FIG Bulletin Recent developments 11 October 2019

General 5

Occasional consultation paper: PRA CP25/19 5

Settlement of enforcement action: PRA PS23/19 5

Sustainable finance: BoE speech 6

FCA policy development update 7

Auditor reports: Dear CFO letter gives PRA 2019 review thematic feedback 7

Joint Committee of ESAs 2020 work programme 7

Challenge to draft ITS: ESA Board of Appeal decision 8

FinTech: Innovate Finance special report 8

Brexit 9

The Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018/1201 9

No-deal Brexit: UK government readiness report 9

No-deal Brexit: FCA Market Watch 61 9

No-deal Brexit: FCA update on UK MiFIR transparency regime 9

No-deal Brexit: ESMA updates statements 10

Brexit contingency planning: EBA communication 10

Hogan Lovells Brexit resources 11

Banking and Finance 12

Sensitivity analysis of liquidity risk stress test: ECB results 12

SSM: ECB supervisory priorities for 2020 12

Regulation on money market statistics: ECB Regulation published in OJ 12

Basel III capital monitoring and compliance with CRR liquidity measures: EBA reports 12

Basel III monitoring exercise: BCBS report 12

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Payments 13

FPC principles for prudential regulation and supervision of payments systems 13

Overdraft pricing and competition remedies: FCA PS19/25 13

Securities and Markets 15

MAR: ESMA final report on draft RTS on co-operation arrangements 15

MiFIR: ESMA consults on DTO alignment with EMIR clearing obligation 15

EMIR: ESMA consults on draft technical advice on commercial terms for providing clearing services 15

CSDR: ESMA final report on standardised procedures and messaging protocols guidelines 16

MiFID II: ESMA opinion on pre-trade transparency and frequent batch auctions 16

MAR review report: ESMA consultation 16

MiFIR data reporting: ESMA updates Q&As 17

Waivers and deferrals under MiFIR: ESMA annual report 17

FICC markets information and confidentiality: FMSB statement of good practice 17

EMMI publishes EONIA under revised methodology tracking €STR and applies for authorisation under BMR 17

UPI governance arrangements: FSB report 18

Insurance 19

General insurance pricing practices: FCA interim report of market study 19

General insurance renewal transparency intervention: FCA evaluation paper 19

Travel insurance market thematic review: EIOPA report 19

Funds and Asset Management 21

FCA reminds SIPP operators of their obligations 21

Financial Crime 22

AML and CTF: EU priorities 22

AML and CTF risks: Joint Committee of ESAs opinion 22

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OFSI annual review 2018-2019 22

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General

Occasional consultation paper: PRA CP25/19

The Prudential Regulation Authority (PRA) has published an occasional consultation paper, CP25/19, proposing minor amendments to its Rulebook, supervisory statements, statements of policy (SoPs) and relevant templates. The consultation covers a number of areas and is, therefore, relevant to all PRA-regulated firms.

The proposals relate to:

• removing references to the London Interbank Offered Rate (LIBOR); • updating references and corrections within the senior managers and certification regime

(SMCR); • reporting updates for Capital+ and ring-fenced bodies; and • retirement interest-only mortgages.

The consultation period for the reporting updates in chapter 4 of the consultation paper closes on 18 November 2019. This would allow the PRA to make the proposed changes to the templates and allow firms time to implement them before they take effect on 1 March 2020 and 1 June 2020. The consultation period for the remaining chapters closes on 9 December 2019.

The PRA's proposed implementation dates for the changes are:

• on the publication date of the final policy for chapters 2 and 3; • on 1 March 2020 and 1 June 2020 for chapter 4; • by 31 December 2020 for chapter 5, in order to align with the proposed implementation

date of the relevant European Banking Authority (EBA) guidelines, as set out in CP21/19, "Credit risk: Probability of Default and Loss Given Default estimation".

Draft updates of the relevant templates that the PRA proposes to change are:

• PRA101/PRA102 draft template; • RFB003 draft template; • FRB004 draft template; and • FRB008 draft template.

Settlement of enforcement action: PRA PS23/19

The PRA has published a webpage policy statement, PS23/19, and an updated SoP, "The PRA’s approach to enforcement: Statutory statements of policy and procedure". The changes relate to simplifying the PRA's settlement discount scheme.

