5 May 2017

Key Regulatory Topics: Weekly Update - 28 April 2017 – 4 May 2017


Brexit – EC adopts Recommendation for Council Decision to authorise EC to open negotiations

On 3 May, the EC adopted a Recommendation for a Council Decision authorising the EC to open negotiations on an Agreement with the UK setting out the arrangements for its withdrawal from the EU. The negotiation directives are set out in the Annex to the Recommendation, and cover the first phase of the negotiations in accordance with the European Council guidelines. They cover: safeguarding citizens’ rights; a single financial settlement; the situation of goods placed on the market and outcome of procedures based on EU law; other administrative issues relating to the functioning of the EU; and governance of the Agreement. The General Affairs Council is expected to approve the Recommendation at its meeting on 22 May. Adoption by the Council will allow the Commission to formally start the negotiations with the UK on the EU's behalf. The Commission expects that the first meeting between the EU and UK negotiators will take place in June 2017.

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Brexit – European Council adopts EU negotiating guidelines

On 29 April, a Special European Council meeting was held as 27 member states and adopted the Article 50 guidelines to formally define the EU's position for the Brexit negotiations with the UK. In adopting the guidelines, the European Council also welcomed the EP’s Resolution of 5 April on the negotiations. The guidelines are set out under six headings: core principles; a phased approach to the negotiations; agreement on arrangements for an orderly withdrawal; preliminary and preparatory discussions on a framework for the EU-UK future relationship; the principle of sincere co-operation, and the procedural arrangements for negotiations under Article 50. The General Affairs Council on 22 May is expected to authorise the opening of the negotiations, nominate the EC as the EU negotiator, and adopt the negotiating directives. The guidelines confirm that the two year timeframe set out in Article 50 will end on 29 March 2019.

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Please see the Recovery and Resolution section for updates on CCP recovery resolution.

EMIR - EC adopts legislative proposal to amend EMIR and communication on future legislative proposals

On 4 May, the EC published a legislative proposal for a Regulation that it has adopted amending to EMIR, together with a related annex. The Commission has published the following documents alongside the legislative proposal: an impact assessment (SWD(2017) 148 final) and executive summary to the impact assessment (SWD(2017) 149 final); and a  factsheet setting out questions and answers on the proposal. Some of the key areas where the legislative proposal sets out amendments to EMIR are: clearing obligation for non-financial counterparties; clearing obligation for small financial counterparties; clearing obligation for pension funds; risk-mitigation techniques for non-cleared OTC derivatives contracts; reporting obligations; and quality of data reported to trade repositories. Feedback on the legislative proposal is invited. The feedback period will close 8 weeks after the proposal is made available in all EU languages. The Commission will submit the Regulation to the EP and to the Council of the EU for their consideration. The Commission has also published a Communication on responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union ((COM(2017) 225 final)). The Communication outlines the Commission's intention to present further legislative proposals to amend EMIR in June 2017. These proposals will address emerging challenges in derivatives clearing.

Legislative proposal to amend EMIR


CMU – ECB responds to EC’s CMU mid-term review 2017

On 2 May, the ECB published its response to the EC’s CMU mid-term review 2017. The ECB states that it is a strong supporter of the CMU and that the EC’s action plan on CMU, which was published in September 2016, is a step in the right direction. However, it believes that all CMU stakeholders should increase their efforts towards achieving CMU. In addition, the ECB notes that new perspectives have emerged since the CMU was designed in 2015, including the UK's decision to leave the EU.

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EMIR – Delegated Regulation delaying clearing obligation for financial counterparties with a limited activity volume published in OJ

On 29 April, Delegated Regulation (EU) 2017/751 relating to the EMIR clearing obligation to prolong, by two years, the phase-in period for financial counterparties with a limited volume of OTC derivatives activity was published in the OJ. The Delegated Regulation comes into force 20 days after its publication in the OJ (that is, on 19 May).

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SONIA – BoE working group recommends SONIA as sterling near risk-free interest rate benchmark

On 28 April, the BoE announced in a press release that its working group on sterling risk-free reference rates has decided on SONIA as its preferred near risk-free interest rate benchmark (RFR) for use in sterling derivatives and other financial contracts. The working group's recommendation will be subject to a market consultation, which will be held mid-2017.

