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Stand out for the right reasons, Financial Services Risk and Regulation March 2018
Being better informed FS regulatory, accounting and audit bulletin
PwC FS Risk and Regulation Centre of Excellence
March 2018
In this month’s edition:
• Prudential: PRA finalises Pillar 2 liquidity assessment policy
• Analysis: FCA and PRA focus on algorithmic trading
• Investment funds: IOSCO issues liquidity management guidance
• Conduct: PRA confirms SIMR amendments
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 1
‘Welcome to this edition of ‘Being
better informed’, our monthly FS
regulatory, accounting and audit
bulletin, which aims to keep you up to
speed with significant developments
and their implications across all the
financial services sectors.’
As we head into spring, our regulators are
keeping as busy as ever. Last month brought
a number of important developments,
particularly on prudential matters, at both a
UK and global level.
Among those prudential updates is the
PRA’s finalised policy for Pillar 2 liquidity
assessment. It’s broadly taking forward the
regime as previously consulted on, but with
a number of changes. For instance, the PRA
delaying by six months the introduction of a
new maturity ladder reporting form
PRA110, from January to July 2019.
Although some changes like this one have
been delayed a bit, impacted firms should
still familiarise themselves with the final
rules and begin preparations to report the
new granular cash flow mismatch template.
Meanwhile, the FCA is increasing its focus
on prudential reporting. It published a Dear
CEO letter to IFPRU investment firms and
BIPRU firms on the quality of prudential
regulatory returns. The FCA has seen a
significant number of returns with inaccurate
or incomplete data, and is asking firms to
review their submissions and reporting
practices. The letter suggests further action
is on the horizon, so impacted firms should
review their end-to-end regulatory reporting
process to ensure it’s fit for purpose.
And globally, the Basel Committee
published a consultation on Pillar 3
disclosure requirements, marking the third
phase of its revisions to Pillar 3 disclosures.
It includes new and revised requirements
relating to the Committee’s ‘Basel IV’
package published in December 2017.
Changes include revised requirements for
credit risk, operational risk, the leverage
ratio and credit valuation adjustment. Firms
should review the proposals and undertake
an initial assessment to understand any
changes in data, systems and processes as
well as governance and controls needed to
produce the enhanced Pillar 3 disclosures.
Turning to conduct-related developments,
the PRA issued a policy statement on its
approach to implementing the SM&CR for
insurers, setting out final amended SIMR
rules and proposals for board diversity for
insurers. The amended SIMR is due to take
effect from 10 December 2018, following a
decision by HMT.
IOSCO issued recommendations and best
practice guidance on investment fund
liquidity management, providing a
suggested approach for countries to adopt
voluntarily. IOSCO emphasises the
importance of aligning fund structure and
investment strategy with liquidity needs,
and of disclosing liquidity management
approaches to investors. It also discusses
stress testing requirements. UK and EU
rules already address many of the
recommendations, but IOSCO’s focus on
stress testing and disclosure could prompt a
closer focus on these areas in the UK.
Meanwhile the FCA and the PRA are
scrutinising algorithmic trading in
wholesale markets. In this month’s feature
article we analyse what the findings of an
FCA thematic review and proposed
expectations from the PRA mean for firms.
The regulators’ focus on algorithmic trading
signals the level of scrutiny that firms can
expect on MiFID II compliance. It also
highlights the regulators’ willingness to go
beyond MiFID II, as the FCA’s good practice
applies to non-MiFID firms engaged in
algorithmic trading, and the PRA’s
proposed framework covers spot FX, which
is out of scope of MiFID II.
Looking ahead, the FCA plans to publish a
policy statement on measures to address
remuneration-related risks in consumer credit
firms later this month, and we expect Member
States to agree a common position on the
proposed EU banking reform package by May.
For now we hope you enjoy reading the
latest updates.
Laura Cox
FS Risk and Regulation Centre of Excellence
020 7212 1579
Laura CoxLead Partner
PwC FS Risk and Regulation Centre of Excellence
Executive summary
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 2
How to read this bulletin?
Review the Table of Contents the relevant Sector sections to identify the news of interest. We recommend you go directly to the topic/article of interest by clicking in the active links within the table of contents.
Contents
Executive summary 1
Regulators hone in on algorithmic trading 3
Cross sector announcements 6
Banking and capital markets 13
Asset management 16
Insurance 18
Monthly calendar 23
Glossary 27
Contacts 33
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 3
With the recent go-live of MiFID II on
3 January 2018, the industry is watching
closely for any signs of which areas
regulators might prioritise in scrutinising
compliance. The PRA and FCA recently
published guidance signalling that they will
be focusing on algorithmic trading, which is
perhaps unsurprising given that poorly
designed and managed algorithms can pose
financial stability risks. But firms shouldn’t
look at their use of algorithms solely
through a MiFID II lens - the regulators are
strengthening algorithmic requirements
across the board, even for firms and
products not covered by MiFID II. The
regulators have coordinated their efforts to
ensure all firms have robust controls and
effective governance, putting the entire
market on notice. They’ve laid out a
roadmap to help firms get algorithmic
trading right. Now it’s down to firms to
assess their current approaches and take the
necessary steps to address any gaps.
The FCA published Algorithmic Trading in
Wholesale Markets on 12 February 2018,
following its cross-firm review of
algorithmic trading themes. Alongside this,
the PRA published CP5/18 Algorithmic
Trading, outlining its expectations on
governance and risk management for firms
engaged in algorithmic trading. The FCA
report provides much more detail and the
PRA is only at the consultation stage, but
the two approaches are clearly aligned.
By focusing on algorithmic trading so soon
after MiFID II implementation, the UK
regulators are signaling that they will be
monitoring this type of market activity very
closely in the year ahead. Firms should take
note, and ensure they have developed
policies and procedures that align with
regulatory expectations. Algorithmic trading
can raise significant market abuse and
market stability concerns and so firms
should strive to achieve best practice to
minimise those risks.
The UK regulators reiterated their
expectations that firms need to approach
their regulatory responsibilities
comprehensively, by harnessing the
expertise of the entire business (the ‘three
lines of defence’ model). In its review
findings, the FCA consistently highlights the
importance of involving front office
functions in the compliance process, to
ensure firms harness the expertise held by
the market-facing side of the business to
address risks.
The FCA helpfully provides examples of
good and bad practice for every stage of the
algorithmic trading life-cycle. With MiFID
II already live, firms should benefit from the
practical examples of how to improve their
algorithmic governance, and the FCA
provides an important framework for
assessing controls implemented as part of
compliance efforts. MiFID II requires firms
to provide an annual self assessment of
algorithmic trading controls and UK firms
should pay close attention to the FCA’s
examples as they go through this process for
the first time.
Going beyond MiFID II
MiFID II implemented extensive new
requirements for algorithmic trading.
The MiFID II rules outline detailed
development, testing and deployment
requirements to ensure that algorithmic
trading strategies are both operationally
effective and safe for the wider markets. In
addition, firms need to address algorithmic
strategies that could prove problematic
(e.g. by implementing a ‘kill functionality’).
But the FCA’s good practice examples and
the PRA’s proposed supervisory framework
extend beyond MiFID II and MiFID firms.
Importantly, the PRA’s proposed
expectations will cover spot FX which is out
of scope of MiFID II. Likewise, the FCA
indicates that its good practice extends to
non-MiFID firms engaged in algorithmic
trading. Such gold-plating of EU rules
indicates that the UK regulators will take an
aggressive approach based on the perceived
risks emerging from this activity.
The UK regulators’ moves to intervene
beyond MiFID II also suggest that their
current approach to algorithmic trading is
unlikely to change as a result of Brexit. The
UK regulators drove much of the MiFID II
Dominic MullerManager
020 7213 [email protected]
Regulators hone in on algorithmic trading
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 4
requirements and have consistently
signalled their commitment to robust
standards, and in some cases gold-plating
EU rules. Given the UK’s prominence as an
algorithmic trading location, the UK
regulators will likely keep their approach
consistent to ensure the ongoing stability
and integrity of markets post-Brexit.
Defining algos correctly
The FCA confirms that firms should develop
a detailed definition of algorithmic trading
and consider potentially relevant activities
across the firm’s business, to ensure it
identifies all relevant activities, as opposed
to simply those areas of the firm where algo
trading is well-established. Given the
proliferation of algorithmic strategies and
systems in firms, the FCA wants to ensure
that firms identify the full scope of these
activities so they can best apply conduct and
stability controls.
Likewise, the FCA indicates that firms
should have a formal process to identify
material changes to algorithmic trading
activity – either in terms of a shift in
strategy or the introduction of new
algorithms. Conducting reviews on an ad-
hoc basis is not sufficient, as failing to
identify new algorithmic activity means
firms will not appropriately subject such
activity to a consistent development and
testing framework. The FCA also confirms
that the algorithmic inventory must be very
detailed and include:
a breakdown of the various
components/algorithms contained
within the strategy or system
technical details of the coding protocols
a comprehensive list of all the
risk controls.
Developing and testing algo trading
The FCA makes it clear that firms cannot
develop and test algorithmic strategies in a
vacuum. They must establish clear lines of
authority and accountability to drive these
processes forward and ensure they
appropriately leverage expertise across
the firm.
To ensure consistent oversight, the FCA
wants firms to assign a dedicated project
lead to develop and test algorithmic trading.
The project lead should be responsible for
dividing the development process into
separate phases and driving early due
diligence. In line with the FCA’s broader
focus on collaboration between front,
middle and back offices, the project lead
should be charged with ensuring a ‘culture
of open communication’ exists between
different business units. At the same time,
the project lead needs to keep the
development and oversight roles separate so
reviews remain independent.
Emphasising the importance of structure
and communication, the FCA says it wants
to see that firms have detailed staging and
scheduling plans. By breaking the
deployment process into stages, the FCA
hopes firms will be able to better determine
whether they need to make any material
changes - and to roll the trading strategy
back to the development and testing process
if necessary. Such a controlled approach to
the production environment will also
increase the likelihood of firms’ identifying
market stability risks prior to deployment.
Applying risk controls
While the MiFID II rules set out detailed
requirements for what risk controls firms
should apply, the FCA goes further. The EU
rules indicate that risk controls are
warranted for:
market and credit risk limits
maximum order volumes and maximum
order values
maximum message limits
repeated automation execution throttles
price collars
maximum longs and shorts
for derivatives.
But the FCA states that firms should apply
these controls at the strategy or client level,
as well as on a firm-wide basis. In addition,
the regulator expects firms to maintain
complete, accurate and consistent trade and
account information, plus comprehensive
trading logs. Developing appropriate
controls is a key element of algorithmic
trading risk mitigation, as they are the
primary means by which an algorithmic
strategy is constrained to accommodate
market abuse and market stability
considerations. As a result, the FCA wants
these controls to be as detailed as possible.