PS23/19 is relevant to PRA-authorised persons, qualifying parent undertakings, persons who are or have been auditors or actuaries of a PRA-authorised person, senior managers and certified employees at firms, and all individuals involved in providing financial services to PRA-authorised persons.

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The PRA did not receive any responses to its preceding consultation, CP10/19, therefore it is making the changes it consulted on. The PRA amends the SoP to:

• simplify the PRA's settlement discount scheme (by retaining a 30% penalty discount for early settlement and removing the 20% and 10% discounts available for settlement in later stages of an enforcement action); and

• clarify and make more transparent the PRA's procedures for settlement.

The SoP came into effect on 4 October 2019, except in relation to cases where the PRA has already concluded "Stage 1" settlement discussions with the subject, without reaching a settlement, prior to 4 October 2019. In this exception, the scheme as set out in the March 2019 SoP, "The PRA’s approach to enforcement: Statutory statements of policy and procedure", will apply.

Sustainable finance: BoE speech

The Bank of England (BoE) has published a speech, given by Mark Carney, Governor of the Bank of England, at the inaugural Task Force on Climate-related Financial Disclosures (TCFD) summit in Tokyo, on strengthening the foundations of sustainable finance.

Mr Carney highlighted that the demand for TCFD disclosure is now enormous. He discussed some statistics demonstrating support in this respect.

Mr Carney mentioned the steps taken in the UK to embed recommendations by the TCFD in financial decision-making. The BoE has set out its supervisory expectations for institutions relating to:

• governance – firms are expected to embed fully the consideration of climate risks into governance frameworks, including at board level, and assign responsibility for oversight of these risks to specific senior role holders;

• risk management – firms must consider climate change in line with their board-approved risk appetite;

• the regular use of scenario analysis to test strategic resilience; and • developing and maintaining an appropriate disclosure of climate risks.

Recognising the need for industry to build capacity and develop best practices, the PRA has also established a Climate Financial Risk Forum, jointly with the Financial Conduct Authority (FCA), to work with firms from across the financial system.

However, Mr Carney says that more is required. Over the next few years, companies, their banks, insurers and investors must:

• work to increase the quantity and quality of disclosures by sharing best practice; • refine the TCFD disclosure recommendations to those that investors consider most

useful; • spread knowledge on how to measure and use information on strategic resilience to

manage risks and realise opportunities; and • consider how asset owners could best disclose how well their portfolios are positioned for

the transition to net zero.

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FCA policy development update

The FCA has published its latest policy development update webpage for October 2019. The policy development update gives information on the FCA's upcoming publications, but should not be regarded as comprehensive. Changes this month include:

• a policy statement on general insurance value measures reporting previously due for publication in Q4 2019 has moved to Q1 2020;

• a policy statement to CP19/14 on changes to the mortgage responsible lending rules is due for publication in Q4 2019; and

• a policy statement to CP19/17 on changes to the mortgage advice and selling standards is due for publication in later 2019.

Auditor reports: Dear CFO letter gives PRA 2019 review thematic feedback

The PRA has published a letter sent to the Chief Financial Officers (CFOs) of selected deposit-taking firms (Dear CFO letter) providing thematic feedback to firms and auditors from the PRA's review of written auditor reports received in 2019.

The feedback is set out in three parts. The main findings are set out briefly in the letter, with more detail provided its two annexes:

• Annex 1 on IFRS 9 Expected Credit Loss (ECL) accounting; and • Annex 2 on findings relating to matters other than ECL accounting.

In relation to the implementation of IFRS 9 ECL accounting, the PRA emphasises its previous message that it expects firms' ECL methodologies to evolve for several years after initial implementation at the beginning of 2018. While the PRA recognises that progress has been made, it notes that the 2019 review findings are consistent with those of the 2018 review. Therefore, in this letter, the PRA sets out its views on practices that would contribute to a high-quality and more consistent implementation of ECL. These practices are included in the annexes to the letter. They have been developed using the PRA's written auditor reporting work, its own analysis and discussions with other global regulators. The PRA has shared these practices with firms' auditors and has asked, in the next round of written auditor reporting questions for the 2019 year-end audit, that auditors consider the extent the firm has adopted these practices or has alternative processes in place that achieve the same results. Firms are encouraged to engage with their auditors in providing this information.