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CMA – CMA third annual concurrency report

On 28 April, the CMA published the third annual concurrency report. This third report examines the progress since the first and second annual concurrency reports and assesses how the concurrency arrangements for competition law enforcement in the regulated sectors have operated in the period 1 April 2016 to 31 March 2017.

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NEDs – FCA policy statement on applying conduct rules to all NEDs in SM&CR and SIMR

On 3 May, the FCA published a policy statement on applying the rules in its Code of Conduct sourcebook (COCON) to all "standard" NEDs within the scope of the SM&CR and the SIMR (PS17/8). Applying COCON to standard NEDs is intended to help raise standards of conduct and reduce the risk of future misconduct and mis-selling in firms. Standard NEDs refers to those NEDs who are not subject to regulatory pre-approval under the SM&CR, or the SIMR and the FCA-revised approved persons regime for insurance firms. (The PRA refers to standard NEDs as "notified NEDs".). The final rules are set out in the Individual Conduct Rules (Non-executive directors) Instrument 2017 (FCA 2017/23). The instrument also amends Form H, which is the notification form for conduct rule breaches and disciplinary action. The rules come into force on 3 July. In PS17/8, the FCA also states that it will publish a consultation paper on the extension of the individual accountability regime to insurance firms, which will also include proposals on reporting requirements for breaches of COCON under section 64C of FSMA.

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SMR – FCA policy statement on guidance on enforcing duty of responsibility

On 3 May, the FCA published a policy statement that contains final amendments to DEPP to give guidance on how it will enforce the duty of responsibility under the SMR (PS17/9).The duty of responsibility came into force on 10 May 2016. Currently, it applies to persons performing senior management functions at UK banks, building societies, credit unions, PRA-designated investment firms, and incoming branches of overseas firms. However, the FCA confirms in PS17/9 that it will apply to senior managers at all types of firms when the SMR is extended beyond the banking sector. The FCA consulted on how it will enforce the duty of responsibility in CP16/26, which it published in September 2016. In PS17/9, it states that it received 11 responses to its consultation, almost all of which supported its proposals. The FCA confirms that it has not made any substantive amendments to DEPP in light of the responses received. The final guidance, which is inserted into DEPP 6.2, is set out in the Individual Accountability (Enforcement) (Duty of Responsibility) Instrument 2017 (FCA 2017/27. The new guidance applies from 3 May.

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Whistleblowing – FCA policy statement on rules for UK branches of overseas banks

On 3 May, the FCA published a policy statement on whistleblowing in UK branches of overseas banks (PS17/7). In PS17/7, the FCA confirms that it will proceed with the proposals consulted on in CP16/25. It has made one change to include guidance reminding branches that they may continue to have concurrent reporting obligations to their home state regulator. The changes to SYSC 18.3 come into effect on 7 September. The FCA expects UK branches of overseas banks to ensure that they are ready to implement the whistleblowing rules by this date.

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SM&CR investigations – FCA responds to FOIA request

On 28 April, the FCA published its response (dated 27 February) (FOI4965) to a request under the Freedom of Information Act 2000 (FOIA) relating to it carrying out investigations under the SM&CR. The FCA stated that, since the SM&CR came into force on 7 March 2016, it has started investigations into: two individuals who are senior managers; and eleven individuals who are, or likely to be, certified persons (that is, former approved persons who transitioned into the certification regime).

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FCA Handbook Notice 43

On 28 April, the FCA published Handbook Notice 43, which sets out the changes made to the FCA Handbook under instruments made by the FCA Board on 27 April. The instruments include: Senior Management Arrangements, Systems and Controls (Remuneration Codes) (No 7) Instrument 2017 (FCA 2017/21), which came into force on 3 May 2017; Accountability and Whistleblowing (No 2) Instrument 2017 (FCA 2017/22), which comes into force on 7 September 2017; Individual Conduct Rules (Non-Executive Directors) Instrument 2017 (FCA 2017/23), which comes into force on 3 July 2017; Training and Competence Sourcebook (Appropriate Qualification Examination Standards) Instrument 2017 (FCA 2017/24), which comes into force on 9 May 2017; Conduct of Business Sourcebook (Adviser Charging for Vertically Integrated Firms) Instrument 2017 (FCA 2017/25), which came into force on 1 May 2017; Insurance Act 2015 (Consequential Amendments) Instrument 2017 (FCA 2017/26), which comes into force on 1 August 2017; and Packaged Retail and Insurance-based Investment Products Regulation Instrument 2017 (FCA 2017/28), which comes into force on 1 January 2018.