Monitoring compliance effectively
The FCA appears concerned that
compliance personnel lack the technical
sophistication to fully understand
algorithmic trading strategies, which could
hinder their ability to provide effective
oversight. Also, the regulator observes that
compliance staff are not sufficiently
involved throughout the development
process. The message for the industry is
clear: compliance staff must be
technologically savvy and empowered to
engage with the front-office throughout the
development and deployment process. The
FCA is warning firms they not only need the
right processes in place but the right people,
and they need to account for technological
complexity when making
personnel decisions.
In terms of specific practices, the FCA
would welcome more sophisticated use of
visual and audible alerts, such as automated
control thresholds where alerts are
generated at pre-defined levels. Also, the
regulator expects that the three lines of
defence present the relevant committees
with management information (MI) which
includes details on how they have amended
controls.
The FCA is further concerned about firms
which maintain basic market abuse alerts
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 5
(such as insider dealing or layering and
spoofing) but do not consider other types of
market manipulation which can be
associated with algorithmic trading
(e.g. momentum ignition, quote stuffing and
reference price gaming). More broadly, the
FCA reminds firms that MiFID II
compliance requires much more than
ensuring the operational effectiveness of the
algorithms, but also monitoring and
identifying potential market misconduct.
Getting the governance right
Also, the FCA calls for firms to introduce a
governance framework that sits above the
project lead. It recommends firms form an
independent committee to check all relevant
documentation, ensure all testing
procedures have been completed
satisfactorily and verify that algorithms are
consistent with the original specifications.
The regulator indicates that it expects firms
to have active representation on the
committee from various departments,
including risk, compliance, legal, business,
technology, finance and operations.
Firms need to provide effective MI to senior
management on relevant activities,
including conformance testing, operational
arrangements, pre-trade risk parameters,
training and surveillance procedures.
Likewise, it expects an audit trail that
captures: theoretical construction,
behavioural characteristics, details on the
types and use of input data, numerical
analysis routines and specific mathematical
calculations.
The regulator is clearly concerned that
different parts of a firm are generating
algorithmic strategies and systems without
central oversight and that leadership teams
have inadequate visibility over the process.
While firms will have flexibility to establish
governance frameworks that fit their
business, they should bear in mind the
FCA’s guidance.
What do firms need to do now?
The go-live of MiFID II means that robust
algorithmic trading controls has moved
from a regulatory concept to a day-to-day
requirement. Likewise, it is no surprise that
this area of market activity will be a
supervisory focus for UK regulators in light
of the risks that algorithmic trading can
pose for markets. But, the catalogue of good
practice outlined by the FCA provides firms
with a more detailed roadmap for
implementing a very complex set of
requirements. Similarly, the PRA’s
consultation paper, while more high-level,
provides industry with a chance to bring
their insights to the table.
In the near-term, firms should respond to
the PRA consultation by 7 May 2018, after
which the PRA intends to publish a
supervisory statement in early summer.
The PRA also notes that its algorithmic
trading work will be used as a basis for
wider reviews of firms’ operational
resilience.
In addition, firms should expect the FCA to
increase its supervision in this area and
follow up with individual firms on their
algorithmic trading compliance in light of
these good practices. The regulator
indicates that it will be looking at whether
MiFID and non-MiFID firms have
established adequate algorithmic
trading controls.
Both regulators and the industry realise the
complexity of rolling out large-scale
regulatory changes to wholesale markets.
This is evidenced by the wide range of
implementation challenges for MiFID II
that firms and the regulators are working
together to address. As a result, the FCA
and PRA’s latest publications provide a
valuable opportunity for firms to adhere to
more detailed expectations while continuing
a conversation with regulators about
making implementation as balanced and
effective as possible.
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 6
In this section:
Regulation 6 Advice 6 Brexit 6 Capital and liquidity 6 Conduct 7 Innovation 8 Market infrastructure 8 Pensions 8 Reporting 9 Wholesale markets 9
Accounting 9 Our publications 9
Also this month 10 A brief round up of other regulatory
developments
Regulation
Advice Advice and guidance – achieving clarity?
The FCA confirmed amendments to PERG
guidance on personal recommendations in
PS18/3: Perimeter guidance on personal
recommendations on retail investments
on 23 February 2018.
It comes after the FCA proposed new
guidance in CP17/28 in August 2017, in
response to FAMR which recommended the
FCA give firms greater confidence to offer
guidance without straying into regulated
advice. The FCA is broadly taking forward
the new guidance as consulted on, with
some additional examples to help give firms
further clarity on whether a service might
amount to a personal recommendation.
The FCA also confirms it will retire FG15/1
(which provides guidance on a number of
issues relating to advice on retail
investments) as a standalone document
with immediate effect, and incorporate the
new guidance into PERG. In addition, the
FCA publishes a consumer guide which
explains the difference between the terms
‘advice’ and ‘guidance’.
The finalised perimeter guidance marks the
final step in the FCA’s implementation of
the FAMR recommendations. It plans to
conduct a review of the impacts of the
recommendations in 2019, and publish its
findings in 2020.
Brexit Bailey highlights Brexit risks
Andrew Bailey, CEO of the FCA, gave a
speech on 5 February 2018 setting out his
views on the future of the City of London. In
his speech Bailey focused on Brexit,
highlighting that the FCA is treating Brexit
as a key priority and identifying some of the
risks Brexit poses to the UK and EU-27.
Bailey also re-emphasised that he believes
free trade in financial services to be of
benefit to both the UK and EU-27.
Capital and liquidity Clarifying credit risk mitigation guarantee eligibility
The PRA published consultation paper
CP6/18 Credit risk mitigation: Eligibility of
guarantees as unfunded credit protection
on 16 February 2018. The PRA identifies
that some firms are unclear on what
contracts and other documented obligations
are eligible to be treated as guarantees for
credit risk mitigation (CRM) purposes
under the CRR. It proposes to amend
supervisory statement SS 17/13 – Credit
risk mitigation to clarify its expectations
regarding certain eligibility criteria for
guarantees that enable firms to reduce the
risk weight of credit exposures in their
calculation of capital requirements.
The CRR requires that a guarantor is
obliged to pay out ‘in a timely manner’. The
PRA considers this means that pay out
occurs ‘without delay and within days, but
not weeks or months’, of the date on which
an obligor covered by the guarantee fails to
make the payment due. But there are
exceptions, such as where guarantees cover
residential mortgages and securitisation
positions. The proposals also cover
expectations concerning eligible
guarantees being:
legally effective and enforceable
clearly defined and incontrovertible
without clauses that could provide
barriers to the pay out by the guarantor
in ‘a timely manner’.
In addition, the PRA addresses the terms
‘limited coverage’ and ‘certain types of
payment’ that concern the eligible amount
of guarantees that don’t cover all payments
relating to a credit exposure. Finally, the
PRA emphasises that under the EBA SREP
guidelines it must assess the level and
quality of guarantees that would mitigate
losses where credit events occur, including
those not eligible for CRM in capital
requirement calculations. These
clarifications affect the standardised
approach and the foundation IRB approach
Cross sector announcements
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 7
to credit risk. The advanced IRB approach is
outside the scope of these proposals. The
consultation closes on 16 May 2018.
Setting materiality thresholds for credit default
Regulation (EU) 2018/171 on
supplementing CRR with regard to RTS for
the materiality threshold for credit
obligation past due appeared in the Official
Journal on 6 February 2018. This follows
the EBA’s September 2016 final report on
the draft RTS and is largely unchanged from
that draft. But recognising its impact, the
RTS allows for an extended and flexible
implementation period.
The CRR specifies that firms should
consider a counterparty in default when it is
past due for more than 90 days in respect of
any material credit obligation. This RTS
specifies the conditions supervisory
authorities should consider in setting the
threshold at which credit obligations are
deemed material – both retail exposures
and non-retail exposures.
The threshold has an absolute and relative
component. The absolute measure is the
total amount of the credit obligation past
due from the borrower. This is set at a
maximum of €100 and €500 for retail and
non-retail exposures respectively. The
relative measure is a percentage of the past
due credit obligation in relation to the total
on-balance sheet exposures to the borrower
excluding equity exposures. This is set at 1%
for all exposures for risk levels assessed as
‘reasonable’. But supervisory authorities
may set a different level within a range of
0% to 2.5% if the risk characteristics in their
jurisdiction justify it.
Supervisory authorities must agree a date
for the application of the thresholds they set
which may vary for different categories of
firms. This must be no later than
31 December 2020 for firms using the
standardised approach. There is no
specified date set for firms using the IRB
approaches, allowing supervisory
authorities to defer implementation.
But the RTS indicates that ‘to prevent
excessive delays…such longer periods
should be limited’.
Pillar 2 liquidity policy goes live
The PRA published policy statement PS
2/18 Pillar 2 liquidity on 23 February 2018,
providing feedback to responses to its
consultation papers, CP 21/16 and CP 13/17.
The Pillar 2 policy seeks to complement the
Pillar 1 regime by addressing liquidity risks
not captured or not fully captured under the
LCR requirement. This new regime applies
to UK banks, building societies and PRA-
designated investment firms.
It implements this by finalising a new
statement of policy Pillar 2 liquidity,
updating supervisory statement SS 24/15
The PRA’s approach to supervising
liquidity and funding risks and introducing
a new PRA110 cashflow mismatch return
(accessible through updated SS 34/15), that
replaces the current FSA047 and
FSA048 returns.
In CP 21/16 and CP 13/17, the PRA set out
the framework of risks covered under Pillar
2 and methodologies it intends to use to
perform liquidity risk assessments. This
includes introducing a cashflow mismatch
risk (CFMR) framework and setting out
survival guidance on the granular LCR
stress within the CFMR framework. The
Pillar 2 liquidity risks comprise CFMR,
franchise viability, intraday liquidity as well
as other liquidity risks – margined
derivatives, securities financing margin,
intragroup liquidity together with liquidity
systems and controls.
In response to feedback, the PRA makes a
number of changes including:
removing monetisation in the granular
LCR stress scenario which the PRA uses
as a basis for setting Pillar 2
liquidity guidance
deferring the introduction of the PRA110
return by six months until 1 July 2019
defining new timing assumptions on a
number of outflows in the PRA110
return, including a new row for the
reporting of Pillar 2 add-ons in the
PRA 110 return
amending the stress uplift reference
point for calculating intraday
liquidity risk.
The statement of policy and updated
supervisory statement apply with
immediate effect on 23 February 2018. The
PRA110 return applies from 1 July 2019.
Conduct Managing CCP conflicts of interest
ESMA released Guidelines on CCP
management of conflicts of interest on 7
February 2018. ESMA clarifies which
relationships could potentially result in a
conflict of interest, between CCPs and their
clearing members, and the clients of those
clearing members. ESMA provides detail
around governance and organisation
arrangements, including:
limiting the number of contracts that
board members and executive directors
may have
avoiding the appointment of external
auditors which have previous business
relationships with the CCP
obtaining pre-approval for staff to
engage in outside activities that might
pose conflicts
developing staff policies for investments
and gifts.
