Allen & Overy LLP


No-deal Brexit: banking, insurance and other financial services technical notice

On 23 August, the UK government published guidance on the effect on banking, insurance and other financial services if the UK leaves the EU without agreement. The guidance is one of a series of technical notices that aim to provide information to UK businesses and citizens on how to prepare for a no-deal scenario. The government has also published an overarching framing notice, which sets the technical notices in broader context. "No deal" describes the situation in which the UK and the EU fail to conclude a draft withdrawal agreement by the time of the UK's exit from the EU. This would mean no transition period and a sudden "cliff-edge" break in the application of EU rules to the UK at 11pm on 29 March 2019.

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Draft Capital Requirements (Amendment) (EU Exit) Regulations 2018

On 21 August, HMT published a draft version of the Capital Requirements (Amendment) (EU Exit) Regulations 2018, together with explanatory information. The purpose of the draft Regulations is to make amendments to a number of aspects of the CRD IV legislative package to ensure that it continues to operate effectively in the UK once the UK has left the EU. The main pieces of UK legislation relating to CRD IV are the Regulated Covered Bonds Regulations 2008, the Capital Requirements Regulations 2013, the Capital Requirements (Country-by-Country Reporting) Regulations 2013, and the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014. Changes introduced by the draft Regulations relate to matters including: (i) group consolidation; (ii) EU27 exposures; (iii) macro-prudential measures; (iv) transfer of functions; (v) equivalence; (vi) information sharing and co-operation requirements between UK and EEA regulators; and (vii) binding technical standards (BTS). Currently, BTS are developed and drafted by the ESAs. HMT is transferring responsibility for all BTS to UK regulators. For the CRR, all of the relevant BTS mandates will be brought into UK law with responsibility for meeting those mandates transferred to the PRA and FCA. The FCA and the PRA will be updating their Handbook and Rulebook respectively, and relevant BTS, to reflect the changes introduced through the draft Regulations. Parts 2 and 3 of the draft Regulations set out amendments to the secondary legislation. Part 4 of the draft Regulations, among other things, sets out amendments relating to the retained CRR. HMT plans to lay the draft Regulations before Parliament in the autumn. The draft Regulations will mostly come into force on exit day.

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Framework for UK-EU partnership post-Brexit: financial services

On 20 August, the UK government published a framework (dated 25 July), in the form of a presentation, for the UK-EU partnership with regard to financial services once the UK leaves the EU. Key features of the UK position are the following: (i) Principle of autonomy. Parties should retain autonomous judgement about access to their market and over legislation. However, it is critical that there is also a bilateral aspect to the relationship to provide certainty and stability. The bilateral commitments envisaged do not constrain each side's discretion, but rather ensure that change can be managed effectively. The new bilateral economic and regulatory arrangement would have 3 pillars: common principles for the governance of the relationship, extensive supervisory co-operation and regulatory dialogue, and predictable, transparent and robust processes; (ii) Equivalence at the outset. The UK and EU start with the same rulebook and entwined supervision. There should initially be reciprocal recognition; (iii) Expanded scope of activities permitted cross-border. This is currently insufficient given the interconnectedness between the UK and EU markets. The most mutually beneficial activities for the economy should be prioritised to ensure that there are no unintended consequences or arbitrage; (iv) Common principles. The UK-EU arrangement should include common objectives to manage shared interests such as financial stability, investor protection, market integrity and the prevention of regulatory arbitrage; (v) Regulatory and supervisory co-operation. The UK proposes that the UK and the EU would commit to an overall framework that supports extensive collaboration and dialogue. The UK has no desire to water down existing co-operation; and (vi) Structured withdrawal. There should be consultation and discussion before loss of access to either market, with clear timelines and notice-periods to give time for businesses and supervisors to adapt to change on either side.

