If you have any comments or questions, please contact Selmin Hakki. Slaughter and May also produces a periodical Insurance Newsletter. If you would like to go on the distribution list, please contact Beth Dobson.

Selected Headlines

General

Brexit

Banking and Finance

Securities and Markets

Asset Management

Insurance

Financial Crime

Enforcement

Financial Regulation

Weekly Bulletin 19 December 2019 / Issue 1040

Major UK and European regulatory developments of interest to banks, insurers and reinsurers, asset managers and other market participants

Selected Headlines General

Digital operational resilience – European Commission publishes consultation on resilience framework

2.2

Short-term pressures on corporations – EBA, ESMA and EIOPA publish reports

4.1

Financial risks from climate change – PRA and FPC publish Discussion Paper on 2021 BES

5.1

Brexit

Financial services legislation – announced in the Queen’s Speech 8.1

Banking and Finance

Financial stability - ESRB publishes report on macroprudential policy implications of foreign branches

12.1

IBOR transition – PRA publishes letter on regulatory capital impediments

17.2

Financial Stability Report and 2019 stress test results – published by the Bank of England

18.1

Securities and Markets

Securitisation – FSB publishes report on the vulnerabilities associated with leveraged loans and CLOs

20.2

Cryptoassets – European Commission publishes consultation on EU regulatory framework

21.2

MAR review – CLLS publishes response to ESMA consultation 29.1

Asset Management

Taxonomy on sustainable investments – European Parliament announces agreement with the Council of the EU on criteria determining the sustainability of an economic activity

31.1

Open-ended funds – FCA and Bank of England statement on joint review

32.1

FCA Policy Statement PS19/29: Making transfers simpler

33.1

Quick Links

Financial Regulation / 19 December 2019 / Issue 1040 2

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Insurance

Solvency II – EIOPA publishes annual report on the use of capital add-ons

36.1

2020 Solvency II Review - EIOPA publishes report on insurers’ asset and liability management of illiquid liabilities

36.3

Financial Crime

4MLD – ESAs publishes final Guidelines on cooperation and information exchange between NCAs

37.1

Enforcement

EMIR – ESMA publishes consultation on procedural rules regarding the imposition of penalties on third-country CCPs, TRs and CRAs

38.1

Misleading information in relation to PPI claims – FCA fines claims management company £70,000

39.1

Hall and Hanley Limited v The Financial Conduct Authority 41.1

General 1. Financial Stability Board

1.1 2020 work programme – published by the FSB – 17 December 2019 – The Financial Stability Board

(FSB) has published its work programme for 2020, setting out its key priorities and areas of focus

for the next 12 months. These include:

reinforcing its monitoring of market developments to identify, assess and address new and

emerging vulnerabilities;

issuing a public consultation addressing the regulatory issues posed by stablecoins;

developing and delivering to the G20 a roadmap setting out how to improve the efficiency

and inclusiveness of cross-border payment systems; and

improving understanding and increasing awareness of the importance of ensuring a timely

transition away from the use of the London interbank offered rate (LIBOR) by the end of

2021.

FSB 2020 work programme

Webpage

Press release

2. European Commission

2.1 FinTech – European Commission publishes report on regulatory obstacles to financial

innovation – 13 December 2019 – The European Commission’s Expert Group on Regulatory

Obstacles to Financial Innovation (ROFIEG), set up by the European Commission in June 2018, has

published a report setting out its recommendations on how to create an accommodative

framework for the technology-enabled provision of financial services. The report contains 30

Financial Regulation / 19 December 2019 / Issue 1040 3

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recommendations pertaining to several topics, including: (i) the use of financial technology; (ii)

the access and use of data; (iii) financial inclusion; (iv) competition; and (v) governance and

security.

European Commission ROFIEG report on a framework for the use of technology in financial

services

FAQs

Webpage

2.2 Digital operational resilience – European Commission publishes consultation on resilience

framework – December 2019 – The European Commission has published a public consultation on

the development of a digital operational resilience framework for financial services. The European

Commission states that the increasing digitalisation and use of financial technology in financial

services leaves the sector highly dependent on information and communications technology (ICT)

infrastructure and raises challenges in terms of operational resilience. The consultation seeks

stakeholders’ views on: (i) strengthening the digital operational resilience of the financial sector,

in particular as regards the aspects related to ICT and security risk; (ii) the main features of an

enhanced legal framework built on several pillars; and (iii) the impacts of the potential policy

options.

The consultation document does not state when the consultation period closes. The Commission

intends to use the responses received in respect of its consultation to inform its ongoing work on

on the development of a potential EU cross-sectoral digital operational resilience framework in

the area of financial services.

European Commission consultation on the development of an EU digital operational resilience

framework for financial services

Press release

3. Official Journal of the European Union

3.1 Modernisation of EU consumer protection rules – Directive published in the Official Journal –

18 December 2019 – Directive (EU) 2019/2161 of 27 November 2019, which amends the Unfair

Terms in Consumer Contracts Directive (93/13/EEC); Directive (98/6/EC) on consumer protection

in relation to product price indications to consumers; the Unfair Commercial Practices Directive

(2005/29/EC); and the Consumer Rights Directive (2011/83/EU) as regards the better enforcement

and modernisation of Union consumer protection rules, has been published in the Official Journal

of the European Union.