In addition to outlining requirements for
staff training and oversight, ESMA's
guidelines impose additional requirements
on CCPs that belong to a wider group.
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 8
Managing equity capital raising conflicts
IOSCO consulted on Conflicts of interest
and associated conduct risks during the
equity capital raising process on 21
February 2018. It proposes guidance for
regulators to identify and address conflicts
of interest that may arise during the equity
capital raising process. Regulators should
consider requiring firms to:
take reasonable steps to prevent analysts
from coming under pressure to take
a favourable view on the offering.
establish appropriate controls to
manage potential conflicts of interest
arising from connected analysts
performing an internal advisory role.
support the timely provision of a wide
range of independent information
to investors.
maintain a policy outlining the
allocations approach and allowing the
issuer to express their preference.
maintain records of allocation decisions
to demonstrate that conflicts of interest
are appropriately managed.
The guidance could define regulator
expectations of conduct by market
intermediaries in the equity capital
raising process. The consultation closes
on 4 April 2018.
Innovation Moving towards a global sandbox?
The FCA published a request for
feedback on the merits of launching a global
regulatory sandbox on 14 February 2018.
The FCA’s existing sandbox allows
financial services firms to test innovative
ideas with customers and markets in the UK
in a controlled environment. So far, 60
firms have used it since its creation in 2016.
But as financial markets and
the FinTech sector operate on a global basis,
the FCA seeks feedback on the scope for a
global sandbox which could allow testing of
innovations in multiple jurisdictions. The
FCA believes a global sandbox could help
reduce regulatory problems in testing new
innovations, support firms operating on a
cross-border basis and help regulators
globally address regulatory challenges and
work towards consistent approaches. The
feedback period closed on 2 March 2018.
Market infrastructure UK implements BMR
HMT published the Financial Services and
Markets Act 2000 (Benchmarks)
Regulations 2018 on 9 February 2018,
implementing BMR in the UK. This
statutory instrument designates the FCA
as the NCA authorised to regulate
benchmarks, administrators and ‘other
persons involved in the provision of
benchmarks’, the so-called miscellaneous
benchmarks persons.
The statutory instrument also adds
‘administration of a benchmark’ as a new
regulated activity. But it retains the RAO
articles which permit the FCA to regulate
eight specified benchmarks, including
LIBOR, SONIA and RONIA. These
provisions remain in effect throughout the
BMR transitional period which ends on 1
January 2020, and will be automatically
repealed on 1 May 2020.
FCA consults on BMR procedures
The FCA published CP18/5: EU
Benchmarks Regulation Implementation
(DEPP and EG) on 5 February 2018. It
proposes changes to the DEPP and
Enforcement Guide (EG) to comply with the
UK Benchmarks Regulations 2018.
The FCA proposes to notify EU
administrators in writing whether their
applications for authorisation or
registration have been refused or approved
with limitations. It would also provide
written notice if it imposed additional
requirements or adjusted the scope of the
regulated activity. Administrators which
relied on transitional provisions would be
required to stop providing benchmarks
pending appeal.
The FCA also proposes to notify third
country administrators in writing whether
their applications for recognition or
endorsement have been refused, including
when it decides on its own initiative to
withdraw, suspend or adjust an order for
recognition or endorsement.
Finally the FCA proposes enforcement
procedures for so-called ‘miscellaneous
benchmarks persons’ (MBMPs) who are
unauthorised and also contributors,
outsourced third party service providers,
legal representatives of recognised third
country administrators or administrators
of benchmarks subject to Art. 51(4). The
proposal would give the FCA the power to
investigate, censure or to impose financial
penalty and restitution on MBMPs who
are not otherwise directly within the scope
of BMR.
The consultation closed on 5 March 2018.
Pensions FCA considers competition in private pensions
The FCA published a discussion paper on 2
February 2018, to gather views on the
market for non-workplace pensions. In
DP18/1: Effective competition in non-
workplace pensions, the FCA seeks
feedback to better understand consumer
outcomes and whether competition is
working well in the market. The FCA
intends to focus on:
product complexity
fund choice and the use of defaults
whether providers are competing
on charges
whether consumers can identify and
freely move to more competitive
products
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 9
The conduct regulator says it’s possible that
weaknesses it has previously identified in
the workplace pensions market may exist in
non-workplace pensions. But it says it
doesn’t assume that the same remedies
should apply to both markets.
The FCA welcomes responses by
27 April 2018. It plans to consider
responses and then collect data to better
understand any problems identified.
Reporting Formalising CCP incident reporting
The BoE Consulted on a new rule for
Central Counterparties relating to incident
reporting on 9 February 2018. CCPs must
notify the BoE of incidents impacting their
IT systems, through a written notification of
an incident that significantly impacts the
continuity of its services as soon as possible
after it becomes aware. CCPs would also
have to provide information to enable the
BoE to determine the impact of the
incident, formalising aspects of the current
supervisory expectation to report
operational incidents.
CCPs should consider responding to
the consultation, which closes on
3 April 2018.
FCA beats regulatory reporting drum
The FCA published a Dear CEO letter,
Quality of Prudential Regulatory Returns
on 19 February 2018 directed at
investments firms within scope of CRD IV
(IFPRU firms) and most investment firms
within the scope of MiFID (BIPRU firms). It
identifies that a significant number of firms
submit returns that contain inaccurate
and/or incomplete data. Andrew Bailey,
CEO of the FCA, urges the CEOs of these
firms to review their ‘regulatory reporting
practices to ensure they are fit for purpose,
comply with the relevant reporting
provisions and produce materially accurate
data’. Failings the FCA detected include:
inadequate understanding of the
prudential rules
incomplete submissions through failure
to submit underlying templates in
COREP returns
failure to submit entire returns such as
the EU financial reporting return
incorrect calculation of risk exposures
leading to misstated capital
requirements
inconsistencies across COREP
reporting templates.
The FCA plans to review a sample of returns
from 1 October 2018. If it continues to find
shortcomings, it intends to consider further
action to improve the standards of returns.
Using technology to improve regulatory reporting
The FCA launched a Call for Input: Using
technology to achieve smarter regulatory
reporting on 20 February 2018. It's seeking
views on how it can improve a proof of
concept that could facilitate regulatory
reporting and improve the quality of
information firms provide. The proof of
concept was developed by participants at an
FCA TechSprint event in November 2017,
and could make regulatory reporting
requirements machine-readable and
executable. The FCA is also seeking
feedback more widely on the role
technology can play in regulatory reporting.
The Call for Input closes on 20 June 2018.
The FCA plans to publish feedback in
summer 2018.
Wholesale markets Making algorithmic trading safer
The FCA published Algorithmic Trading in
Wholesale Markets on 12 February 2018,
setting out the results of cross-firm reviews
on themes relating to algorithmic trading.
Alongside this, the PRA consulted on
CP5/18 Algorithmic Trading on the same
date, outlining its expectations on
governance and risk management for firms.
There is alignment between the good
practices in the FCA report and the
proposed PRA supervisory expectations.
Firms should have already implemented
MiFID II rules on algorithmic trading as of
3 January 2018. Although the review reveals
improvements, the FCA notes a lack of
comprehensive control frameworks with
identification, documentation and testing of
algorithms. The FCA encourages all firms
engaging in algorithmic trading to use the
practices cited in the report as non-
exhaustive examples of how to comply with
applicable requirements. The PRA's
consultation includes spot FX which is out
of scope of MiFID II. The FCA also indicates
that its good practices extend to non-MiFID
firms engaged in algorithmic trading.
See our feature article on p. 3 for more
detailed analysis.
Accounting
Our publications IASB amends defined benefit plan requirements
The IASB issued amendments to the
guidance in IAS 19 Employee Benefits on 7
February 2018. The amendments will affect
any entity that changes the terms or the
membership of a defined benefit plan such
that there is past service cost or a gain or
loss on settlement. The amendments apply
prospectively to plan amendments,
settlements or curtailments that occur after
the beginning of the first annual reporting
period beginning on or after 1 January 2019.
Our In brief – IASB issues amendments to
IAS 19 – plan amendment, curtailment or
settlement considers the new requirements
and their impact.
IFRS News
Our IFRS News – February 2018 includes
the following articles:
IASB issues amendments to IAS 19 –
plan amendment, curtailment
or settlement
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 10
ESMA public statement on accounting
by European listed entities for the recent
US tax law changes
IFRS 9 impairment: intercompany loans
in separate financial statements
Accounting for Initial Coin Offerings.
Accounting briefing
Our Accounting-briefing – February 2018
includes articles on US tax reform, Tackling
the FRS 102 triennial review, our latest UK
GAAP publications and Timeline for new
UK GAAP.
Adopting IFRS or preparing a transaction document?
Our Publication In brief – Adopting IFRS
or preparing a transaction document? You
may be subject to different transition
requirements when applying IFRS 9, 15, 16
and 17 highlights the differences between
how existing reporters and first time
adopters transition to the new standards.
Those preparing a longer ‘track record’ of
financial information for initial public
offerings or other transactions as a first time
adopter may also be affected.
Modification of financial liabilities under IFRS 9
IFRS 9 was initially expected to have a
limited impact on financial liabilities. But
the IASB recently confirmed the accounting
for modifications of financial liabilities
under IFRS 9. Our In brief – Modification
of financial liabilities under IFRS 9 looks at
the details.
IFRS 9 intercompany loans in separate financial statements
IFRS 9 introduces an ‘expected loss’ model
for recognising impairment of financial
assets held at amortised cost, including
most intercompany loans receivable. Our
In depth – IFRS 9 Impairment –
Intercompany loans considers how to apply
IFRS 9’s impairment requirements to
intercompany loans.
Our In brief – IFRS 9 impairment
intercompany loans in separate financial
statements gives an overview of
the requirements.
PwC IFRS Talks – IAS 38 Intangible assets
PwC released Episode 19: IAS 38 Intangible
Assets in its podcast series. It outlines
common misconceptions in IAS 38,
Intangibles and explains when you can and
can’t recognise an intangible asset; how to
consider the unit of account; and the latest
thoughts around variable consideration.
Also this month
BoE
The BoE issued its statement of
commitment to the new Global FX
Code on 9 February 2018. Central banks
previously suggested they would
not engage with firms in FX markets
unless they also committed to the code.
So far, only the FCA has come closest to
making adherence enforceable through
the SMR.
The BoE issued its Supervision of FMIs
— Annual Report on 20 February 2018.
The report highlights the BoE’s focus on
governance, and financial and
operational resilience during 2017.
It also sets out its priorities for 2018,
including cybersecurity and IT
resilience.