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IPOs: AFME guidance on providing issuer access for unconnected analysts

On 20 August, AFME and the Euro IRP published guidance on how unconnected analysts can participate in the IPO process and access information on prospective issuers. The guidance follows on from changes to the FCA's Conduct of Business Sourcebook which took effect on 1 July, and which require unconnected analysts to be given the same access to, and information about, the IPO candidate as connected analysts (that is, analysts in the research divisions of underwriting syndicate members). The guidance covers how unconnected analysts can register their interest to be in communication with the issuer team, and the manner and form that such communications should take. The guidance outlines two different processes, depending on whether the IPO candidate and syndicate banks have opted to allow unconnected analysts access to the issuer's team at the same time as connected analysts in accordance with COBS 11A.1.4B(2)(a), or whether such access will take place separately from connected analysts under COBS 11A.1.4B(2)(b). On either approach, unconnected analysts wishing to communicate with the issuer team must agree to comply with the Market Standard Research Guidelines set out in Appendix I to the guidance, including obligations to keep the IPO confidential until formal announcement and not to publish their research until the dates that connected analysts are permitted to publish their research under the applicable process. The guidance also links to a list of unconnected analysts that issuers must notify in each case, and offer the opportunity to receive issuer information about the prospective IPO. The list currently comprises Euro IRP member firms interested in writing research on prospective IPOs, but will be expanded in due course to include unconnected analysts identified by other representative organisations.

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Please refer to the Other Developments section for an update on the FOS ombudsman news issue 145.

FOS statement on publishing complaints data

On 20 August, the FOS published a statement following on from its December 2016 feedback statement, which included commitments to explore a new measure of cases received per 100 FCA-reportable complaints, and to report some resolved PPI complaints by volume only for a limited period. In light of its feedback statement, the FOS has been exploring whether including a "referral rate" in complaints data is viable. A referral rate means using the FCA's published complaints data alongside that of the FOS to calculate the percentage of complaints received by a financial business, which are then referred to the FOS. In considering whether to include a referral rate, the FOS has identified further issues that make accurately calculating it more difficult than originally anticipated. Consequently, it has concluded that it is not suitable for inclusion in complaints data published by the FOS. In the feedback statement the FOS also stated that, for a limited time, it would not publish change in outcome data for certain Plevin-affected PPI complaints, which were already with the FOS when the FCA's guidance came into effect on 29 August 2017 and were resolved by 30 June. Due to the complexity of some of the issues under consideration, 26,070 Plevin or undisclosed high commission affected complaints that were received by the FOS before this date remained open as of 30 June. Therefore, the FOS has decided to extend the exception for reporting the affected PPI complaints. This will provisionally be until 31 December and will be kept under review.

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EC adopts Delegated Regulation adding Pakistan to list of high-risk third countries under MLD4

On 22 August, the EC published a Delegated Regulation it adopted on 27 July amending the list of high-risk third countries set out in Delegated Regulation (EU) 2016/1675, which supplements MLD4. Article 9(2) of MLD4 gives the EC power to adopt delegated acts identifying high-risk third countries. These are countries identified as presenting strategic deficiencies in their AML and CFT regime that pose significant threats to the EU financial system. The amending Delegated Regulation adds Pakistan to the list. Under Article 18 of MLD4, firms are required to apply EDD when dealing with natural or legal persons established in high-risk third countries identified by the EC. The EC explains that Pakistan has provided a written high-level political commitment to address the identified deficiencies, and has developed an action plan with the FATF. The EC welcomes the commitment and calls on Pakistan to complete implementation of the action plan within the proposed timeframe. The EC will closely monitor implementation of the action plan, and will reassess Pakistan's status once implementation is completed. The EC is in the process of working towards a new methodology to identify high-risk third countries that does not rely only on external information sources to identify high-risk jurisdictions. It expects to adopt a Delegated Regulation based on the new methodology by the end of 2018. However, pending completion of the new methodology, the EC considers that it is necessary to continue to update the list to ensure EU rules apply to third countries identified as being high risk. If the Council of the EU and the EP do not object to the Delegated Regulation, it will be published in the OJ. It will enter into force 20 days after its publication in the OJ and will apply from that date.