The Directive will enter into force on 7 January 2020 and will apply from 28 May 2020.

Official Journal: Directive (EU) 2019/2161 on the better enforcement and modernisation of

Union consumer protection rules

4. European Supervisory Authorities

4.1 Short-term pressures on corporations – EBA, ESMA and EIOPA publish reports – 18 December

2019 – The European Banking Authority (EBA), European Securities and Markets Authority (ESMA)

and the European Insurance and Occupational Pensions Authority (EIOPA) have published separate

Financial Regulation / 19 December 2019 / Issue 1040 4

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reports on potential undue short-term pressure from the financial sector on corporations. The

reports have been published in response to a call for advice, published by the European

Commission.

The EBA assessed the potential presence and drivers of short-termism, by looking at: (i) potential

short-term pressures exerted by banks on corporate clients; and (ii) potential short-term pressures

banks may be under on their own, by shareholders and capital markets. Based on an analysis of

available qualitative and quantitative sources, the EBA identified some limited concrete evidence

of short-termism, without necessarily being in a position to label it systematically as undue. The

EBA makes several recommendations to incorporate long-term perspectives in the banking sector,

including maintaining a robust prudential regulatory framework as a pre-condition for long-term

investments, and improving the disclosure and awareness of sustainable investments and

environmental, social and governance (ESG) risk factors.

ESMA assessed the potential short-term pressures exerted on corporations in securities markets,

finding that the most common timeframe for general business activities was less than five years

and that a general short-term focus in investment research was indicated by survey respondents.

ESMA suggests several recommendations to incorporate long-term perspectives in securities

markets, including: (i) the increased integration of sustainability risks in investment research; (ii)

the adoption of an international set of ESG disclosure standards; and (iii) increasing institutional

investor engagement with long-term objectives by reviewing ESMA’s public statement on

shareholder cooperation.

EIOPA assessed the potential short-term pressures exerted on corporations in the insurance and

occupational pensions sectors. EIOPA found no clear evidence of undue short-termism but

acknowledged that firms’ investment practices are sensitive to certain macroeconomic

circumstances, such as the persistently low interest rate environment. EIOPA notes that short-

term remuneration practices may, however, require consideration. EIOPA makes several

recommendations to incorporate long-term perspectives in the insurance and occupational

pensions sectors, including: (i) developing a cross-sectorial framework promoting long-term

investments and supporting sustainable economic growth in the EU; and (ii) creating and

publishing long-term performance benchmarks to increase firms’ focus on long-term value creation

rather than immediate shareholders’ interests or excessively short-term profitability objectives.

The reports will be sent to the Commission for further consideration.

EBA report on undue short-term pressures on corporations in the banking sector

Press release

ESMA report on undue short-term pressures on corporations in securities markets

Press release

EIOPA report on undue short-term pressures on corporations in the insurance and

occupational pensions sectors

Press release

Financial Regulation / 19 December 2019 / Issue 1040 5

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5. Prudential Regulation Authority and Financial Policy Committee

5.1 Financial risks from climate change – PRA and FPC publish Discussion Paper on 2021 BES –

December 2019 – The PRA and the Financial Policy Committee (FPC) have published a joint

Discussion Paper, setting out a proposed framework for the 2021 biennial exploratory scenario

(BES) exercise. The objective of the 2021 BES is to test the resilience of the UK’s largest banks and

insurers to the physical and transition risks associated with different possible climate scenarios,

and the financial system’s exposure more broadly to climate-related risk.

The PRA and FPC are consulting on the design of the exercise and welcome feedback on the

feasibility and robustness of their proposals from firms, counterparties, climate scientists,

economists and other industry experts by 18 March 2020. The PRA and FPC intend to publish the

final BES framework in the second half of 2020 and the results of the exercise will be published in

2021.

PRA and FPC joint Discussion Paper on the 2021 BES on the financial risks arising from climate

change

Webpage on the 2021 BES

Webpage on climate change

Press release

6. Financial Conduct Authority

6.1 SMCR extension to solo-regulated firms – FCA updates webpage – 13 December 2019 – The FCA

has updated its webpage on the application of the Senior Managers and Certification Regime

(SMCR) to solo-regulated firms in order to clarify firms’ obligations under the regime. Among other

points, the FCA reminds firms that:

they need to have identified the individuals that need to be certified on an annual basis

and ensure that annual fitness and propriety checks for certification staff and senior

managers are accommodated within the firm’s HR processes;

as of 9 December 2019, senior management functions (SMFs) appear on the Financial

Services Register. Firms are encouraged to check the Register to ensure they have the

correct SMFs;

SMFs are not restricted to members of the governing body. In particular, the Executive

Director function (SMF 3) extends beyond members of the governing body to include “a

person in accordance with whose directions or instructions (not being advice given in a

professional capacity) the directors of that body are accustomed to act”; and

senior managers should ensure that any delegation is reasonable and that the individuals

to whom they have delegated are appropriate, for example with suitable skills, and the

senior managers should retain an appropriate level of oversight.