The PRA will discuss wider adoption of these practices with firms in 2020.

Joint Committee of ESAs 2020 work programme

The Joint Committee of the European Supervisory Authorities (ESAs) has published its work programme for 2020.

The Joint Committee of the ESAs will continue its work in the areas of cross-sectoral risk analysis, consumer protection, financial conglomerates, securitisation, and accounting and auditing. It flags that areas of particular focus will be on PRIIPs, financial innovation, sustainable finance and securitisation.

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Challenge to draft ITS: ESA Board of Appeal decision

The Joint Board of Appeal of the ESAs has published its decision relating to an appeal about a challenge to draft implementing technical standards (ITS).

A firm appealed to the Board to use its powers under Article 60 of the European Banking Authority (EBA) Regulation to suspend draft ITS, which were set to downgrade certain of its long-term corporate ratings.

The Board dismissed the suspension application and the appeal as inadmissible. It held that the publication of draft ITS is not a decision for the purposes of Article 60 as it is merely a preparatory act without immediate legal effect. The appropriate mechanism for challenging the ITS is an application for annulment under Article 263 of the Treaty on the Functioning of the European Union. The Board also noted that the wording of Article 60 does not contemplate the ESAs' actions relating to ITS or regulatory technical standards (RTS) as being subject to appeal.

FinTech: Innovate Finance special report

Innovate Finance has published a special report on the future of FinTech.

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Brexit

The Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018/1201

A correction slip has been published for this statutory instrument.

No-deal Brexit: UK government readiness report

The government has published a paper, No-deal readiness report, setting out the changes that could take place in the event of a no-deal Brexit and highlighting the work that the government is doing to prepare for such a scenario.

No-deal Brexit: FCA Market Watch 61

The FCA has published the latest issue, 61, of its Market Watch newsletter on market conduct and transaction reporting issues. This edition provides information to help firms prepare for a possible no-deal Brexit on 31 October 2019. Issues raised by the FCA include that:

• the FCA continues to update its preparing for Brexit webpage; • firms should consider the issues highlighted in a September 2019 speech by Andrew

Bailey, FCA Chief Executive, on Brexit preparations; • firms and connected persons, such as approved reporting mechanisms, should take

reasonable steps to comply with changes to transaction reporting obligations under the FCA's temporary transitional power;

• firms that are not able to comply fully with the transaction reporting regime at the time of the UK's withdrawal from the EU will need to be able to back-report missing, incomplete, or inaccurate transaction reports as soon as possible; and

• as part of the development of a post-exit MiFID regime, industry testing for the FCA's financial instruments transparency system opened on 10 October 2019.

The FCA provides a separate update to explain how the transparency regime under the retained EU law version of the Markets in Financial Instruments Regulation (UK MiFIR) will operate if there is a no-deal Brexit (see below).

No-deal Brexit: FCA update on UK MiFIR transparency regime

The FCA has published a webpage updating its March 2019 supervisory statement on the operation of the transparency regime under UK MiFIR. This update and the March 2019 supervisory statement are intended to help market participants understand the FCA's approach to the operation of the MiFID transparency regime if the UK leaves the EU without a withdrawal agreement.

The FCA states that much of the March 2019 supervisory statement remains relevant. The update covers changes, mainly to dates, and takes into account ESMA's October 2019 statements relating to a no-deal Brexit scenario (see next report below).

The FCA gives updates on:

• the FCA's financial instruments transparency reference system; • the double volume cap; • equity and non-equity transparency;

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• systematic internalisers; and • tick sizes.

The FCA states that it may update the information in the statement from time to time based on market developments and to respond to changes in the market.

No-deal Brexit: ESMA updates statements

The European Securities and Markets Authority (ESMA) has published a public statement giving an update on the UK's withdrawal from the EU and preparations for a possible no-deal Brexit scenario on 31 October 2019.

The statement confirms that the reference date for Brexit in all of ESMA's previously published measures and actions, including public statements, issued about the possibility of a no-deal Brexit scenario, should be read as 31 October 2019. The full list of statements and measures issued is available on the ESMA website and included in an annex to the statement.