EC
The EC launched the EU Blockchain
Observatory and Forum on 1 February
2018 with the aim of mapping key
existing initiatives in Europe,
monitoring developments, analysing
trends, addressing emerging issues and
enabling cross border cooperation.
The EC published Final report:
Identifying market and regulatory
obstacles to cross-border development
of crowdfunding in the EU on 2
February 2018, outlining research
findings on the impact of regulatory
divergence among Member States on
cross-border crowd-funding activity.
The EC published a report Identifying
market and regulatory obstacles to the
development of private placement debt
in the EU on 16 February 2018.
The report identifies that EU debt
markets remain poised for continued
growth but that better cross-border
alignment of withholding tax treatment
would be beneficial.
The EC held a Roundtable on
Cryptocurrencies on 26 February 2018
to discuss the implications of virtual
currencies for financial markets, the
risks and opportunities associated with
their use, and the recent development of
Initial Coin Offerings. The EC recognises
that the EU must take advantage of
these developments while maintaining
investor protection, market integrity and
financial stability.
The EC is currently conducting a
Consultation on fitness check on
supervisory reporting to gather
evidence on the cost of compliance with
existing EU-level supervisory reporting
requirements. The deadline for
responding to the consultation has been
extended from 28 February 2018 to
14 March 2018.
ECB
The ECB confirmed changes to statistical
reporting requirements for pension funds,
in Feedback statement: Responses to the
consultation on the draft ECB Regulation
on statistical reporting requirements for
pension funds on 19 February 2018. The
corresponding Regulation (EU) 2018/231 of
the ECB on statistical reporting
requirements for pension funds appeared in
the Official Journal on 26 January 2018.
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 11
EP
The EP’s Draft Report on 2 February 2018
recommended changes to the EC’s
proposed amendments to EMIR CCP
regulation, with the EP offering more detail
around what EU central banks can require
of third country CCP applicants before
authorisation is granted.
ESAs
The ESAs issued a warning to consumers
on the risks of virtual currencies (VCs) on
12 February 2018, highlighting the risk of
buying or holding VCs. The ESAs indicate
that VCs expose consumers to a variety of
risks which they should fully understand
before buying these products.
ESMA
ESMA published the Findings of its
2017 EU-wide CCP stress test on
2 February 2018, concluding that under
all market scenarios, EU CCPs are
overall resilient to common shocks and
multiple defaults.
ESMA updated its Q&As on BMR on
5 February 2018. It responded to queries
on the use of an index by investment
funds and on calculating the threshold
for commodities benchmarks exempt
from BMR.
ESMA published the official
translations of the Guidelines on MiFID
II product governance requirements on
5 February 2018. NCAs have two
months to comply or explain.
ESMA updated its Q&A:
Implementation of
EMIR on 5 February 2018, to include
new details on accessibility of trade
repository data.
ESMA updated its Short Selling
Regulation Q&A on 5 February 2018,
to provide additional nuance around
the circumstances under which
unissued shares could be used to cover
a short sale.
ESMA published its 2018 Supervisory
Convergence Work Programme
on 7 February 2018. In addition to
MiFID II and Brexit, ESMA will also
focus on the quality of data reporting,
investor protection and financial
innovation. It intends to collaborate
with NCAs to ensure the consistent
application of regulatory requirements.
ESMA updated the MiFID II Q&As on
Transparency on 7 February 2018.
It clarifies pre-trade transparency
waivers for negotiated transactions in
non-equities.
ESMA published its final report on
draft ITS on forms and procedures for
co-operation under Articles 24 and 25
of MAR between NCAs and ESMA on 6
February 2018. The EC has three
months to endorse the ITS.
ESMA published responses to the CP
Amendments to Commission Delegated
Regulation (EU) 2017/587 (RTS 1)
on 7 February 2018, which clarified the
term ‘prices reflecting prevailing market
conditions’ for systematic internaliser
quotes in equity instruments.
ESMA updated its Questions and
Answers on CSDR implementation on
6 February 2018, covering ancillary
services, general organisational
requirements and operational risks.
CSDs providing data reporting services
should comply with MiFID II. CSDs
cannot share a risk committee with an
entity in the same group, though the
committee could have the same
membership and T2S does not qualify as
a critical service provider.
ESMA published its 2018 Risk
Assessment Work Programme on
9 February 2018, providing an overview
of the key analytical, research, data and
statistical activities to be undertaken
in 2018. The results of the risk
assessment feed into ESMA publications
and its contributions to international
regulatory bodies.
ESMA published its 2017 Annual
Report and 2018 Work Programme on
8 February 2018, highlighting data
quality and the quality of the credit
rating process as its key supervisory
priorities for TRs and CRAs respectively.
The work programme also includes
activities for third country CCPs which
focus on assessing outstanding
applications for recognition in the EU.
FCA
The FCA highlighted some recent
and upcoming publications in its
Policy development update on
2 February 2018.
The FCA and the Information
Commissioner’s Office (ICO) published
a joint update on GDPR on 8 February
2018. The FCA states that firms should
implement appropriate governance
arrangements to demonstrate steps
taken towards GDPR compliance.
The FCA and ICO emphasise they will
work closely to support firms during the
implementation of the regulation which
applies in the UK from 25 May 2018.
The FCA published its performance
against service standards, including
dealing with regulatory applications, on
13 February 2018.
The FCA reminded firms holding the
pension transfer and opt out permission
of its pension transfer advice
requirements in a letter (dated
16 January 2018) published on
14 February 2018.
The FCA updated its EMIR news
12 February 2018, confirming that the
EC's equivalence decision on the US
margin rules also extends to the
intragroup exemption.
The FCA published a statement on
proposals to introduce a public register
on 26 February 2018. The FCA confirms
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 12
that it will consult during the summer
on a central public record of SM&CR
certification employees and other
important individuals in FCA
regulated firms.
FRC
The FRC published its Publication
policy regarding decisions under the
Accountancy and Actuarial Schemes on
14 February 2018. It concerns the public
disclosure of decisions and other
information concerning disciplinary
related investigations, other than
those relating to statutory audits dealt
with under its separate Audit
Enforcement Procedure.
The FRC published its Publications
policy (Audit Enforcement Procedure)
on 14 February 2018. It concerns the
public disclosure of decisions and
actions relating to disciplinary
investigations of statutory audits under
its Audit Enforcement Procedure.
HMT
HMT issued Statutory Note 2018 No. 204
on 20 February, correcting S.I. 2018/135
which implements BMR in the UK. The
correction clarifies that pre-existing
administrators benefit from transitional
provisions under BMR for pre-existing as
well as new benchmarks.
IOSCO
IOSCO launched a Consultation Report on
Retail OTC Leveraged Products on 13
February 2018. It proposes policy measures
to reduce the risks to investors offered retail
OTC leveraged products including contracts
for differences, rolling spot forex, and
binary options. The consultation closes on
27 March 2018.
ISDA
ISDA in collaboration with AFME, ICME
and SIFMA published the Benchmark
Transition Roadmap on 1 February
2018. The Roadmap is intended to
provide a baseline of information about
the need to reform interbank offered
rates (IBORs), market use and the
transition to alternative risk-free
reference rates. The organisers plan a
market study and intend to use the
results to develop solutions to ‘reduce
reliance on IBORs with minimal market
disruption’.
ISDA published the Final ISDA
Taxonomy v1.0 and Final ISDA
Taxonomy v2.0 on 20 February 2018.
Taxonomy v1.0 remains an option for
global transaction reporting of OTC
derivatives. Taxonomy v2.0 can be used
to determine product classifications
when generating ISINs for derivatives
under MiFID II.
The ISDA Collateral Infrastructure
Committee issued Best Practice for
Margin Call Issuance and Response
on 20 February 2018. The document
provides required and optional fields
for outgoing margin calls and
responses for counterparties still reliant
on manual processes instead of
electronic messaging.
TC
The TC launched a Digital Currencies
inquiry on 22 February 2018 to understand
the risks and opportunities presented by
digital currencies in the UK, examine the
impact of distributed ledger technology and
assess the regulatory response from the
FCA, BoE and UK Government. Responses
should be submitted by 13 April 2018.
The World Federation of Exchanges
The World Federation of Exchanges
announced its 2018 business priorities on
2 February 2018, focusing on regulatory
coherence, CCP recovery and resolution
issues, cyber security, FinTech and SMEs.
UK Government
The UK Government published its
Response to the Commission on
Dormant Assets’ Report on Tackling
Dormant Assets: Recommendation to
benefit investors and society on 22
February 2018. It agrees with the report
that there is significant potential to
expand the dormant asset scheme to a
wider range of asset classes and outlines
the next steps to achieve this.
The UK Government confirmed plans to
require trustees and scheme managers
of certain occupational pension schemes
to publish more information on costs
and charges, in Disclosure of costs,
charges and investments in DC
occupational pensions – Government
response on 27 February 2018.
Alongside this it issued Guidance for
trustees and managers of
occupational schemes.
World Bank
The World Bank released a report on the
Financial Sector's Cybersecurity
Regulation and Supervision on 26
February 2018. It presents its ideas on
cybersecurity regulation and attempting
to identify the emerging practices in
implementing and supervising
regulations.
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 13
In this section:
Regulation 13 Capital and liquidity 13 Conduct 14 Financial crime and enforcement 14 Innovation 14 Retail products 14
Also this month 15 A brief round up of other regulatory
developments
Regulation
Capital and liquidity ESRB’s final word on macro instruments
The ESRB released its Final report on the
use of structural macroprudential
instruments in the EU on 27 February 2018.
This covers the use of structural regulatory
capital buffers over the last three years.
Based on its current experience, the ESRB
also made changes to its Handbook for
macroprudential authorities.
In addition, it issued a related Opinion to
the EC on how the EU legal framework
could be enhanced to apply the macro
prudential toolkit more effectively.
Nearing finalisation: Pillar 3 disclosure framework
The Basel Committee published consultative
document, Pillar 3 disclosure requirements
– updated framework on 27 February 2018.
This is the third phase of the Committee’s
revisions to Pillar 3 disclosures. It includes
new and revised requirements relating to
the Basel III: Finalising post-crisis reforms
standards published in December 2017 as
well as certain new disclosures. This follows
the January 2015 phase one and March
2017 phase two revisions to Pillar 3. The
finalised post-crisis reform related
changes include:
new requirements to benchmark a
bank’s RWAs as calculated by its
internally modelled approaches, with
RWAs calculated according to the
standardised approaches
revised requirements for credit risk
(including prudential treatment of
problem assets), operational risk, the
leverage ratio and credit valuation
adjustment
revised disclosures that provide an
overview of risk management, key
prudential metrics and RWAs.
The Committee also proposes new
disclosure requirements on asset
encumbrance and capital distribution
constraints. Separately, it seeks feedback on
expanding the scope of application of
disclosures on the composition of regulatory
capital beyond consolidation groups to
resolution groups.