The SMCR came into force for almost all solo-regulated firms on 9 December 2019, replacing the

approved persons regime (APR).

Financial Regulation / 19 December 2019 / Issue 1040 6

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FCA updated webpage on the application of the SMCR to solo-regulated firms

6.2 FCA Policy Statement PS19/30 - Independent Governance Committees: extension of remit – 17

December 2019 – The FCA has published a Policy Statement (PS19/30) setting out its final rules

regarding the extension of the remit of Independent Governance Committees (IGCs) and

Governance Advisory Arrangements (GAA). IGCs currently provide independent oversight of the

value for money of workplace personal pensions in accumulation, that is before pension savings

are accessed. A GAA is a proportionate alternative to an IGC for firms with a smaller number of

relevant customers and less complex schemes. The final rules extend the remit of IGCs and GAAs

to include:

a new duty for ICGs and GAAs to consider and report on their firm’s policies on ESG issues,

member concerns and stewardship for the products that they oversee; and

a new duty for ICGs and GAAs to oversee the value for money of investment pathway

solutions for pension drawdown (pathway solutions).

The final rules and guidance will come into force on 6 April 2020.

Firms intending to offer pathway solutions should ensure that they have established an IGC or GAA

by 6 April 2020. IGCs and GAAs will need to assess the proposed design of pathway solutions, and

firms will need to take into account their concerns, before 1 August 2020.

In Q2 2020, the FCA aims to publish the findings of its review of the effectiveness of IGCs, which is

currently underway. The FCA plans to review the impact of the rules it has already made for

investment pathways one year after their implementation on 1 August 2020.

FCA Policy Statement PS19/30 – Independent Governance Committees: extension of remit

Webpage

6.3 FCA Handbook Notice No. 72 – December 2019 – The FCA has published Handbook Notice No. 72,

setting out changes made to the Handbook by the FCA board on 21 November 2019 and 12

December 2019.

FCA Handbook Notice No. 72

6.4 Climate Financial Risk Forum – FCA publishes key points from November 2019 meeting – 18

December 2019 – The FCA has published a summary of the key points discussed at the latest

Climate Financial Risk Forum, held in November 2019. Several key points were discussed at the

Forum, including: (i) the progress of the draft practical guidance and recommendations to date;

(ii) the form of the outputs and timelines for their publication; and (iii) how to generate wider

industry input on the draft guidance and recommendations in early 2020.

The next Climate Financial Risk Forum meeting is scheduled to take place in Q1 2020 and is

expected to focus on finalising the outputs for publication and determining the Forum’s next

steps.

FCA webpage on the Climate Financial Risk Forum

Financial Regulation / 19 December 2019 / Issue 1040 7

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7. Financial Ombudsman Service

7.1 Budget and future strategy - FOS publishes Consultation Paper – December 2019 – The Financial

Ombudsman Service (FOS) has published a Consultation Paper setting out its proposed plans and

budget for the 2020/21 financial year and the FOS’ future strategy looking ahead to 2025 and

beyond. The Consultation Paper discusses the volumes of complaints the FOS expects to receive and

resolve, as well as its proposed budget and funding arrangements.

The consultation period closes on 31 January 2020. The FOS intends to publish its final plans and

budget for 2020/21 before the end of the current financial year, alongside its future strategy and

a summary of the feedback it received.

FOS Consultation Paper on its plans and budget for the 2020/21 financial year and the FOS’

future strategy

Press release

Brexit 8. HM Government

8.1 Financial services legislation – announced in the Queen’s Speech – 19 December 2019 – The

Queen’s Speech has been delivered at the Opening of Parliament, setting out the government’s

legislative agenda for the next parliamentary session. The Speech referred to the government’s

intention to bring forward financial services legislation in order to ensure that the UK maintains its

world-leading regulatory standards and remains open to international markets after leaving the

EU. More specifically, the legislation aims to:

support the UK’s position as an international financial services centre;

enhance the competitiveness of the UK’s financial sector while maintaining high standards

of consumer protection;

facilitate long-term market access between the UK and Gibraltar for financial services

firms;

simplify the process which allows overseas investment funds to be sold in the UK; and

implement the Basel standards to strengthen the regulation of global banks.

The Queen’s Speech, delivered on 19 December 2019

HM Government Briefing Paper on the legislative agenda announced in the Queen’s Speech

2019

Financial Regulation / 19 December 2019 / Issue 1040 8

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Banking and Finance 9. Basel Committee

9.1 Consolidated Basel framework – launched by Basel Committee – December 2019 – The Basel

Committee on Banking Supervision has published a consolidated version of the Basel framework,

containing its global standards for the regulation and supervision of banks. This follows the Basel

Committee’s consultation on a draft version of this consolidated framework in April 2019.

The consolidated framework aims to improve the accessibility of the standards and includes

various technical amendments intended to clarify certain aspects of the framework. The

consolidated framework neither introduces new requirements nor substantially amends existing

standards.