ESMA also updates measures in the following areas:

• Use of UK data in ESMA databases and performance of MiFID II calculations, updating ESMA's communication issued on 5 February 2019;

• Impact of a no-deal Brexit on MiFID II/MiFIR and the Benchmark Regulation (BMR), updating ESMA's communication issued on 7 March 2019; and

• Operational plans related to ESMA databases and IT systems, updating ESMA's communication issued on 19 March 2019.

ESMA explains that if the final timing and conditions of Brexit change, it will adjust its approach for its IT applications and databases and provide information as soon as possible.

Brexit contingency planning: EBA communication

The EBA has published a communication urging continued progress on contingency planning for the UK's withdrawal from the EU. It states that, "[w]hilst significant progress has been made in the implementation of contingency plans for the event that the UK withdraws from the EU without a ratified withdrawal agreement on 1 November 2019, financial entities and competent authorities must guard against complacency in their preparations. Notably, effective contingency planning efforts must continue, to ensure that assets, appropriate staff and data are in place to support relevant authorisations and to ensure that adequate customer communications are made".

The communication follows EBA's opinions in October 2017, June 2018 and March 2019 on preparations for the UK's withdrawal from the EU and its December 2018 communication

Among other things, in this communication, the EBA:

• reminds credit institutions of the detailed principles set out in its October 2017 opinion on the need to avoid creating and operating "empty shell" companies;

• warns firms that it is imperative they have the capability to manage the risks they generate from the first day after the withdrawal of the UK;

• warns firms that, in the event of a no-deal Brexit, they must have assessed whether their clients' personal data needs to be transferred from the EU27 to the UK and, if so, that they have taken appropriate mitigating actions under the General Data Protection Regulation, such as using appropriate safeguards; and

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• states that firms must ensure that they have engaged with all their relevant customers and have provided clear and adequate information on the risks and mitigating measures being taken.

Hogan Lovells Brexit resources

Given the moving Brexit target at the moment we recommend that for an up-to-date take on Brexit impact please try the Hogan Lovells Brexit Hub, an open resource online.

Hogan Lovells Brexit Hub

Twitter

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Banking and Finance

Sensitivity analysis of liquidity risk stress test: ECB results

The European Central Bank (ECB) has published the final results from its supervisory stress test of 2019, a sensitivity analysis of liquidity risk.

The majority of banks directly supervised by the ECB have comfortable liquidity positions, although some vulnerabilities have been identified which will need further attention. These vulnerabilities relate in particular to foreign currencies, data quality and collateral management.

Supervisors will discuss the conclusions individually with the banks as part of the annual supervisory review and evaluation process. The results will not directly affect supervisory capital requirements. They will, however, inform the assessment of banks' governance and liquidity risk management.

SSM: ECB supervisory priorities for 2020

The ECB published its supervisory priorities for the single supervisory mechanism for 2020.

Regulation on money market statistics: ECB Regulation published in OJ

Regulation (EU) 2019/1677 of the ECB amending Regulation (EU) 1333/2014 concerning statistics on the money markets (MMSR Regulation) has been published in the Official Journal of the EU. The ECB adopted the Amending Regulation in September 2018. It amends the minimum standards applied by reporting agents under the MMSR Regulation.

The Amending Regulation will enter into force on 28 October 2019.

Basel III capital monitoring and compliance with CRR liquidity measures: EBA reports

The EBA has published the following two reports which monitor the impact of implementing the final Basel III reforms and the current implementation of liquidity measures in the EU:

• the EBA Basel III capital monitoring report. This report includes an assessment of the impact of the full implementation (to 2027) of the Basel III package on EU banks, based on data as of 30 June 2018; and

• a report on liquidity measures which evaluates the liquidity coverage requirements currently in place in the EU under the Capital Requirements Regulation.

Basel III monitoring exercise: BCBS report

The Basel Committee on Banking Supervision (BCBS) has published a report summarising the results of the latest Basel III monitoring exercise, based on data as of 31 December 2018.

The report sets out the impact of the Basel III framework that was initially agreed in 2010 as well as the effects of the BCBS's December 2017 publication, finalisation of the Basel III reforms. For the first time, it also reflects the finalisation of the market risk framework, published in January 2019.

The final Basel III minimum requirements are expected to be implemented by 1 January 2022 and fully phased in by 1 January 2027.