The updated proposed framework
maintains the assurance and governance
provisions from the January 2015 phase
one revision. This requires that disclosures
be subject to at least the same standard of
systems and controls as the management
discussion and analysis component of
annual reports. It also requires attestation
by one or more members of senior
management, at board level or equivalent.
Banking and capital markets
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 14
The new disclosures relating to the
December 2017 finalised standards are due
for implementation from January 2022. But
the asset encumbrance and capital
distribution constraints disclosures are set
to apply from the end of 2019. The
consultation closes on 25 May 2018.
Conduct Certainty in certification
The Banking Standards Board (BSB) issued
guidance on the Certification Regime
(CR) on 20 February 2018.
While not imposing any legal or regulatory
obligations on firms, it illustrates what
good looks like when considering CR
policies and procedures. The Certification
Regime: Fitness and Propriety (F&P)
Assessment Principles and Supporting
Guidance 2: Establishing Pass/Fail Criteria
and Evidencing the F&P
Assessment supplements the BSB’s
February 2017 publication Statement of
Good Practice 1: F&P Assessment
Principles.
The guidance adds more context and depth
to the CR assessment tools in the February
2017 publication. It focuses on:
the F&P factors used in the decision to
certify an individual
options available to firms in making
certification decisions
dealing with certification risks
and issues
good practice in recording the outcome
of an F&P assessment.
The BSB intends to keep the supporting
guidance under review and welcomes
feedback. It plans to issue further guidance
on: assessing the F&P of individuals
working outside the UK or moving to the
UK from overseas, and factors to consider
when sharing information on certified
individuals when they move between firms.
The BSB is set to publish its annual review
later in March 2018. This will provide more
information on the BSB’s work on
implementation of the CR and its proposed
work on regulatory references.
Financial crime and enforcement Protecting payment scam victims
The PSR published its report on Authorised
push payment scams: Outcome of
consultation on the development of a
contingent reimbursement model together
with a Factsheet and Responses to the
Consultation on 28 February 2018.
The PSR identifies authorised push
payment (APP) scams - where consumers
are tricked into sending money to a
fraudster – As crimes with a devastating
effect on victims. Under its contingent
reimbursement model (CRM), PSPs that do
not meet required standards will reimburse
consumers who have acted appropriately.
Stakeholders had a wide range of views on
the introduction of a CRM but the PSR
considers that they are broadly supportive
of a well-designed CRM. It is setting up a
steering group in March 2018 with an
independent head and representatives from
industry and consumer groups. With
oversight and support from the PSR, the
steering group will formalise the CRM into
an industry code for reimbursement of APP
scam victims.
With victims in mind, the PSR is setting the
steering group the ambitious target of
producing an interim code by September
2018. This would allow FOS to take the
interim code into account in determining
new complaints about APP scams. After a
public consultation in Q4 2018, the PSR
aims to have a final code in place by
early 2019.
PSPs wary of the PSR’s ambitious timeline
should heed its warning in the consultation
that, if a suitable model is not agreed by the
end of September 2018, it will consider
using its statutory powers to introduce an
alternative model.
Innovation Exploring FinTech risks and opportunities
The Basel Committee published Sound
Practices – Implications of FinTech
developments for banks and bank
supervisors on 19 February 2018. It
observes that FinTech has the potential to
lower barriers of entry to the financial
services market, elevate the role of data as a
key commodity and lead to the emergence
of new business models. Through an
analysis of a range of scenarios, the
Committee identifies ten key implications
and related considerations. These concern
both banks and banking systems as well as
bank supervisors and regulatory
frameworks. They include risks and
opportunities, as well as supervisory
cooperation and facilitating innovation.
A common theme emerging, the Committee
notes, is that incumbent banks could find it
increasingly difficult to maintain their
current operating models with the
ownership of customer relationships a key
competitive issue. The Committee intends
to keep monitoring FinTech developments
with a view to updating its implications and
considerations, as appropriate.
Retail products Tackling persistent credit card debt
The FCA published PS18/4 Credit card
market study: Persistent debt and earlier
intervention – feedback to CP17/43 and
final rules on 27 February 2018. It
completes the FCA’s work to address
persistent debt, which it defines as when,
over an 18-month period, a credit card
customer pays more in interest, fees and
charges than they repay in principal.
The final rules confirm the FCA’s proposals
in CP 17/43, with the exception of a new
carve out for business credit cards used by
sole traders, small partnerships and
unincorporated bodies. The new rules apply
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 15
from 1 March 2018 but firms have until
1 September 2018 to comply.
Over the next six months, firms will need to:
put in place processes to identify and
contact customers in persistent debt at
key milestones of 18, 27 and 36 months
develop a communications strategy
tailored to the circumstances of the
individual customer and in the medium
preferred by the customer
have a policy for identifying and dealing
with customers showing signs of actual
or possible financial difficulties even if
they have not missed a payment
define the parameters at 36 months for
sustainable repayment plans and/or
forbearance
ensure staff are trained to respond to
customers’ circumstances appropriately.
The FCA plans to monitor its remedies
during the implementation period and
assess the effectiveness of industry
voluntary remedies. It expects to undertake
a full review of the effectiveness of the
new rules in 2022 or 2023, once they've
been in force long enough to assess
consumer outcomes.
Also this month
CMA
The CMA announced that all banks with
more than 150,000 active current
accounts must issue overdraft alerts from
2 February 2018. The alerts via text or
banking app apply to new customers from
the start date with a roll-out to existing
customers over the coming month.
It represents part of the CMA’s package
of remedies under its retail banking
market investigation.
Committee on Payments and Market Infrastructures
The Committee on Payments and Market
Infrastructures reported on Cross-border
retail payments on 16 February 2018. It
identifies issues and challenges in the
market, drawing on a survey of almost 100
providers and workshops with stakeholders
from both supply and demand sides.
EBA
The EBA published its presentation
from the public hearing on its
Discussion Paper on the
Implementation in the EU of the
revised market risk and counterparty
credit risk frameworks held on
5 February 2018. The consultation
closes on 15 March 2018.
The EBA published the Guidelines
compliance table: Guidelines on
procedures for complaints of alleged
infringements of Directive (EU)
2015/2366 (PSD2) on 12 February 2018.
The EBA updated its Methodological
guide – risk indicators and detailed risk
analysis tools on 8 February 2018. The
EBA uses the indicators and analysis
tools in its risk assessment reports and
for its risk dashboard.
ECJ
The ECJ confirmed on 8 February 2018 that
a co-branding or agent arrangement with a
three party payment card scheme is subject
to interchange fee caps and three party
payment card schemes must grant access
to its scheme to agents but not to co-
branding partners.
ECON
ECON published four amendments to a
draft report on the proposal for a regulation
to relocate the EBA on 23 February 2018.
The key amendment seeks to ensure that
the new premises for the EBA are ready and
fit for purpose when the UK exits the EU.
House of Commons
The House of Commons Library published a
briefing paper on High cost consumer
credit: the new regulatory regime (CBP-
07978) on 15 February 2018. It reviews
changes in the HCSTC regulatory regime
and compares recent reports by the FCA,
the Consumer Finance Association and the
Social Market Foundation.
PRA
The PRA published a Direction and
Modification by consent of Fitness and
Propriety 2.7 on 7 February 2018.
The modification exempts firms from
requesting regulatory references (under
SMR) in relation to employees being
transferred as part of a ring-fencing
transfer. The modification is available
until 31 August 2018.s
PSR
The PSR published its Specific direction 7
relating to Direct Debit Facilities
Management: Switching Providers with a
commencement date of 30 January 2018 on
16 February 2018. It directs Bacs Payment
Schemes Limited to devise and deliver a
solution to the issues with switching
facilities management provider as identified
by the PSR in PS17/3.
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 16
In this section:
Regulation 16 Liquidity 16 Trading 17
Accounting 17 Our publications 17
Also this month 17 A brief round up of other regulatory
developments
Regulation
Liquidity IOSCO addresses fund liquidity management
IOSCO published recommendations and
good practices for investment fund liquidity
management on 1 February 2018.
While many of these recommendations have
already been implemented in the UK and
EU, IOSCO underscores many of the points
the FCA raised in a 2017 Discussion Paper
about the importance of sophisticated stress
testing and improved disclosure around the
use of liquidity fees and redemption gates.
This makes a future FCA consultation paper
on these topics more likely.
IOSCO's concerns about open-ended funds
holding illiquid assets and the use of
emergency liquidity measures in certain
circumstances may also signal further
regulatory activity. They may mean that the
FCA will look at the appropriateness of
investment fund approaches in these areas
as part of future thematic reviews and
enforcement actions.
Addressing fund liquidity and leverage risk
The ESRB published a Recommendation on
liquidity and leverage risk in investment
funds on 14 February 2018, to strengthen
the macroprudential framework of EU
investment fund regulation.
The ESRB recommends that the EU
establish a common legislative framework
to govern liquidity management tools, so
that fund managers would be equally
empowered across the EU to incorporate
these measures into their funds'
constitutional documents. The ESRB also
suggests increased stress testing, uniformity
of UCITS reporting and that ESMA develops
the design, calibration and implementation
of leverage limits.
While the ESRB's findings will not
immediately result in changes to EU
legislation, they do build on previous
findings by IOSCO and the FSB, and will
provide important context when the FCA
tackles this issue.
Asset management
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 17
Trading A closer look at last look
The IA issued a Position Paper on Last Look
on 22 February 2018, recommending
transparency standards on the use of last
look for liquidity providers, trading venues
and its own buy-side members.
Under the practice of last look, liquidity
providers accept or reject a foreign
exchange (FX) trade at the quoted price
before execution. Its use was the subject of
much debate during the drafting of the
Global FX Code of Conduct. The IA
recommends that liquidity providers:
provide each client with a definition of
last look
publish their last look procedures
annually
provide real-time notification when and
why the procedure is applied,
using standardised reason codes.
Importantly, the IA also establishes
unacceptable practices to prevent the
misuse of client information. It
recommends that liquidity providers state
in their terms of business that they will not
engage in pre-hedging during a last look
window, or execute trades based on
information in rejected trades or based on
information derived from lost requests for
quotes which are in progress or those that
are not won.
Accounting
Our publications Financial instruments accounting for asset management
IFRS 9 – Financial Instruments is effective
for annual periods beginning on or after 1
January 2018, subject to endorsement in
certain territories. It replaces most of the
guidance in IAS 39.
Our publication IFRS 9 What’s new in
financial instruments accounting for asset
management focuses on the new guidance
in IFRS 9 and the questions that might arise
when applying it to financial instruments
held by investment funds, private equity
funds and real estate funds, as well as to
investments in an investment fund held by
an investor. The main areas covered in this
publication relate to the classification and
measurement of financial assets.