The Basel Committee encourages members to implement these amendments as soon as possible

and, in any event, no later than 1 January 2022.

Basel Committee consolidated Basel framework

Webpage on the launch of the consolidated Basel framework

Webpage on the Basel framework

Press release

10. European Commission

10.1 CRR - European Commission adopts Delegated Regulation on alternative standardised approach

for market risk – 17 December 2019 – The European Commission has adopted Commission

Delegated Regulation (C(2019)9068) of 17 December 2019, on an alternative standardised

approach (ASA) for market risk under the Capital Requirements Regulation (575/2013/EU) (CRR),

as amended by the Capital Requirements Regulation (EU) 2019/876 (CRR II). This follows the

Commission’s consultation on a draft version of the Delegated Regulation in October 2019.

The Delegated Regulation aligns the revised market risk requirements, which were introduced by

the CRR II, with the Basel Committee’s final revised version of its market risk standards published

in January 2019. The Delegated Regulation also aligns technical specifications and provisions in

the CRR relating to the sensitivities-based method (SBM), which forms part of the ASA, with the

Basel Committee’s final standards. The Commission states that these amendments ensure that the

ASA reporting requirements will be fully operational.

The Delegated Regulation will now be considered by the European Parliament and the Council of

the European Union. If not objected to, it will enter into force 20 days, and apply six months,

after its publication in the Official Journal of the European Union.

Delegated Regulation on an alternative standardised approach for market risk under the CRR

Financial Regulation / 19 December 2019 / Issue 1040 9

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11. European Parliament

11.1 EU crowdfunding legislative proposals - Parliament, Council of the EU and Commission reach

political agreement – 19 December 2019 – The European Parliament has announced that it has

reached political agreement with the Council of the European Union and the European Commission

on: (i) proposed Regulation (EU) 2018/0048(COD) on European crowdfunding service providers

(ECSPs) for business; and (ii) proposed Directive (EU) 2018/0047(COD), which makes consequential

amendments to the Markets in Financial Instruments Directive (EU) 2014/65 (MiFID II) in relation to

crowdfunding. The new rules will be formally adopted by the Council of the EU and the Parliament

pursuant to the early second reading agreement procedure.

Press release: European Parliament announces political agreement on EU crowdfunding

legislative proposals

Council of the EU press release

European Commission press release

12. European Systemic Risk Board

12.1 Financial stability - ESRB publishes report on macroprudential policy implications of foreign

branches – December 2019 – The European Systemic Risk Board (ESRB) has published a report on

the macroprudential policy implications of foreign branches that are relevant for financial

stability. The report provides an underlying analysis of the issues addressed in Recommendation

ESRB/2019/18 of the ESRB, on the exchange and collection of information for macroprudential

purposes on branches of credit institutions which have their head office in another member state

or in a third country, which was published in the Official Journal of the European Union on 9

December 2019.

The report analyses the significance of foreign branches in EU member states and their potential

financial stability implications before concluding that: (i) a framework for the exchange of

information on foreign branches for macroprudential purposes is necessary and should be

developed further at EU and national levels; and (ii) colleges of supervisors and voluntary

arrangements between authorities on the exchange of information within the existing legal

framework, such as Memoranda of Understanding, are proposed as the vehicles of this framework.

ESRB report on the macroprudential policy implications of foreign branches relevant for

financial stability

13. European Banking Authority

13.1 Benchmarking of internal models – EBA publishes consultation on draft ITS – 12 December 2019

– The European Banking Authority (EBA) has published a Consultation Paper, and accompanying

annexes, on proposed draft implementing technical standards (ITS) which amend Implementing

Regulation (EU) 2016/20170 on the benchmarking of internal models. The proposed draft ITS seek

to adjust the benchmarking portfolios and reporting requirements of internal models in view of

the EBA’s benchmarking exercise, which the EBA intends to carry out in 2021. Among other things,

the draft ITS introduce International Financial Reporting Standard (IFRS) 9 benchmarking

templates.

Financial Regulation / 19 December 2019 / Issue 1040 10

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The EBA intends to host a public meeting on the consultation on 3 February 2020. The consultation

period closes on 13 February 2020.

EBA Consultation Paper on draft ITS amending the benchmarking of internal models

Webpage

Press release

13.2 CRR II – EBA publishes final draft RTS on the standardised approach for counterparty credit risk

– 18 December 2019 – The EBA has published its final draft regulatory technical standards (RTS) on

the standardised approach for counterparty credit risk under the CRR II. The final draft RTS:

set out the method for identifying material risk drivers of derivative transactions on the

basis of which the mapping to one or more of the risk categories is to be done;

illustrate the formula that institutions are to use to calculate the supervisory delta of

interest-rate options, when mapped to the interest rate risk category, which is compatible

with negative interest rates; and

introduce a method suitable for determining the direction of the position in a material risk

driver.

The EBA will submit the final draft RTS to the European Commission for adoption.