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FCA defers full IGC review

On 4 May, the FCA updated its webpage on Independent Governance Committees (IGCs) to explain that it has decided to defer its full review of the effectiveness of IGCs to allow it to focus on other priorities. The priorities the FCA will now focus on are set out in its business plan for 2017/18, which includes priorities for the pensions and retirement income sector. The FCA has not indicated when it intends to carry out the IGC review.

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PRIIPs – FCA policy statement on disclosure rules

On 2 May, the FCA published a policy statement (PS17/6) on its disclosure rules following application of PRIIPs Regulation. In PS17/6, the FCA summarises and responds to the feedback received to its consultation paper published in July 2016. The text of the final rules and guidance are set out in the Packaged Retail And Insurance-Based Investment Products Regulation Instrument 2017 (FCA 2017/28). The FCA has decided to publish the Handbook guidance consulted on with only a few amendments. The changes to the FCA Handbook focus on those changes necessary to reflect the direct application of the PRIIPs Regulation that will apply to firms that manufacture, give advice on or sell PRIIPs to consumers in the retail market. However, the FCA acknowledges the lack of guidance and clarification at EU level on the PRIIPs Regulation will lead to operational difficulties and legal uncertainty for some firms. It therefore seeks to provide some clarification in PS17/6 on the scope of the Regulation to help firms plan for the new disclosure framework. It does this by including some high-level comment on some of the issues raised by 28 responses it received. Firms must comply with the PRIIPS Regulation and any revised disclosure rules in the FCA Handbook from 1 January 2018.

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ECON rejects revised delegated regulation amending list of high-risk third countries under MLD4

On 3 May, the EP’s ECON published a press release stating that is has voted to reject, for a second time, a Delegated Regulation amending Commission Delegated Regulation (EU) 2016/1675 supplementing the MLD4 by identifying high-risk third countries with strategic deficiencies. The press release explains that ECON believes that the Commission's process "was not sufficiently autonomous" and that the criteria for its list excluded offences giving rise to money laundering, such as tax crimes. According to the press release, ECON considers that the Commission should not be bound by Financial Action Task Force (FATF) standards when drawing up its own blacklist, which they want to be more expansive and wide-ranging. However, the Commission is of the view that this would require more resources than it has. The Parliament as a whole will now vote on the Delegated Regulation in plenary. If it does not object to the Delegated Regulation it will be published in the OJ and enter into force 20 days after its publication.

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On 3 May, ECON published a report on FinTech and the influence of technology on the future of the financial sector (PE597.523v02-00). ECON voted to adopt the report on 25 April. The procedure file for the report suggests that the EP will vote on the report in its plenary session to be held between 15 May and 18 May.

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Please see the Consumer/Retail section for an update on PRIIPs.

Solvency II – EIOPA new Q&A on templates for submission of information to supervisory authorities

On 28 April, EIOPA published a new set of Q&A relating to EC Implementing Regulation (EU) 2015/2450, which contains ITS required under Solvency II relating to templates for the submission of information to the supervisory authorities.

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Solvency II – PRA policy statement on maintenance of transitional measure on technical provisions

On 28 April, the PRA issued a policy statement on the maintenance of the "transition measure on technical provisions" under the Solvency II. In PS11/17, the PRA sets out its final policy relating to amendments to its May 2016 supervisory statement on recalculation of the "transitional measure on technical provisions" (SS6/16) to clarify its expectations for maintaining the calculation of the transitional measure on technical provisions (TMTP) both at outset and over the transitional period. The PRA has published an updated supervisory statement to reflect its policy. SS6/16 sets out the PRA’s expectations and proposed process for: how the calculation of the amount of the TMTP should be maintained over the transitional period; requesting that a firm carry out a recalculation of the transitional measure; and assessing a firm’s application for a recalculation on the basis of a material change in risk profile. PS11/17 also provides feedback on responses to the PRA's proposals in its December 2016 consultation on the issues (CP47/16).