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Payments FPC principles for prudential regulation and supervision of payments systems

At its meeting on 2 October 2019, the Financial Policy Committee (FPC) of the Bank of England agreed a set of principles that will guide its assessment of how prudential regulation and supervision should adjust to fast-moving developments in payments activities, which are currently a focal point for innovation in financial services.

The note of the meeting indicates that these principles are that regulation and supervision should:

• reflect the financial stability risk, rather than the legal form, of payments activities; • ensure end-to-end operational and financial resilience across payment chains that are

critical for the smooth functioning of the economy; and • ensure that sufficient information is available to monitor payments activities so that

emerging risks to financial stability can be identified and addressed appropriately.

The FPC notes that HM Treasury is leading a review of the payments landscape to support choice, competition and resilience and to ensure that regulation and infrastructure keep pace with innovation. The above principles could usefully inform any assessment of existing payments regulation in that review.

The FPC also noted that Facebook's proposed Libra cryptocurrency has the potential to become a systemically important payment system. The FPC judges that such a system would need to meet the highest standards of resilience and be subject to appropriate supervisory oversight, consistent with the principles set out above. The terms of engagement for innovations such as Libra must be adopted in advance of any launch. UK authorities should use their powers accordingly.

The FPC encourages exploration of alternative solutions to improve the efficiency of domestic and cross-border payments.

Overdraft pricing and competition remedies: FCA PS19/25

The FCA has published a further policy statement, PS19/25, on overdraft pricing and competition remedies. The FCA previously published a policy statement, PS19/16, on overdraft pricing in June 2019. At the same time, it consulted on further rules in CP19/18. PS19/25 responds to that consultation and completes the FCA's package of remedies designed to reduce harm in the overdraft market and improve competition.

The new rules introduced by PS19/25 require firms to publish a range of overdraft pricing details, and are designed to increase transparency and raise awareness of firms' overdraft charging structures. The FCA has made these rules with minor changes to those consulted on, to reflect some of the feedback it received. The feedback and the changes made to the draft rules are set out in PS19/25.

The FCA also consulted on minor changes to its competition rules. It is making these rules with small changes following consultation. They include:

• amending the definition of private bank in BCOBS 7 and 8; • exempting foreign currency accounts from the competition remedy rules; and • making minor changes to the alerts rules.

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The FCA will carry out a post-implementation evaluation of its overall package of overdraft remedies at least 12 months after implementation of the full package of remedies, from April 2021. If ongoing information monitoring or the post-implementation review show that the remedies have not had the desired impact, the FCA will consider amending its remedies or making additional interventions in the market.

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Securities and Markets MAR: ESMA final report on draft RTS on co-operation arrangements

ESMA has issued its final report on RTS for the application of the Market Abuse Regulation (MAR). The RTS cover cooperation arrangements between national competent authorities and their counterparts in third-countries for exchanging information and enforcing the obligations related to market abuse.

ESMA has submitted the RTS for endorsement to the European Commission.

MiFIR: ESMA consults on DTO alignment with EMIR clearing obligation

ESMA has published a consultation paper on possible amendments to the trading obligation under the Markets in Financial Instruments Regulation (MiFIR) following the introduction of the EMIR Refit Regulation (EMIR Refit).

Following the introduction of EMIR Refit, there is a misalignment between the scope of counterparties subject to the clearing obligation (CO) under EMIR and the derivatives trading obligation (DTO) under MiFIR. EMIR Refit mandates ESMA to assess whether the DTO under MiFIR should be aligned with the CO, and to submit its findings in a report to the Commission.

ESMA's initial proposal in this consultation paper is to recommend to the Commission an alignment of the scope of counterparties subject to the CO and the DTO.

The consultation closes on 22 November 2019. ESMA intends to submit its final report to the Commission in early 2020. In turn, the Commission is due to submit its report to the European Parliament and Council of the EU by 18 December 2020.

EMIR: ESMA consults on draft technical advice on commercial terms for providing clearing services

ESMA has published a consultation paper on draft technical advice to the European Commission on specifying the conditions under which commercial terms are to be considered fair, reasonable, non-discriminatory and transparent (FRANDT) where clearing service providers offer clearing services to clients.