EBA final draft RTS on the standardised approach for counterparty credit risk under CRR II

Press release

13.3 CRD IV - EBA publishes Consultation Paper on final draft RTS on the identification of staff with

a material impact on institutions’ risk profiles – 19 December 2019 - The EBA has published a

Consultation Paper setting out its proposed final draft RTS on criteria to identify staff whose

professional activities have a material impact on institutions’ risk profiles, supplementing the

Capital Requirements Directive (2013/36/EU) (CRD IV).

Members of staff are identified as having a material impact on the institution’s risk profile as soon

as they meet at least one of either the criteria foreseen under the CRD IV, the qualitative or

quantitative criteria in the draft RTS or, where necessary because of the specificities of their

business model, additional internal criteria, to ensure that all risk takers are identified. The

proposed final draft RTS include qualitative criteria identifying staff with managerial

responsibilities and decision-making powers that have a material impact on institutions’ risk

profiles. The RTS also contain quantitative criteria based on institutions’ staff remuneration

levels.

The consultation period closes on 19 February 2020.

EBA Consultation Paper on draft RTS on the identification of staff with a material impact on

institutions’ risk profiles under CRD IV

Press release

Financial Regulation / 19 December 2019 / Issue 1040 11

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14. Single Resolution Board

CRR – SRB extends prior permissions procedure for MREL – 18 December 2019 – The Single

Resolution Board (SRB) has announced that it intends to extend its procedure to assess

applications to reduce eligible liabilities instruments under Article 78a of the CRR until the

relevant EBA RTS come into force. The SRB states that, in order to continue performing market-

making and secondary market activities from 1 January 2020, banks must obtain a prior

permission.

Press release: SRB extends prior permissions regime under for MREL under the CRR

15. Official Journal of the European Union

15.1 Single Supervisory Mechanism – ECB Regulation and Decision published in the Official Journal –

17 December 2019 – Regulation (EU) 2019/2155 of the ECB of 5 December 2019, amending the ECB

Regulation (1163/2014/EU) on annual supervisory fees, has been published in the Official Journal

of the European Union. The Regulation amends the ECB Regulation insofar as: (i) annual

supervisory fees will be levied only after the end of the relevant fee period when the actual

annual costs have been determined; and (ii) the supervisory fees payable by less significant

supervised entities and less significant supervised groups with total assets of €1 billion or less will

be reduced. The Regulation will enter into force on 20 December 2019. The 2020 fee period will

be governed by the transitional arrangements set out in Article 17a of the ECB Regulation.

Decision (EU) 2019/2158 of the ECB of 5 December 2019, on the methodology and procedures for

the determination and collection of data regarding fee factors used to calculate annual

supervisory fees, has also been published in the Official Journal of the European Union. This

Decision reflects the revisions made by Regulation (EU) 2019/2155.

Official Journal: Regulation (EU) 2019/2155 amending the ECB Regulation on annual

supervisory fees

Official Journal: ECB Decision on the methodology and procedures used to calculate annual

supervisory fees

15.2 CRR – Commission Implementing Decision on equivalent third countries published in the

Official Journal – 18 December 2019 – Commission Implementing Decision (EU) 2019/2166 of 16

December 2019, which amends Implementing Decision (2014/908/EU) as regards the inclusion of

Serbia and South Korea in the lists of third countries and territories whose supervisory and

regulatory requirements are considered equivalent for the purposes of the treatment of exposures

in accordance with the CRR, has been published in the Official Journal of the European Union.

Commission Implementing Decision (EU) 2019/2166 will enter into force on 7 January 2020.

Official Journal: Commission Implementing Decision (EU) 2019/2166 amending the lists of

equivalent third countries for the treatment of exposures under the CRR

16. European Central Bank

16.1 Central bank digital currencies – ECB publishes paper on anonymity – December 2019 – The

European Central Bank (ECB) has published a paper exploring the extent to which an appropriate

balance may be struck between allowing a certain degree of privacy in electronic payments and

ensuring compliance with regulations aimed at tackling money laundering and the financing of

Financial Regulation / 19 December 2019 / Issue 1040 12

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terrorism. Under the coordination of the ECB, the European System of Central Banks (ESCB) has

established a proof of concept for anonymity in digital cash. This proof of concept demonstrates

that a central bank digital currency payment system, based on distributed ledger technology

(DLT), could work. The paper observes that there is no immediate need to take concrete steps

towards the issuance of central bank digital currency in the euro area.

ECB paper on anonymity in electronic payments and central bank digital currencies

Press release

17. Prudential Regulation Authority

17.1 PRA Policy Statement PS26/19 – Pillar 2 liquidity: PRA110 reporting frequency threshold –

December 2019 – The PRA has published a Policy Statement (PS26/19) setting out its final policy as

regards the PRA110 reporting frequency threshold. This follows the PRA’s June 2019 Consultation

Paper (CP14/19) on the same matter. The PRA has decided to implement the proposed

amendments as consulted on, meaning that firms with total assets of £5 billion or above, that

would otherwise report the PRA110 monthly, will have to report on every business day if (and for

as long as) there is a specific liquidity stress, or market liquidity stress in relation to the firm,

branch or group in question.