Also this month
CMA
The CMA published Investment
Consultants Market Investigation:
Progress Report on 21 February 2018,
outlining its existing activity, the schedule
of working papers to be published and the
overall timeline of the investigation.
EC
The EC published its online survey of the
effectiveness of AIFMD on 9 February
2018, to gather stakeholder feedback ahead
of its review of the Directive. The survey
questions address the effectiveness of
disclosure.
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 18
In this section:
Regulation 18 Actuarial risk 18 Capital and liquidity 18 Conduct 18 Consumer issues 19 Disclosure and distribution 19 Financial stability 19 Retail products 20 Solvency II 20 Supervision 21
Accounting 21 IFRS 17 21
Also this month 22 A brief round up of other regulatory
developments
Regulation
Actuarial risk JFAR identifies actuarial risk ‘hotspots’
The Joint Forum on Actuarial Regulation
(JFAR) published its Risk Perspective: 2017
Update on 8 February 2018. It highlights
current risks to high quality actuarial work
and identifies nine ‘hotspots’ where there is
a perceived increase in risk to the public
interest where actuarial work is central.
These include political and legislative risk,
market performance and uncertainty,
climate-related risk and technological
change. The JFAR also recognises common
themes that cut across the hotspots such as
professionalism, intergenerational fairness
and Brexit.
Capital and liquidity Market/credit risk – EIOPA outlines study
EIOPA published the Decision of the Board
of Supervisors on the annual market and
credit risk modelling comparative study on
12 February 2018. It formally defines the
scope, features, process, format and
frequency of EIOPA’s annual market and
credit risk modelling comparative study to
ensure consistency.
EIOPA intends to undertake this study to
review aspects of risk associated with
interest rates, credit spread, equity and real
estate. It also wants to compare the
calibrations of different aspects of market
and credit risks of undertakings with
internal models that include market and
credit risks.
Conduct PRA develops SM&CR for insurers
The PRA published PS 1/18 Strengthening
individual accountability in insurance:
optimisations to the SIMR on 7 February
2018. It gives feedback on its proposed
improvements to the SIMR (CP 8/17 –
chapter 2) and proposals for diversity on the
boards of insurers (CP 8/17 – chapter 3).
The PRA also includes final rules amending
the SIMR and updates SS 35/15
‘Strengthening individual accountability
in insurance’.
The PRA has not made any significant
changes to the draft rules proposed in
CP8/17. But the updated supervisory
statement incorporates the changes
proposed in CP14/17 to remove gender-
based language and terminology, as none of
the respondents included comments on
those proposals.
Insurance
Executive summary Regulators hone in on
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Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 19
The rule requiring insurers to have a
diversity policy for their boards will become
effective on 9 April 2018. The rules to
implement the optimisations to the SIMR
are due to take effect from 10 December 2018,
the date set by HMT for the commencement
of the SM&CR for insurers. The PRA
expects insurers to submit the forms for the
approval of individuals who will perform the
Chief Operations function (SIMF24) or the
Head of Large Business Area function
(SIMF6) from 10 December 2018.
The PRA intends to publish a further policy
statement in the summer of 2018 to provide
feedback to the responses to CP14/17 and
CP28/17, along with final rules, forms and a
further update to SS35/15.
Consumer issues IAIS outlines digital technology guidance
The IAIS published a Draft Application
Paper on the Use of Digital Technology in
Inclusive Insurance on 15 February 2018. It
builds on its Issues Paper on Conduct of
Business in Inclusive Insurance which deals
with the fair treatment of customers within
inclusive insurance markets.
The IAIS defines inclusive insurance
broadly as all insurance products aimed at
the excluded or underserved market. It aims
to help policymakers, regulators and
supervisors implementing regulatory
regimes address the issue of digital
technology in inclusive insurance. In
particular it considers mobile phone
insurance – any insurance sold or
subscribed to through a mobile phone
and/or in partnership with a mobile
network operator. The IAIS also examines
aspects of FinTech and InsurTech relating
to inclusive insurance.
The IAIS further considers how its
Insurance Core Principles should be
applied, focusing on supervision, licensing,
corporate governance and risk
management, conduct of business and
financial integrity.
The comment period ends on
16 March 2018.
Disclosure and distribution UK regulators confirm IDD implementation plans
HMT intends to lay the Insurance
Distribution (Regulated Activities and
Miscellaneous Amendments) Order 2018
before Parliament once the process to delay
the IDD application date to 1 October 2018
is formally complete. Meanwhile, the FCA
published an Update to proposed delay on
the IDD on 5 February 2018. It plans to
make its final rules once the IDD is
transposed into UK law, but does not
expect the final rules to differ greatly from
those published in near-final form on
19 January 2018.
The PRA published an updated version of
PS31/17 on 22 February 2018 following a
one-week consultation on the change to the
commencement date (CP4/18). It updates
the effective date of its near-final rules in
line with the new application date of the
IDD of 1 October 2018. It makes no changes
to policy.
On the EU side, the Council approved the
EC’s proposed delay to the application date
of the IDD on 14 February 2018, with the
following amendments:
in order to ensure legal certainty and
avoid potential market disruption, it is
necessary that this Directive enters into
force as a matter of urgency and that it
applies, with retroactive effect, from 23
February 2018
by 1 July 2018, Member States shall
adopt and publish the measures
necessary to comply with the IDD
Member States shall apply the measures
from 1 October 2018 at the latest.
The EP adopted the amended text in
plenary on 1 March 2018.
EIOPA plans base PII increase
The IDD requires intermediaries to hold
professional indemnity insurance (PII) or a
comparable guarantee against liability
arising from professional
negligence. EIOPA published a CP on the
proposal for RTSs adapting the base euro
amounts for PII and for financial capacity
of intermediaries under the IDD on 1
February 2018. It proposes increasing
minimum PII requirements following
changes in Eurostat’s European index of
consumer prices.
EIOPA intends to increase the minimum
level of cover for each claim from €1.25m to
€1.3m and the aggregate cover from €1.85m
to €1.92m per year. It also plans to increase
minimum intermediary financial capacity
from €18,750 to €19,510.
EIOPA aims to finalise the draft RTS for
submission to the EC by 30 June 2018.
Financial stability EIOPA considers lessons from financial crisis
EIOPA published Systemic risk and
macroprudential policy in insurance on
6 February 2018. This is the first in a series
of papers aimed at contributing to the
debate on systemic risk and
macroprudential policy. In the report,
EIOPA considers the lessons learnt from the
financial crisis and the banking sector
affecting the insurance sector, as well as the
current status of debate within the industry.
It identifies and analyses the sources of
Executive summary Regulators hone in on
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Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 20
systemic risk in insurance, outlining three
potential sources: entity-based, activity-
based and behaviour-based.
The paper also includes a proposal for a
macroprudential framework for insurance,
and defines specific operational objectives
based on the previously-identified sources
of systemic risk.
Retail products EP identifies driverless vehicle legislation benefits
The EP published A common EU approach
to liability rules and insurance for
connected and autonomous vehicles on
28 February 2018. It recommends revising
the EU's current legislative framework for
liability rules and insurance for connected
and autonomous vehicles. The EP believes
that revising the requirements should lead
to greater legal certainty and secure
effective consumer protection.
But it also expects to see economic benefits
based on reduced costs for car
manufacturers and public administrations
arising from differences in national liability
rules and systems for the determination and
calculation of damages. It notes that
potentially accelerating the adoption curve
of driverless or autonomous vehicles by five
years has the potential to generate European
added value worth approximately €148bn.
Solvency II EIOPA publishes quarterly reporting statistics
EIOPA issued a new set of Solvency II
statistics on 13 February 2018. It is part of
EIOPA’s series of quarterly insurance
statistics derived from quantitative
Solvency II reporting for insurance
undertakings and groups in the EU
and EEA.
It includes statistics by country relating to
the balance sheet, own funds and
premiums, claims and expenses. These
statistics are based on reporting by solo
insurance and reinsurance undertakings for
Q3 2016 to Q2 2017.
Standard Formula – EIOPA advises on changes
EIOPA published its second set of advice to
the EC on specific items in the Solvency II
Delegated items in Regulation and Review
of the SCR Standard Formula Frequently
Asked Questions on 28 February 2018. It
recommends further ways of simplifying
and improving the Solvency II capital
requirements calculations, following its first
set of Advice in October 2017.
In the latest advice, EIOPA addresses the
remaining items from the EC’s calls for
technical advice.
EIOPA proposes changes to the design of
the interest rate risk module aimed at
making it more effective in a low interest
rate environment. It intends to introduce
these changes gradually over a three-year
period as they may result in an increase to
capital charges. EIOPA also proposes new
key principles for calculating the loss-
absorbing capacity of deferred taxes aimed
at increasing supervisory convergence, but
these could reduce the credit that insurers
can take for this item. EIOPA plans to
introduce criteria for certain items of
unrated debt and unlisted equity to be
treated the same as rated debt and
listed equity.
In addition, EIOPA proposes to update the
standard formula calibrations in some areas
(e.g. premium and reserve risk, natural
catastrophe risk) and make changes
intended to lead to greater simplicity and/or
proportionality in a number of areas. The
EC intends to finalise its SCR review by the
end of 2018.
Regarding the risk margin, despite
stakeholder discontent, EIOPA does not
recommend any change to the current cost
of capital calculation methods. Other
components of the risk margin will not be
assessed until the overall review of the
Solvency II regime, due in 2021.
For more information see our At a Glance
publication.
PRA submits final response to TC
The PRA published its response to the TC’s
inquiry into Solvency II on 27 February
2018. It sets out its views on the TC’s
recommendations in the Report on the
Solvency II Directive and its impact on the
UK Insurance Industry. It builds on the
areas discussed in its interim response of 3
January 2018 (see our publication The PRA
responds to TC report on Solvency II for
further details).
The PRA includes an overview of the UK
insurance industry and sets out the
rationale for the prudential regulation of
insurers. It also considers the design and
impact of Solvency II in the UK, including
a comparison to the previous
prudential regime.
The PRA intends to set up a new, insurance-
focused sub-committee of its Practitioner
Panel to enhance its engagement with
industry and re-orient it towards
the strategic challenges facing life and non-
life sectors.
The PRA highlights that, whilst it's
committed to making improvements to
Solvency II implementation in the UK, it is
restricted by the detailed, rules-based
nature of the requirements. It then
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Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 21
discusses the TC’s recommendations in
detail covering the MA, the Volatility
Adjustment, reporting requirements, the
TMTP, internal models and contractual
continuity after Brexit. It also looks at other
policy issues raised by the ABI during the
inquiry, such as the external audit of the
Solvency and Financial Condition Report,
longevity transfer and hedge arrangements
and LEIs.
The PRA plans to provide a further update
in due course on any outstanding issues,
including the risk margin.
