing and anticipated needs (particularly the financial stability objectives) of FSB member authorities; and (ii) identify the challenges in further advancing the implementation and use of the LEI. To avoid duplication with the work of the LEI Regulatory Oversight Committee (LEI ROC) and the Global LEI Foundation (GLEIF), the review will not examine the governance or technical functioning of the LEI system. The FSB has also: (a) published the summary terms of reference for the review, providing more details on its objectives, scope and process; and (b) distributed to members a questionnaire to collect information from national authorities. It will analyse and discuss responses later in the year.  The deadline for comments on the implementation of the LEI is 21 September. In the first half of 2019, the FSB will publish a report setting out the review findings.

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CPMI-IOSCO consult on the governance arrangements for critical OTC derivatives data elements

On 16 August, CPMI and IOSCO published a consultative report on governance arrangements for critical OTC derivatives data elements (other than the Unique Transaction Identifier (UTI) and the Unique Product Identifier (UPI)) (CDE). CDE is the key data elements for reporting OTC derivatives, in addition to the UTI and UPI. The consultative report: (i) forms part of the CPMI-IOSCO response to the 2014 mandate from the FSB to develop global guidance on the harmonisation of data elements reported to TRs and important for the aggregation of data by authorities, including the UTI and UPI; and (ii) complements the CPMI-IOSCO’s technical guidance on harmonisation of: (a) CDE (published in April); (b) UTI (published in February 2017); and (c) UPI (published in September 2017). It assesses CDE against other OTC derivatives data elements (that is, the UTI, the UPI and the LEI) and considers: (1) the key criteria for the CDE maintenance and governance; (2) the different areas of CDE governance and governance functions; (3) a proposed allocation of the governance functions to different bodies (that is, the maintenance body, the international governance body and authorities); (4) governance arrangements for the execution of maintenance functions by a maintenance body and factors relevant for the identification of the international governance body; and (5) the CPMI and IOSCO's approach to CDE implementation. The deadline for comments on the report is 27 September.

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ECON publishes its draft report on the proposed Regulation on European crowdfunding service providers

On 13 August, the EP’s ECON published its draft report (PE626.662v02-00) on the EC’s proposal for a Regulation on European crowdfunding service providers (CSPs) (2018/0048 (COD)). The draft report contains a draft Parliament legislative resolution, the text of which sets out suggested amendments to the EC’s proposal. It also contains an explanatory statement in which the rapporteur, Ashley Fox, welcomes the EC’s proposal and summarises the changes he considers would improve it. In particular, Mr Fox highlights: (i) the threshold proposed for crowdfunding offers should be raised from EUR1 million to EUR8 million; (ii) the experience of NCAs on granting authorisation and supervising the crowdfunding platforms should be recognised and their role in the European framework should be enhanced. There is no requirement for ESMA to hold primary supervisory responsibility, which should therefore remain with NCAs, within a common supervisory framework; (iii) that crowdfunding platforms vary in level of complexity - the proposed Regulation could therefore differentiate between platforms facilitating the matching of investors and project owners and platforms that determine the pricing and packaging of offers, by requiring different disclosure requirements for each of them. By doing this, there would be an opportunity to provide more proportionate regulation based on activities and risk; (iv) the proposed Regulation is an opportunity to provide regulation for ICOs; and (v) that third country CSPs that wish to offer their services across the EU should be allowed to, as long as they are authorised to do so by the third country NCAs and measures are in place to guarantee that their CSPs adhere to the same rules as CSPs with a European passport. The next step is for ECON to vote on the draft report, before it is considered by the EP in plenary.

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Please see the Financial Crime section for an update on: (i) the UK Finance’s interpretative guide on the revised WTR; and (ii) the Commission Delegated Regulation setting out RTS on the central contact points under MLD4.

BoE call for interest in the introduction of synchronised settlement in renewed RTGS service

On 13 August, the BoE published a call for interest relating to the introduction of synchronised settlement in the renewed RTGS service. The BoE explains that the concept of atomic settlement lies at the heart of synchronisation. This means that the transfer of two assets is linked in such a way as to ensure that the transfer of one asset occurs if, and only if, the transfer of the other asset also occurs: that is, settlement is conditional. So, the outcome of settlement is either both parties successfully exchanging those assets, or no transfer taking place. Synchronisation could therefore involve the settlement in RTGS of a payment in sterling central bank money along with the transfer of another asset at the same time. The other asset could be in the sterling RTGS service, on another payments ledger, such as an RTGS service in another currency, or on an external asset ledger. The BoE believes that this functionality could be an opportunity to reduce cost and risk, improve efficiency and support innovative new methods of settlement. It believes that there could be scope to improve inter-bank cross-border payments by using synchronisation to achieve simultaneous settlement across currencies. The BoE wants to assess the level of demand and the implications of this settlement service for the renewed RTGS service. To do this, it wants to work with a small group of organisations to help it think about: (i) how a synchronisation operator (that is, a trusted third party offering synchronisation services to the market) could connect to the renewed RTGS service; (ii) what functionality and capabilities the renewed RTGS service might need for third parties to offer innovative synchronisation services; (iii) what functionality a synchronisation operator might need in its own systems to deliver synchronisation services; and (iv) the BoE's policy on how it expects this functionality to be used (and by which infrastructures). The deadline to complete the BoE’s questionnaire on key survey is 28 September.

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FCA-TPR launch joint advertising campaign to tackle pension scams

On 14 August, the FCA announced a new ScamSmart advertising campaign to tackle pension scams as the latest figures reveal that victims of pension scammers lost an average of £91,000 each in 2017. The new TV advertising campaign has been developed with TPR to raise awareness of pension scams and the most common tactics used by fraudsters. The new campaign is targeted at pension holders aged 45-65 in particular, as research reveals that almost a third (32%) of pension holders aged 45 to 65 would not know how to check whether they are speaking with a legitimate pensions adviser or provider.

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HMT publishes minutes of meeting on the June Financial Stability Report

On 14 August, HMT published minutes of the meeting between the Governor of the BoE and the Chancellor of the Exchequer in which they discussed the June Financial Stability Report (dated 4 July). The following items were discussed: (i) the FPC’s latest assessment of financial stability risks and the UK countercyclical capital buffer rate decision; (ii) Brexit; (iii) cyber risk; and (iv) Libor.
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