The PRA has updated Supervisory Statement (SS24/15) ‘The PRA’s approach to supervising liquidity

and funding risks’ in order to align it with the amended PRA110 reporting frequency. The PRA also

intends to amend the Regulatory Reporting Part of the PRA Rulebook to give effect to the

amendments. The amendments will come into force on 1 May 2020.

PRA Policy Statement PS26/19 – Pillar 2 liquidity: PRA110 reporting frequency threshold

Updated Supervisory Statement (SS24/15) ‘The PRA’s approach to supervising liquidity and

funding risks’

Webpage

Press release

17.2 IBOR transition – PRA publishes letter on regulatory capital impediments – 18 December 2019 –

The PRA has published a letter from Sam Woods (Deputy Governor of the Bank of England and CEO

of the PRA) to Tushar Morzaria (Chair of the Working Group on Risk-Free Reference Rates

(RFRWG)) regarding regulatory capital impediments to interbank offered rates (IBOR) transition.

This follows the RFRWG’s October 2019 letter to the PRA, which identified several potential

impediments to the adoption of alternative risk-free rates, including: (i) the eligibility of

Additional Tier 1 (AT1) and Additional Tier 2 (AT2) capital; (ii) bilateral margin requirements for

non-cleared derivatives; (iii) rules related to resolution and counterparty credit risk; (iv) market

risk; and (v) interest rate risk in the banking book. Among other points, Mr Woods states that:

in relation to AT1 and AT2 capital, the PRA does not believe it is desirable to reassess the

eligibility of instruments where the amendments are solely to replace the benchmark

reference rate;

Financial Regulation / 19 December 2019 / Issue 1040 13

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international regulators have confirmed that bilateral margin requirements for non-

cleared derivatives are not intended to apply to legacy contracts where they are amended

solely to deal with interest rate benchmark reforms;

the PRA is considering the possible implications of benchmark rate reform for its rules on

contractual recognition of bail-in and stays in resolution and it intends to provide an

update on the matter in spring 2020; and

changes relating to new benchmark rates could require widespread model changes in

relation to counterparty credit risk, market risk and interest rate risk in the banking book.

Mr Woods urges firms to take appropriate action now so that they have transitioned to alternative

rates before the end of 2021. The PRA intends to meet again with major firms in Q1 2020 to

discuss the development of a consistent approach to the management of these risks through the

transition period.

Letter from Sam Woods (Deputy Governor of the Bank of England and CEO of the PRA) to

Tushar Morzaria (Chair of the RFRWG) on regulatory capital impediments to IBOR transition

17.3 PRA Policy Statement PS27/19: Reporting updates for Capital+ and ring-fenced bodies – 19

December 2019 – The PRA has published a Policy Statement (PS27/19) setting out its final rules

amending the Regulatory Reporting Part of the PRA Rulebook in relation to several capital+ and

ring-fenced body reporting templates. The PRA will implement the rules as consulted on in its

October 2019 Consultation Paper (CP25/19). The PRA has also updated Supervisory Statement

(SS34/15) ‘Guidelines for completing regulatory reports’ accordingly.

The final rules and changes set out in this Policy Statement will take effect on Wednesday 1 March

2020 for the PRA101 and PRA102 templates, and Monday 1 June 2020 for the RFB003, RFB004 and

RFB008 templates.

PRA Policy Statement PS27/19: Reporting updates for Capital+ and ring-fenced bodies

Updated Supervisory Statement (SS34/15) ‘Guidelines for completing regulatory reports’

Webpage

18. Bank of England

18.1 Financial Stability Report and 2019 stress test results – published by the Bank of England –

December 2019 – The Bank of England has published its latest Financial Stability Report alongside

the results of its 2019 stress test of the UK banking system. The Financial Policy Committee (FPC)

states that the 2019 stress test shows the UK banking system is resilient to deep simultaneous

recessions in the UK and global economies that are more severe overall than the global financial

crisis (which come with large decreases in asset prices and a separate stress of misconduct costs)

and the UK would be able to continue to meet credit demand from UK households and businesses

even in the unlikely event of these highly adverse conditions.

The 2019 stress test also shows that: (i) losses on corporate exposures are higher than in previous

tests, reflecting some deterioration in asset quality; (ii) major UK banks’ capital ratios have

remained stable since the end of 2018; and (iii) at the end of Q3 2019, major UK banks’ common

equity Tier 1 (CET1) ratios were over three times higher than at the start of the global financial

Financial Regulation / 19 December 2019 / Issue 1040 14

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crisis. The FPC also states that the core of the UK financial system, including banks, dealers and

insurance companies, is resilient to, and prepared for, the wide range of UK economic and

financial shocks that could be associated with a worst-case disorderly Brexit. The FPC comments

that most risks to UK financial stability that could arise from disruption to cross-border financial

services in a worst-case disorderly Brexit have been mitigated due to the extensive preparations

made by authorities and the private sector.

The Bank has also published a document analysing the effectiveness and implementation of the

stress test framework against certain aspects of the Basel framework.