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Securitisation Regulation: ESMA final report on technical standards and disclosure requirements

On 22 August, ESMA published a final report on technical standards on disclosure requirements under the Securitisation Regulation. The final report contains draft regulatory and implementing standards which require certain information to be reported about securitisations by the originator, sponsor or special purpose entity. Under the draft RTS, required information includes detail on the underlying exposures in the securitisation, information on investor reports, inside information that must be made public in accordance with MAR, and significant events affecting the transaction. The report also includes the format for making required information available. The draft technical standards provide reporting templates for different types of securitisation, including asset and non-asset backed commercial paper, and different types of underlying exposure, including real estate, corporate, automobile, consumer, credit card and other leases. ESMA's proposals take into account responses to its consultation paper, dated 19 December 2017. The draft technical standards have been submitted to the EC for endorsement.

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ECB guideline amending guideline on TARGET2

On 20 August, the ECB published a guideline (dated 3 August) amending guideline ECB/2012/27 on TARGET2. The amending guideline clarifies certain aspects of guideline ECB/2012/27 following the launch of the TIPS service in June 2017. The new TIPS service will enable the settlement of individual instant payment orders in central bank money, 24 hours a day on any calendar day of the year, with immediate or close to immediate processing. For the purpose of the TIPS service, dedicated cash accounts are to be created in TARGET2. The national central banks of EU Member States, whose currency is the euro, must comply with the guideline from 30 November.

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FOS ombudsman news issue 145

On 22 August, the FOS published issue 145 of ombudsman news. Items of interest include: (i) information and case studies on the FOS' approach to dealing with complaints about fraud and scams. APP fraud is specifically discussed, along with disputed card transactions and cash machine withdrawals, online banking fraud and identity theft; (ii) statistics about the complaints the FOS received in the first quarter of 2018/2019. These show that PPI remained the most complained about financial product, with 55,223 new cases. Payday loans were the second most complained about product, with 10,979 new cases. The FOS upheld 35% of complaints resolved in that period; and (iii) Q&A about the FOS' case-handling system that launches in October.

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FCA consults on recovering costs of regulating CMCs

On 20 August, the FCA published a consultation paper (CP18/23) on its proposals for recovering the costs of regulating CMCs. Under the Financial Guidance and Claims Act 2018, the FCA will become responsible for the regulation of CMCs on 1 April 2019. The FCA consulted on the regulation of CMCs in June 2018. The FCA has developed for CMCs a temporary permissions regime, an authorisations gateway and a new supervisory structure. Responsibility for considering complaints about CMCs will transfer from the Legal Ombudsman Service to the FOS. CP18/23 sets out the FCA's proposals for recovering the costs of setting up these facilities, as well as supervising CMCs going forward. It also sets out the proposals for recovering the associated transfer costs and the ongoing costs of the FOS. CP18/23 applies to all existing CMCs that intend to continue trading from 1 April 2019, and to all firms considering establishing CMCs in the future. Chapter 2 of CP18/23 sets out the proposals for the long-term fees structure (authorisation fees, periodic fees and the definition of turnover as the base for payment of fees) and the short-term arrangements for temporary permissions. Chapter 3 sets out the proposals for the FOS general levy. At this stage, the FCA does not propose to extend cover of the FSCS to consumers of CMCs. Therefore, CMCs will not be required to contribute to the costs of running the FSCS. However, the FCA may review the position in the future if there is evidence of significant consumer harm. The draft rules are set out in the Fees (Claims Management Company) (No X) Instrument 2018, which is in Appendix 1 to CP18/23. The rules will come into force on 1 January 2019, the date from which CMCs can start applying for temporary permission. CMCs will subsequently be able to apply for full authorisation. Comments can be made on CP18/23 until 22 October. The FCA intends to publish a policy statement in December. Future fees proposals affecting CMCs, and changes in the fee rates, will be consulted on through the FCA's standard cycle of fees consultation.

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