ESMA explains that, during the implementation of EMIR's clearing obligation, several counterparties experienced issues around access to clearing. In response to this access issue a number of measures were introduced by EMIR Refit, including the FRANDT requirements. ESMA sets out the requirements for FRANDT commercial terms, based on the four criteria listed under Article 4(3a) of EMIR:

• fairness and transparency; • unbiased and rational contractual arrangements; • to facilitate clearing services and prices to be fair and non-discriminatory; and • risk control criteria.

The consultation ends on 2 December 2019. ESMA intends to publish a final report and to submit its technical advice to the European Commission in Q1 2020.

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CSDR: ESMA final report on standardised procedures and messaging protocols guidelines

ESMA has published its final report on the Guidelines on standardised procedures and messaging protocols. The Guidelines aim to clarify the scope of the requirement contained in Article 6(2) of the Central Securities Depositories Regulation (CSDR) and provide guidance on the standardised procedures and messaging standards used for compliance.

Under article 6(2) of the CSDR and article 2 of the RTS on Settlement Discipline, investment firms should ensure that they have all the necessary settlement details on the business day on which a transaction takes place. To achieve this, investment firms that do not already have the necessary settlement information should communicate with their clients to obtain the respective information, which should include standardised data useful for the settlement process. ESMA's Guidelines set out how investment firms should comply with these obligations. In particular, investment firms should agree with their professional clients on the communication procedures and messaging protocols to be used between them, in order for the necessary settlement information to be timely provided to the investment firm.

Subject to a written contractual agreement between them, the Guidelines also clarify the degree of flexibility that is left to the parties to organise their communication.

The Guidelines will apply on the date of entry into force of the RTS on Settlement Discipline, 13 September 2020.

MiFID II: ESMA opinion on pre-trade transparency and frequent batch auctions

ESMA has published an opinion on frequent batch auctions (FBAs) and the double volume cap mechanism. FBAs are a type of periodic auction trading system for equity instruments under MiFIR.

ESMA's opinion reflects the conclusions of its final report on periodic auctions which identified several shortcomings of FBA systems in the area of pre-trade transparency and the price determination. Therefore, in its opinion, ESMA aims to provide clarification in these areas.

ESMA will continue to monitor developments in the market, including how trading venues adapt their systems to meet the guidance contained in the opinion. ESMA will issue further guidance to ensure the convergent application of MiFID II/MiFIR if necessary.

MAR review report: ESMA consultation

ESMA has published a consultation paper on the MAR review report following a request for technical advice from the European Commission.

ESMA addresses a wide range of issues, including:

• the possible inclusion of spot FX contracts within the scope of MAR; • the definition and delayed disclosure of inside information in different cases; • the appropriateness of the trading prohibition and insider lists for persons discharging

managerial responsibilities; • a possible cross-market order book surveillance framework; • large-scale tax frauds known as "cum/ex" schemes; • multiple withholding tax reclaim schemes; and • cross-border enforcement of sanctions.

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The consultation period ends on 29 November 2019. ESMA will hold an open hearing on this consultation at its premises on 5 November 2019. It intends to submit a final report to the Commission by spring 2020.

MiFIR data reporting: ESMA updates Q&As

ESMA has updated its Q&As on data reporting under MiFIR. It has added a new question about the reporting of FX forward financial instruments under Articles 26 and 27 of MiFIR.

ESMA has also updated its Q&A on national client identifiers for natural persons.

Waivers and deferrals under MiFIR: ESMA annual report

ESMA has published its 2019 annual report on the application of waivers and deferrals under MiFIR.

The report includes an analysis based on waiver applications received in the course of the 2017 and 2018 and for which ESMA issued an opinion to the competent authority before 31 December 2018. It also includes an overview of the deferral regimes applied across the different member states, distinguishing between on-venue and over-the-counter (OTC) application.

FICC markets information and confidentiality: FMSB statement of good practice

The FICC Markets Standards Board (FMSB) has published a statement of good practice (SGP) on information and confidentiality for the fixed income and commodity (FICC) markets.

The FMSB explains that recent events have highlighted the risks associated with the sharing of information, and have suggested that there is uncertainty amongst market participants as to the type, and nature, of information that can be shared (whether internally or otherwise).