Bank of England Financial Stability Report

Webpage

Speech by Mark Carney (Governor of the Bank of England) on the Financial Stability Report

Record and summary of the FPC meeting

Bank of England assessment on the effectiveness of the stress test framework

Webpage

18.2 Global standard to modernise UK payments – Bank of England publishes update on

implementation of the ISO 20022 CHAPS migration - December 2019 – The Bank of England has

published several documents which provide an update on the implementation of the introductory

phase of the ISO 20022, a new common global messaging standard for UK payments. The

implementation of ISO 20022 seeks to align credit payment messages across the UK’s three main

interbank payments systems: CHAPS, Bacs and Faster Payments. The Bank plans to migrate CHAPS

from SWIFT MT messaging to ISO 20022 messaging in March 2022.

Bank of England statement on ISO 20022 CHAPS migration information for Direct Participants

Bank of England statement on ISO 20022 CHAPS migration information for other RTGS account

holders

Bank of England and Pay.UK 2020 priorities for the ISO 20022 migration

Webpage

See the Securities and Markets section for an item on the European Money Markets Institute (EMMI)

publishing the benchmark statement for the administration of the Euro overnight index average (EONIA).

Securities and Markets 19. International Organization of Securities Commissions

19.1 Conflicts of interest and associated conduct risks – IOSCO publishes Consultation Report on the

debt capital raising process – December 2019 – The International Organization of Securities

Commissions (IOSCO) has published a Consultation Report requesting feedback on proposed

guidance to help IOSCO members address potential conflicts of interest and associated conduct

risks arising from the role of market intermediaries during the debt capital raising process. Among

other topics, the consultation seeks public comments on the use of distributed ledger technology

Financial Regulation / 19 December 2019 / Issue 1040 15

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(DLT) in bond issuances and the potential benefits and risks of using DLT, including for managing

conflicts of interest. The proposed guidance comprises eight measures that address:

the pricing of debt securities and risk management transactions;

the quality of information available to investors; and

the allocation of debt securities.

The consultation period closes on 16 February 2020.

IOSCO Consultation Report on the conflicts of interest and conduct risks arising from the role

of market intermediaries in the debt capital raising process

Press release

20. Financial Stability Board

20.1 Reforming major interest rate benchmarks – FSB publishes annual progress report – 18

December 2019 – The Financial Stability Board (FSB) has published its annual progress report on

the implementation of its 2014 recommendations to reform major interest rate benchmarks. The

report emphasises that the continued reliance of global financial markets on the London interbank

offered rate (LIBOR) poses risks to financial stability and calls for significant and sustained efforts

by firms and institutions to transition away from LIBOR by the end of 2021. The report also states

that:

there is a common view across FSB jurisdictions that the use of overnight risk-free rates

should be encouraged across global interest rates markets where appropriate, and that

contracts referencing interbank offered rates (IBORs) should have robust fallback

provisions;

good progress has been made in derivatives and securities markets, but transition in

lending markets has been slower and needs to accelerate; and

firms should not delay their transition away from LIBOR until the emergence of possible

forward-looking term versions of risk-free rates and should expect increasing scrutiny of

their transition efforts as the end of 2021 approaches.

FSB progress report on reforming major interest rate benchmarks

Webpage

Press release

20.2 Securitisation – FSB publishes report on the vulnerabilities associated with leveraged loans and

CLOs – 18 December 2019 – The FSB has published a report assessing the financial stability

implications of developments in the leveraged loan and collateralised loan obligation (CLO)

markets. The report states that markets for leveraged loans and CLOs have remained strong and

have grown significantly in recent years, exceeding pre-crisis levels in 2014, with the majority of

issuances concentrated in the US and, to a lesser extent, the EU. The report also highlights that

while most leveraged loans are originated and held by banks, the role of non-bank financial

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institutions has increased. In relation to the vulnerabilities associated with leveraged loans and

CLOs, the report concludes that:

vulnerabilities in these markets have increased since the financial crisis;

banks have the largest direct exposures to leveraged loans and CLOs and that these

exposures are concentrated among a limited number of large global banks and have a

significant cross-border dimension; and

increasing numbers of non-bank investors, including investment funds and insurance

companies, are also exposed to the leveraged loan and CLO markets.

FSB report on the vulnerabilities associated with leveraged loans and CLOs

Webpage

Press release

21. European Commission

21.1 EMIR – European Commission adopts Delegated Regulation on RTS on the mitigation of

counterparty credit risk associated with covered bonds and securitisations – 16 December 2019

– The European Commission has adopted Commission Delegated Regulation (C(2019)8886) of 16

December 2019 supplementing the European Market Infrastructure Regulation (648/2012/EU)

(EMIR) with regard to regulatory technical standards (RTS) specifying the criteria for establishing

the arrangements to adequately mitigate counterparty credit risk associated with covered bonds

and securitisations. This follows the Joint Committee of the European Supervisory Authorities’

(ESAs’) consultation on the draft RTS, published in December 2018.