In addition, the PRA published Looking out
for the policyholder, a speech by Sam
Woods, Deputy Governor for Prudential
Regulation and CEO of the PRA, on 27
February 2018. Woods discussed the PRA’s
reforms to make Solvency II work better in
the UK and noted that the PRA intends to
tackle the acknowledged problems with the
risk margin. He also highlighted the need to
remember the policyholder and maintain
high standards of safety and soundness for
UK insurers
PRA highlights importance of AFRs
The PRA published a letter to Chief
Actuaries on General insurance Actuarial
Function Reports (AFRs) on 5 February
2018. It gives feedback from its review of
AFRs, including: areas where Solvency II
requirements are not always being met,
emerging good practice in AFRs, and areas
where actuarial functions can be more
engaged with boards and risk management.
The PRA especially stresses that boards
should view the AFR as an important tool,
rather than merely a Solvency II compliance
exercise. It comments that the better AFRs
clearly identify the key issues and
recommendations for the board analysed at
an appropriate level of materiality and
complexity. It also finds that the more
effective actuarial function processes
demonstrate good board engagement and a
feedback loop where recommendations to
remedy deficiencies are followed up.
Overall, the PRA concludes it has seen some
good examples of analysis being discussed
with boards. But it says many firms need to
make enhancements to be fully compliant
with Solvency II and to ensure the actuarial
function work drives improvements across
all relevant areas.
Supervision Progressing EU-US deal on prudential measures
The EP published its Recommendation on
the draft Council decision on the conclusion
of the Bilateral Agreement between the EU
and the USA on prudential measures
regarding insurance and reinsurance on
14 February 2018. It consents to the
conclusion of the Bilateral Agreement and
instructs its President to forward its
position to the Council, the EC and the
governments and parliaments of the
Member States and of the US.
The EP voted in favour of the Bilateral
Agreement on 1 March 2018 and the EU-US
Joint Committee met for the first time on 6-
7 March 2018.
The group supervision element of the
agreement is effective, so firms
headquartered in the US should consider its
impact. For further information see our At a
Glance publication.
Accounting
IFRS 17 IFRS 17 implementation – TRG holds initial discussions
The first Transition Resource Group for
IFRS 17 Insurance Contracts (TRG) meeting
was held on 6 February 2018. The issues
discussed relate to: separation of insurance
contracts, contract boundary of insurance
contracts and reinsurance contracts held,
quantity of benefits for identifying coverage
units, and the accounting for and
presentation of insurance acquisition cash
flows. Our In transition – The latest on
IFRS 17 implementation looks at the details.
IFRS 17 – EFRAG discusses Level of Aggregation
The European Financial Reporting Advisory
Group (EFRAG) issued a briefing paper
considering IFRS 17 Insurance Contracts
and Level of Aggregation on 23 February
2018. It aims to provide simplified
information on controversial areas of IFRS
17 to enable users to understand the issues
and be in a position to comment on its draft
endorsement advice. The comment period
ends on 30 April 2018.
EFRAG plans to issue further background
briefing papers on the release of the
contractual service margin and
transition requirements.
FRC asks for IFRS 17 insight
The European Financial Reporting Advisory
Group (EFRAG) launched an IFRS 17
simplified case study on 7 February 2018. It
aims to collect additional insight on the
impact of IFRS 17 from European insurers
that apply IFRS, and that are not
completing the full, more detailed, case
study commenced in November 2017. The
response period ends on 31 May 2018.
The FRC encourages insurers to participate
in the EFRAG case study and published
details of a Panel Discussion: Assessing the
benefits and barriers to implementing
IFRS 17 to be held on 24 April 2018.
Executive summary Regulators hone in on
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Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 22
Also this month
EIOPA
In February 2018, EIOPA updated its
questions and answers on:
Commission Delegated Regulation (EU)
2015/35 supplementing Directive
2009/138
(EU) No 2015-2450 templates for the
submission of information to the
supervisory authorities
(EU) No 2015-2452 with regard to the
procedures, formats and templates of
the SFCR
(EU) No 2015-2011 with regard to the
lists of regional governments and
local authorities
Guidelines on system of governance
Symmetric adjustment of the
equity capital
Risk-Free Interest Rate – Volatility
Adjustment calculations.
IAIS
The IAIS released the IAIS Global
Insurance Market Report 2017 on 27
February 2018. It discusses the global
insurance sector from a supervisory
perspective, focusing on recent sector
performance and key risks. For 2017 it finds
the insurance sector stable with clear signs
of growth, as evidenced by high capital
levels, positive profitability and a persistent
inflow of additional reinsurance capital.
Lloyd’s Market Association
The Lloyd’s Market Association published
guidance for consumers on 16 February
2018 explaining how personal data may be
processed by data controllers. This includes
factors relevant to classifying a market
participant as either a data controller or
data processor as defined by the GDPR.
Executive summary Regulators hone in on
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Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 23
Open consultations
Closing date for responses
Paper Institution
12/03/18 FCA Mission: Our Approach to Authorisation FCA
12/03/18 FCA Mission: Our Approach to Competition FCA
14/03/18 Fitness check on supervisory reporting EC
15/03/18 Draft RTS on the homogeneity of the underlying exposures in securitisation under Art. 20(14) and 24(21) of the Securitisation Regulation
EBA
15/03/18 Draft RTS specifying the requirements for originators, sponsors and original lenders relating to risk retention pursuant to Article [6(7)] of the Securitisation Regulation
EBA
16/03/18 Draft Application Paper on the Use of Digital Technology in Inclusive Insurance IAIS
19/03/18 Draft technical standards on content and format of the STS notification under the Securitisation Regulation ESMA
19/03/18 Draft technical standards on disclosure requirements, operational standards, and access conditions under the Securitisation Regulation
ESMA
19/03/18 Draft technical standards on third-party firms providing STS verification services under the Securitisation Regulation ESMA
20/03/18 CP27/17: Solvency II: Internal models update PRA
23/03/18 Stress testing principles Basel Committee
23/03/18 CP18/4: The European Money Market Funds Regulation FCA
27/03/18 Report on retail OTC leveraged products IOSCO
31/03/18 ECB Guide on assessment methodology: Assessment methodology for the IMM and A-CVA ECB
Monthly calendar
Executive summary Regulators hone in on
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Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 24
Closing date for responses
Paper Institution
03/04/18 Consultation on a new rule for Central Counterparties relating to incident reporting BoE
04/04/18 Conflicts of interest and associated conduct risks during the equity capital raising process IOSCO
09/04/18 CP1/18 Resolution planning: MREL reporting PRA
13/04/18 CP2/18 Changes in insurance reporting requirements PRA
22/04/18 CP18/3: Consultation on SME access to the FOS and Feedback to DP15/7: SMEs as Users of Financial Services FCA
27/04/18 Proposal for RTS adapting the base euro amounts for professional indemnity insurance and for financial capacity of intermediaries under the IDD
EIOPA
07/05/18 CP5/18: Algorithmic trading PRA
16/05/18 CP6/18 Credit risk mitigation: Eligibility of guarantees as unfunded credit protection PRA
25/05/18 Pillar 3 disclosure requirements – updated framework Basel Committee
Executive summary Regulators hone in on
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Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 25
Forthcoming publications in 2018
Date Topic Type Institution
Accounting
TBD 2018 RTS on methods of prudential consolidation Technical standards EBA
Asset management
TBD 2018 UCITS V Level 2 Regulation, SFTR and consequential changes to the Handbook – PS to CP16/14
Policy statement FCA
Conduct
March 2018 Potential benefits and risks of Big Data and consumer information Report EBA
Spring 2018 Mortgage market study interim report Report FCA
May 2018 Results of high cost credit review and consultation on remedies Report and consultation FCA
Q4 2018 Mortgage market study final report Report FCA
Financial crime, security and market abuse
TBD 2018 RTS on central contract points under AMLD4 Technical standards EBA
Insurance
March 2018 PRA response to TC Solvency II review Report PRA
Innovation
March 2018 Conclusions from the EBA’s consultation on its approach to FinTech Report EBA
Pensions
TBD 2018 Secondary annuity market – PS to CP16/13 Policy statement FCA
Prudential
March 2018 Report on review of credit risk mitigation framework Report EBA
Executive summary Regulators hone in on
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Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 26
Date Topic Type Institution
Securities and markets
TBD 2018 Technical standards on Securitisation Regulation Technical standards ESMA
TBD 2018 Technical advice and standards on Prospectus Regulation Technical standards ESMA
TBD 2018 Technical standards under EuSEF, EuVECA, ELTIF and SFTR Technical standards ESMA
TBD 2018 Technical standards on revised Short Selling Regulation Technical standards ESMA
Supervision, governance and reporting
March 2018 Recovering the costs of the Office for Professional Body AML Supervision: fees proposals – PS to CP17/35
Policy statement FCA
April 2018 Regulatory fees and levies: policy proposals for 2018/19 – PS to CP17/38
Policy statement FCA
April 2018 FCA regulated fees and levies: rates proposals 2018/19 Consultation FCA
Q2/Q3 2018 Reviewing the funding of the FSCS – PS to CP17/36 Policy statement FCA
Main sources: ESMA work programme; EBA work programme; EC work programme; FCA policy development updates.