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MiFID II – FCA publishes reporting instructions for trading venues and investment firms submitting position reports

On 3 May, the FCA published a document containing reporting instructions for trading venues and investment firms submitting position reports under the MiFID II. The FCA has created the document to provide instructions for entities that will submit commodity derivative position reports to it for processing. It advises firms to read the document in conjunction with the final draft of chapter 10 of its MAR 10, which was published in its March policy statement on the implementation of MiFID II (PS17/5). The reporting instructions contain separate chapters on: reporting principles; data validation; and position report upload specifications. The FCA has published the instructions on a webpage containing information on the introduction of position limits and the reporting regime for commodity derivatives. The MiFID II position limits and reporting regime for commodity derivatives comes into force on 3 January 2018.

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MiFID II – PRA updates supervisory statement on internal governance

On 28 April, the PRA issued an updated version of its supervisory statement (SS21/15) on internal governance in banks, building societies and PRA designated investment firms. SS21/15 has been updated in the light of the PRA publishing a second policy statement (PS9/17) on the implementation of the MiFID II to update references in paragraph 2.26 from MiFID to MiFID II. The update to SS21/15 takes effect from 3 January 2018. SS21/15 sets out the PRA's expectations of how firms should comply with the rules in the General Organisational Requirements, Skills, Knowledge and Expertise, Compliance and Internal Audit, Risk Control, Outsourcing and Record Keeping Parts of the PRA Rulebook. It was previously updated in May 2016.

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MiFID II – PRA second policy statement on implementation of MIFID II

On 28 April, the PRA issued its second policy statement (PS9/17) on the implementation of the MiFID II Directive. PS9/17 follows on from the PRA's second consultation paper on MiFID II implementation (CP43/16), which it published in November 2016. Since the PRA received no responses to CP43/16, the final rules are unchanged from those consulted on except for some minor drafting changes to clarify language and correct formatting and references.

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Payment System Operator Delivery Group report on plan for consolidation of three payment systems operators

On 4 May, the Payment System Operator Delivery Group (PSODG) published a report setting out its recommended delivery plans for the consolidation of the three retail payment systems operators (PSOs), that is Bacs Payment Schemes Ltd (BPSL), Cheque and Credit Clearing Company (C&CCC) and the Faster Payments Scheme Ltd (FPSL). The report outlines the recommendations of the PSODG relating to the design and subsequent set-up of the new PSO, including a target timeline. The PSR also published a letter, from David Bailey, BoE Financial Market Infrastructures Director, and Hannah Nixon, PSR Managing Director, to all stakeholders with an interest in the proposed consolidation of the PSOs, which sets out their views and expectations regarding the next steps. In light of the report, the BoE and the PSR have updated the PSODG's terms of reference to reflect the work required during the next stage of the consolidation process. Initially, the PSODG will be responsible for overseeing work to incorporate and establish the new PSO. The PSODG is expected to hand over responsibility for execution of the implementation plan to the new PSO by the end of July 2017.

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Please see our eAlert: New rules on the remuneration policy for risk takers in banks - implementation of CRD IV comes into force on 1 May 2017.

EBA amends ITS on benchmarking of internal approaches for 2018 benchmarking exercise

On 4 May, the EBA published a press release announcing that it has amended its ITS on benchmarking of internal approaches under Article 78(8) of the CRD IV Directive (2013/36/EU) (EBA ITS 2017 02). The final draft ITS (dated 4 May 2017) are contained in a zip file that has been added to the EBA's dedicated webpage on RTS and ITS on benchmarking portfolios. They are intended for use by the EBA and competent authorities in their 2018 assessment of internal approaches for credit and market risk. The ITS have been amended to reflect updates to the Single Rulebook. They also reflect updates to the benchmarking portfolios that were necessary to facilitate the 2018 benchmarking exercise for both credit and market risk, so that they remain relevant for supervisors. The press release explains that the amendments are expected to apply to the submission of initial market valuation data in November 2017 and of other market and credit risk data in April 2018. The EBA has submitted the updated ITS to the EC, but the Commission has not yet adopted them.