The SGP provides examples of the types of information that can and cannot be shared, and related steps. It also gives nine Good Practice Statements which firms should look to when considering their own practice.

EMMI publishes EONIA under revised methodology tracking €STR and applies for authorisation under BMR

The European Money Markets Institute (EMMI) has announced that it has, for the first time, published EONIA under the revised determination methodology that directly tracks the €STR, and that it has applied for authorisation under Article 34 of the Benchmarks Regulation (BMR) as the administrator of EONIA.

EMMI confirms that, to facilitate a smooth transition from EONIA to the €STR, it will continue to publish EONIA every TARGET day until 3 January 2022, the date on which EONIA will be discontinued.

EMMI states that it has adopted a governance framework establishing the requirements and principles related to the provision of EONIA under the revised methodology. This framework, which is supported by a set of EMMI policies and procedures covering all aspects of benchmark provision, comprises:

• EONIA governance code of conduct, which sets out the governance, control and accountability frameworks established by EMMI for the provision of EONIA; and

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• EONIA benchmark determination methodology, which sets out the determination methodology for the calculation of EONIA, under both regular and contingency circumstances.

UPI governance arrangements: FSB report

The Financial Stability Board (FSB) has published a report on the governance arrangements for the globally harmonised Unique Product Identifier (UPI).

The UPI will uniquely identify the product involved in OTC derivatives transactions reported to trade repositories. This will help authorities to aggregate data on OTC derivatives transactions by product and assess systemic risk and detect market abuse.

This report sets out the conclusions of the FSB on governance arrangements for the UPI, together with a recommended implementation plan for those arrangements and next steps to establish an International Governance Body for the UPI.

The FSB conditionally identifies the Legal Entity Identifier Regulatory Oversight Committee (LEI ROC) as being best positioned to become the International Governance Body for the UPI and Unique Transaction Identifier (UTI) and critical other elements (CDE) other than UTI and UPI. The FSB takes this decision in coordination with the Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO), which were tasked to develop governance arrangements for the CDE.

In coordination with the CPMI and IOSCO, and following dialogue with the LEI ROC, the FSB anticipates that the LEI ROC can adopt and implement the required adjustments by mid-2020. In the interim, the FSB will take on the functions that have been allocated to the International Governance Body.

The FSB also recommends that jurisdictions undertake necessary actions to implement the UPI Technical Guidance and that these take effect no later than Q3 2022.

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Insurance General insurance pricing practices: FCA interim report of market study

On 4 October 2019, the FCA published the interim report of its market study into the pricing of home and motor insurance (MS18/1.2). The FCA launched this market study to understand whether pricing practices in home and motor insurance support effective competition and lead to good consumer outcomes. This followed a thematic review showing that consumers who stayed with the same provider for a long time paid on average significantly more for home insurance than newer consumers.

The FCA findings indicate that these markets are not working well for consumers. Read more about the report in our update: FCA Market Study into General Insurance Pricing Practices: time to look at pricing strategies?.

In its report, the FCA sets out its interim findings and potential remedies. It intends to publish a final report and consultation on remedies in Q1 2020.

The FCA invites interested parties to provide views on its interim findings and the potential remedies it is considering by 15 November 2019.

General insurance renewal transparency intervention: FCA evaluation paper

Alongside the interim report of its market study into the pricing of home and motor insurance (see above), the FCA has published an evaluation paper, EP19/1, on its April 2017 intervention to increase transparency at renewal in general insurance markets. This evaluation was announced when the FCA published the terms of reference for its general insurance pricing practices market study in October 2018.

The FCA estimates consumer savings of between £39 million and £330 million a year (with an average estimate of £185 million a year) due to its intervention, set against costs of around £4 million a year. The FCA believes that these benefits have arisen due to two main, inter-related effects, which differ in size between home, motor and pet insurance markets:

• firms' increased focus on renewal practices, such that premiums offered at renewal for home and motor insurance have not increased by as much as they would have done without the FCA's intervention; and

• consumers being prompted to make better informed decisions through engaging and shopping around, leading to changes in consumers negotiating or switching at renewal (increasing in motor and pet insurance and decreasing in home insurance).

The FCA states that it has identified some lessons that it can apply to current and future work.