Executive summary Regulators hone in on
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Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 27
ABC Anti-Bribery and Corruption
ABI Association of British Insurers
ABS Asset Backed Security
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Managers Directive 2011/61/EU
AML Anti-Money Laundering
AMLD3 3rd Money Laundering Directive 2005/60/EC
AMLD4 4th Money Laundering Directive 2015/849/EU
AMLD5 5th Money Laundering Directive
AQR Asset Quality Review
ASB UK Accounting Standards Board
Banking Reform Act (2013)
Financial Services (Banking Reform) Act 2013
Basel II Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework
Basel III Basel III: International Regulatory Framework for Banks
Basel Committee
Basel Committee of Banking Supervision (of the BIS)
BBA British Bankers’ Association
BCR Basic capital requirement (for insurers)
BIS Bank for International Settlements
BoE Bank of England
BMR EU Benchmarks Regulation
BRRD Bank Recovery and Resolution Directive 2014/59/EU
CASS Client Assets sourcebook
CCA Consumer Credit Act 1974 (as amended)
CCB Countercyclical capital buffer
CCD Consumer Credit Directive 2008/48/EC
CCPs Central Counterparties
CDS Credit Default Swaps
CEBS Committee of European Banking Supervisors (predecessor of EBA)
CESR Committee of European Securities Regulators (predecessor of ESMA)
CET1 Common Equity Tier 1
CFTC Commodities Futures Trading Commission (US)
CGFS Committee on the Global Financial System (of the BIS)
CIS Collective Investment Schemes
CMA Competition and Markets Authority
CMU Capital markets union
COBS FCA conduct of business sourcebook
COCON FCA code of conduct sourcebook
CoCos Contingent convertible securities
COREP Standardised European common reporting
Council Generic term representing all ten configurations of the Council of the European Union
CRA1 Regulation on Credit Rating Agencies (EC) No 1060/2009
CRA2 Regulation amending the Credit Rating Agencies Regulation (EU) No 513/2011
CRA3 Proposal to amend the Credit Rating Agencies Regulation and directives related to credit rating agencies COM(2011) 746 final
Glossary
Executive summary Regulators hone in on
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Cross sector announcements
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CRAs Credit Rating Agencies
CRD ‘Capital Requirements Directive’: collectively refers to Directive 2006/48/EC and Directive 2006/49/EC
CRD II Amending Directive 2009/111/EC
CRD III Amending Directive 2010/76/EU
CRD IV Capital Requirements Directive 2013/36/EU
CRR Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms
CSD Central Securities Depository
CSDR Central Securities Depositories Regulation (EU) 909/2014
CSMAD Criminal Sanctions Market Abuse Directive 2014/57/EU
CTF Counter Terrorist Financing
DEPP The FCA’s Decision Procedure and Penalties Manual
DG FISMA Directorate-General for Financial Stability, Financial Services and Capital Markets Union
DG MARKT Internal Market and Services Directorate General of the European Commission
DGS Deposit Guarantee Scheme
DGSD Deposit Guarantee Schemes Directive 2014/49/EU
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act (US)
D-SIBs Domestic Systemically Important Banks
EBA European Banking Authority
EC European Commission
ECB European Central Bank
ECJ European Court of Justice
ECOFIN Economic and Financial Affairs Council (configuration of the Council of the European Union dealing with financial and fiscal and competition issues)
ECON Economic and Monetary Affairs Committee of the European Parliament
ECP Eligible counterparty
EDIS European Deposit Insurance Scheme
EEA European Economic Area
EEC European Economic Community
EIOPA European Insurance and Occupations Pension Authority
ELTIF European long-term investment fund
EMIR Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (EU) No 648/2012
EP European Parliament
EPC European Payments Council
ESA European Supervisory Authority (i.e. generic term for EBA, EIOPA and ESMA)
ESCB European System of Central Banks
ESEF European Single Electronic Format
ESMA European Securities and Markets Authority
ESRB European Systemic Risk Board
EU European Union
EURIBOR Euro Interbank Offered Rate
Eurosystem System of central banks in the euro area, including the ECB
EuVECA European Venture Capital Funds Regulation (EU) 345/2014
FAMR Financial Advice Market Review
FASB Financial Accounting Standards Board (US)
FATCA Foreign Account Tax Compliance Act (US)
FATF Financial Action Task Force
FC Financial counterparty under EMIR
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 29
FCA Financial Conduct Authority
FICC Fixed income, currencies and commodities
FiCOD Financial Conglomerates Directive 2002/87/EC
Fiat currency Currency whose value is underpinned by the strength of the issuing government, e.g. USD, GBP, euro and other major world currencies
FiCOD1 Amending Directive 2011/89/EU of 16 November 2011
FMI Financial Market Infrastructure
FMLC Financial Markets Law Committee
FOS Financial Ombudsman Service
FPC Financial Policy Committee
FRC Financial Reporting Council
FSA Financial Services Authority
FSB Financial Stability Board
FSBRA Financial Services (Banking Reform) Act 2013
FS Act 2012 Financial Services Act 2012
FSCP Financial Services Consumer Panel
FSCS Financial Services Compensation Scheme
FSI Financial Stability Institute (of the BIS)
FSMA Financial Services and Markets Act 2000
FSOC Financial Stability Oversight Council
FTT Financial Transaction Tax
G30 Group of 30
GAAP Generally Accepted Accounting Principles
GDPR General Data Protection Regulation
G-SIBs Global Systemically Important Banks
G-SIFIs Global Systemically Important Financial Institutions
G-SIIs Global Systemically Important Institutions
HCSTC High Cost Short Term Credit
HMRC Her Majesty’s Revenue and Customs
HMT Her Majesty’s Treasury
IA Investment Association
IAIS International Association of Insurance Supervisors
IASB International Accounting Standards Board
IBA ICE Benchmark Administration
ICAAP Internal Capital Adequacy Assessment Process
ICAS Individual Capital Adequacy Standards
ICOBS Insurance: Conduct of Business Sourcebook
IDD The Insurance Distribution Directive (EU) 2016/97
IFRS International Financial Reporting Standards
ILAA Internal Liquidity Adequacy Assessment
ILAAP Internal Liquidity Adequacy Assessment Process
ILS Insurance-Linked Securities
IMAP Internal Model Approval Process
IMCO The European Parliament’s Committee on Internal Market and Consumer Protection
IMD Insurance Mediation Directive 2002/92/EC
IMF International Monetary Fund
IORP Institutions for Occupational Retirement Provision
IOSCO International Organisations of Securities Commissions
IRB Internal Ratings Based
ISDA International Swaps and Derivatives Association
ITS Implementing Technical Standards
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 30
JCESA Joint Committee of the European Supervisory Authorities
JMLSG Joint Money Laundering Steering Committee
KID Key Information Document
KYC Know your client
LCR Liquidity coverage ratio
LEI Legal Entity Identifier
LIBOR London Interbank Offered Rate
MA Matching Adjustment
MAD Market Abuse Directive 2003/6/EC
MAR Market Abuse Regulation (EU) 596/2014
Material Risk Takers Regulation
Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the EP and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile
MCD Mortgage Credit Directive 2014/17/EU
MCOB Mortgages and Home Finance: Conduct of Business sourcebook
MCR Minimum Capital Requirement
Member States Countries which are members of the European Union
MiFID Markets in Financial Instruments Directive 2004/39/EC
MiFID II Markets in Financial Instruments Directive (recast) 2014/65/EU – also used to refer to the regime under both this directive and MiFIR
MiFIR Markets in Financial Instruments Regulation (EU) No 600/2014
MLRO Money Laundering Reporting Officer
MMF Money Market Fund
MoJ Ministry of Justice
MoU Memorandum of Understanding
MPC Monetary Policy Committee
MREL Minimum requirements for own funds and eligible liabilities
MTF Multilateral Trading Facility
NBNI G-SIFI Non-bank non-insurer global systemically important financial institution
NCA National competent authority
NDF Non-Directive Firms – firms that do not fall within Solvency II
NFC Non-financial counterparty under EMIR
NIS Directive Proposal for a directive of the EP and Council concerning measures to ensure a high common level of network and information security across the EU
NSFR Net Stable Funding Ratio
NST National specific template
NURS Non-UCITS Retail Scheme
OECD Organisation for Economic Cooperation and Development
Official Journal Official Journal of the European Union
OFT Office of Fair Trading
Omnibus II Second Directive amending existing legislation to reflect Lisbon Treaty and new supervisory infrastructure (2014/51/EU). Amends the Prospectus Directive (Directive 2003/71/EC) and Solvency II (Directive 2009/138/EC)
ORSA Own Risk Solvency Assessment
O-SIIs Other systemically important institutions
OTC Over-The-Counter
OTF Organised trading facility
PAD Payment Accounts Directive 2014/92/EU
PIFs Personal investment firms
PPI Payment Protection Insurance
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 31
P2P Peer to Peer
PERG Perimeter Guidance Manual
PRA Prudential Regulation Authority
Presidency Member State which takes the leadership for negotiations in the Council: rotates on 6 monthly basis
PRIIPs Packaged retail and insurance-based investment products
PSD2 The revised Payment Services Directive (EU) 2015/2366
PSP Payment service provider
PSR Payment Systems Regulator
QIS Quantitative Impact Study
QRT Quantitative Reporting Template
RAO Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544)
RDR Retail Distribution Review
REMIT Regulation on wholesale energy markets integrity and transparency (EU) 1227/2011
RFB Ring-fenced bank
RFQ Request for quote
RONIA Repurchase Overnight Index Average
RRPs Recovery and Resolution Plans
RTS Regulatory Technical Standards
RWA Risk-weighted assets
SCR Solvency Capital Requirement (under Solvency II)
SCV Single customer view
SEC Securities and Exchange Commission (US)
Securitisation Regulation
Proposal for a Regulation of the EP and Council laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation and
amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (COM(2015)472/F1)
SEPA Single Euro Payments Area
SFT Securities financing transaction
SFTR Securities Financing Transactions Regulation (EU) 2015/2365
SFO Serious Fraud Office
SIMF Senior Insurer Manager Function
SIMR Senior Insurer Managers Regime
SM&CR Senior Managers and Certification Regime
SME Small and Medium sized Enterprises
SMF Senior Manager Function
SOCA Serious Organised Crime Agency
Solvency II Directive 2009/138/EC
SONIA Sterling Overnight Index Average
SPV Special purpose vehicle
SREP Supervisory Review and Evaluation Process
SRB Single Resolution Board
SRF Single Resolution Fund
SRM Single Resolution Mechanism
SSM Single Supervisory Mechanism
SSR Short Selling Regulation (EU) 236/2012
SUP FCA supervision manual
T2S TARGET2-Securities
TC Treasury Committee
TLAC Total Loss Absorbing Capacity
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – January 2018 PwC 32
TMTP Transitional Measure on Technical Provisions
TR Trade Repository
TPR The Pensions Regulator
UCITS Undertakings for Collective Investments in Transferable Securities
UCITS V UCITS V Directive 2014/91/EU
UKLA UK Listing Authority
UTI Unique Trade Identifier
XBRL eXtensible Business Reporting Language
Executive summary Regulators hone in on
algorithmic trading
Cross sector announcements
Banking and capital markets
Asset management Insurance Monthly calendar Glossary
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Contacts
Laura Cox 020 7212 1579
Hortense Huez
020 7213 3869
[email protected] Prudential regulation, Basel III, liquidity and funding
Andrew Strange
020 7804 6669
Retail distribution, SM&CR, upcoming regulatory change
Mike Vickery
0117 309 2403
Insurance, Solvency II
Hannah Swain 020 7212 2433
Operational resilience and financial crime
David Brewin 020 7212 5274
Client assets and prudential regulation
Penny Bruce
020 7212 1629
Recovery and resolution, consumer credit, structural reform
Luke Nelson
020 7213 4631
[email protected] MiFID II, conduct risk and benchmark reform
Tania Lee 07976 687547
Insurance, Solvency II
Sharon-Marie Fernando 020 7804 3062
[email protected] Investment funds, insurance
Dominic Muller 020 7213 2905
Derivatives reform, asset management, US and cross border, structured products
Megan P Charles 020 7804 0904
Consumer credit, payments, mortgages
Cheryl Wallace 020 7212 6983
MiFID II, US and cross-border regulation and benchmarks
Suddankumar Subbaroyan
020 7212 6003 [email protected] Basel III, liquidity and funding
Tessa Norman
020 7213 2508
[email protected] Publications and retail distribution
Conor MacManus
020 7213 8555 [email protected] Prudential regulation