Press release

Zip file

CRD IV – FCA policy statement on remuneration rules and guidance

On 3 May, the FCA published a policy statement (PS17/10) containing amendments to its Handbook rules and guidance relating to the remuneration policies and practices of firms subject to the CRD IV. It also includes finalised guidance (FG17/5, FG17/6, FG17/7 and FG17/8) on remuneration for CRD IV firms. The FCA states that it has made minor changes to the wording of its proposals to reflect clarifications requested in feedback to CP16/28. The Appendices to PS17/10 contain the FCA's final rules and guidance relating to the proposals consulted on in CP16/28. The contents of these appendices have also been published separately. The changes set out in the Appendices took effect on 3 May 2017. The FCA expects firms to ensure that they comply with its rules and guidance, as well as the EBA guidelines, for the 2017 performance year onwards.

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PRA policy statement on reporting requirements for ensuring operational continuity in resolution

On 28 April, the PRA issued a policy statement (PS10/17) on reporting requirements for ensuring operational continuity in resolution. PS10/17 is relevant to UK banks, building societies and PRA-authorised investment firms to which the Operational Continuity Part of the PRA rulebook applies that receive critical services from one or more members of their group or from a business unit within the firm itself. The PRA provides feedback to responses to the proposals in its July 2016 consultation (CP28/16). It has made some clarificatory amendments. To implement its policy, the PRA sets out in appendices to PS10/17 the following documents: PRA Rulebook: CRR firms: Operational Continuity Reporting Instrument (PRA 2017/21), which was made by the Prudential Regulation Committee (PRC) on 25 April 2017 and will come into force on 1 January 2019; supervisory statement on guidelines for completing regulatory returns (SS34/15), which has been updated to include a new Appendix 10 that provides reporting instructions to operational continuity firms required to complete template PRA109. The effective date for the instructions is 1 January 2019; and a reporting template and instructions for PRA109 on operational continuity, effective from 1 January 2019. On its reporting requirements webpage, the PRA states that it is aware that firms will need information on the precise mechanism by which data will be collected to assist with implementation. The PRA will aim to provide firms with an update on this in the fourth quarter of 2018. Operational continuity firms are required to submit the template 45 business days after the first reporting period ending 31 December 2019. A webpage on PS10/17 notes that this policy has been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess whether any changes will be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the EU take effect.


Single resolution fund – Delegated Regulation on contributions to single resolution fund published in OJ

On 29 April, EC Delegated Regulation (EU) 2017/747 on the criteria for the calculation of ex-ante contributions and on the deferral of ex-post contributions to the SRF under the SRM Regulation was published in the OJ. The Delegated Regulation comes into force 20 days after publication in the OJ (that is, on 19 May).

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

On 28 April, the Council of the EU published its first Presidency compromise proposal (8612/17) on certain elements of the proposed Regulation on the recovery and resolution of CCPs. The proposed Regulation also amends the ESMA Regulation (Regulation 1095/2010), EMIR and the SFTR.

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CCP recovery and resolution planning – responses to FSB consultation on draft guidance

On 28 April, the FSB published the responses it has received to its consultative document on draft guidance on CCP resolution and resolution planning.

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FSB thematic peer review on corporate governance

On 28 April, the FSB published a thematic peer review on corporate governance. The peer review examines how FSB member jurisdictions have implemented the G20/Organisation for Economic Co-operation and Development (OECD) principles of corporate governance for publicly listed, regulated financial institutions. It has also provided input to the update of the methodology for assessing the implementation of the principles and governance-related aspects of the FSB’s broader work on conduct for financial institutions. The report sets out the recommendations to FSB member jurisdictions, standard-setting bodies and financial institutions.

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SSM – ECB decision on SSM total supervisory fees for 2017 published in OJ

On 29 April, the ECB decision (ECB/2017/11) on the total amount of annual supervisory fees under the SSM for 2017 (Decision (EU) 2017/760) was published in the OJ. The supervisory fees for the banks for 2017 will be EUR425 million. This represents an increase of about 10% compared with 2016. Fees for significant banks will amount to 92% of the total fees; and the remaining 8% will be paid by the less significant banks. The ECB adopted the decision on 24 April 2017 and it will come into force 20 days after its publication in the OJ (that is, on 14 May).

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