The evaluation paper has annexes discussing implementation issues, analysis of consumer survey data and insights, econometric analysis and the impact of renewal disclosure legislation on consumer behaviour.

Travel insurance market thematic review: EIOPA report

EIOPA has published a report setting out the findings from its thematic review of consumer protection issues in the travel insurance market, together with a factsheet. EIOPA launched the thematic review in July 2018 to better understand travel insurance products, identify sources of potential conduct risks, and take any required supervisory actions.

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During its review, EIOPA identified some "strong potential for poor value for money for consumers", increased conduct risk, and other concerns. Given these findings, EIOPA has issued a warning to insurers and insurance intermediaries to tackle high commissions for travel insurance products. EIOPA considers that such business models are not consistent with the fundamental regulatory principles set out in the Insurance Distribution Directive, such as acting in the best interests of the customer and obligations on product oversight and governance.

EIOPA states that it, and national competent authorities, will intensify their risk-based supervision of insurance undertakings and insurance intermediaries, notably in the national markets where risks are identified, including monitoring the market for ancillary insurance products.

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Funds and Asset Management

FCA reminds SIPP operators of their obligations

The FCA has published a statement reminding self-invested pension plan (SIPP) operators of its expectations and the FCA's Dear CEO letter published in October 2018.

The reminder follows the decision of the administrators of Berkeley Burke SIPP Administration Limited (Berkeley Burke) to discontinue Berkeley Burke's appeal of the High Court’s judgment in Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Service Ltd [2018] EWHC 2878.

The FCA reiterates that, if the outcome of Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Service Ltd [2018] EWHC 2878 calls into question a SIPP operator's ability to meet financial commitments as they fall due, they should contact the FCA immediately. It also reminds firms of their obligations to treat complainants fairly and handle complaints according to the rules set out in the Dispute Resolution sourcebook (DISP). The FCA outlines the steps SIPPs should take should they receive a FOS decision and if they decide to pursue a sale of part or all of its business or assets.

The FCA explains that in assessing any future regulatory applications, including applications for individuals to hold (or resume holding) FCA-approved roles, it will take account of how those individuals have acted in the context of the considerations outlined in the Dear CEO letter.

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Financial Crime AML and CTF: EU priorities

The Presidency of the Council of the EU has issued a note which set the agenda for the ECOFIN EU Council meeting on 10 October 2019. The Presidency observes that member states need to consider the scope of possible future actions on anti-money laundering (AML) and combating the financing of terrorism (CFT). Read more in our article: EU issues priorities on review of anti-money laundering and countering the financing of terrorism.

AML and CTF risks: Joint Committee of ESAs opinion

The Joint Committee of the European Supervisory Authorities (ESAs) has published an opinion on the risks of money laundering and terrorist financing affecting the EU's financial sector. Drawing on data and information provided by national AML and CFT competent authorities, the ESAs found that the monitoring of transactions and suspicious transactions reporting still raise concerns, particularly in sectors where a financial institution's business model is based on frequent transactions.

The ESAs have identified that the main cross-sectoral risks arise from Brexit, new technologies, virtual currencies, legislative divergence and divergent supervisory practices, weaknesses in internal controls, terrorist financing, and de-risking. To mitigate these risks, potential actions for competent authorities are set out in the opinion.

In addition to the divergences in the transposition of the Fourth Money Laundering Directive, the ESAs highlight divergences relating to authorisations, qualifying holdings, and assessment of the fitness and propriety of key function holders and members of the management board.

The ESAs are concerned about weaknesses in the control frameworks put in place by financial institutions, particularly for transaction monitoring and suspicious transactions reporting, in sectors with high volumes of transactions. It also appears that the development of adequate business-wide and customer risk assessments is still a challenge for financial institutions across different sectors and is an area that would benefit from more guidance.

The opinion also includes a sector-specific section, which focuses on inherent risks, quality of controls and common breaches, and emerging risks.

To complement the opinion, the ESAs have published an interactive tool that gives firms a "snapshot" of risks.

OFSI annual review 2018-2019

The Office of Financial Sanctions Implementation (OFSI) has published it annual review 2018-2019.

The review includes sections on:

• UN and EU financial sanctions regimes; • UK counter-terrorism asset freezes; • frozen funds review; • compliance and enforcement; • licensing; and • outreach and communications.

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