The Delegated Regulation will now be considered by the European Parliament and the Council of

the European Union. It will enter into force and apply 20 days after its publication in the Official

Journal of the European Union.

Delegated Regulation supplementing EMIR with regard to RTS specifying the criteria for

establishing the arrangements to mitigate counterparty credit risk associated with covered

bonds and securitisations

21.2 Cryptoassets – European Commission publishes consultation on EU regulatory framework –

December 2019 – The European Commission has published a public consultation on the suitability

of the existing EU regulatory framework for cryptoassets, including stablecoins. The consultation

defines a cryptoasset as “a digital asset that may depend on cryptography and exists on a

distributed ledger”. The consultation seeks views on: (i) the potential use of cryptoassets; (ii)

whether and how cryptoassets should be classified at the EU level in the absence of an existing

common classification; (iii) cryptoassets that currently fall outside the scope of EU financial

services legislation, and on the risks presented by some service providers related to unregulated

cryptoassets and the best way to mitigate them; and (iv) cryptoassets that currently fall within

the scope of EU legislation, termed “security tokens” and “e-money tokens”.

The consultation period closes on 19 March 2020. The Commission intends to use the responses

received in respect of its consultation to inform its ongoing work on cryptoassets.

Financial Regulation / 19 December 2019 / Issue 1040 17

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European Commission consultation on the EU regulatory framework for cryptoassets

Press release

22. Official Journal of the European Union

22.1 EEA Agreement – Decisions amending Annex IX (Financial Services) published in the Official

Journal – 12 December 2019 – The following five Decisions of the EEA Joint Committee, amending

Annex IX (Financial Services) to the EEA Agreement, have been published in the Official Journal of

the European Union:

Decision 21/2018 of 9 February 2018, amending Annex IX (Financial Services), Annex XII

(Free Movement of Capital) and Annex XXI (Company Law) to incorporate the Bank

Recovery and Resolution Directive (2014/59/EU) (BRRD) into the EEA Agreement;

Decision 20/2018 of 9 February 2018, amending Annex IX (Financial Services) to

incorporate Credit Rating Agency Directive (2013/14/EU) (CRA III) and the Undertakings

for the Collective Investment in Transferable Securities Directive (2014/91/EU) (UCITS

Directive) into the EEA Agreement;

Decision 256/2018 of 5 December 2018, amending Annex IX (Financial Services) to

incorporate several Delegated Regulations and Implementing Decisions relating to EMIR

into the EEA Agreement;

Decision 79/2019 of 29 March 2019, amending Annex IX (Financial Services) to incorporate

the Capital Requirements Regulation (575/2013/EU) (CRR), the Capital Requirements

Directive (2013/36/EU) (CRD IV) and the CRR IFRS 9 Regulation (EU) 2017/2395 into the

EEA Agreement; and

Decision 125/2019 of 8 May 2019, amending Annex IX (Financial Services) and Annex XIX

(Consumer protection) to incorporate the Mortgage Credit Directive (2014/71/EU) (MCD)

into the EEA Agreement.

Official Journal: EEA Joint Committee Decision incorporating the BRRD into the EEA

Agreement

Official Journal: EEA Joint Committee Decision incorporating the CRA III and UCTIS Directive

into the EEA Agreement

Official Journal: EEA Joint Committee Decision incorporating several Delegated Regulations

and Implementing Decisions relating to EMIR into the EEA Agreement

Official Journal: EEA Joint Committee Decision incorporating the CRR, CRD IV and the CRR IFRS

9 Regulation into the EEA Agreement

Official Journal: EEA Joint Committee Decision incorporating the MCD into the EEA Agreement

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22.2 Covered bonds - Regulation and Directive published in the Official Journal – 18 December 2019

– The following Regulation and Directive have been published in the Official Journal of the

European Union:

Regulation (EU) 2019/2160 of 27 November 2019, which amends the CRR as regards

exposures in the form of covered bonds; and

Directive (EU) 2019/2162 of 27 November 2019, which amends the UCITS Directive and the

BRRD on the issue of covered bonds and covered bond public supervision.

The Regulation and Directive will enter into force on 6 January 2020. The Regulation will apply

from 8 July 2022.

Official Journal: Regulation (EU) 2019/2160 amending the CRR as regards exposures in the

form of covered bonds

Official Journal: Directive (EU) 2019/2162 amending the UCITS Directive and the BRRD on

covered bonds and covered bond supervision

23. Joint Associations

23.1 EMIR and SFTR – Joint Associations publish new master regulatory reporting agreement – 19

December 2019 – The Joint Associations, which include the Association of Financial Markets in

Europe (AFME), the Futures Industry Association (FIA), the International Capital Markets

Association (ICMA), the International Swaps and Derivatives Association (ISDA) and the

International Securities Lending Association (ISLA), have published a new master regulatory

reporting agreement which is intended to simplify regulatory reporting under EMIR and the

Securities Financing Transaction Regulation (EU) 2015/2365 (SFTR).

The Joint Associations have also published an explanatory memorandum which provides guidance

on the new master regulatory reporting agreement.

Joint Associations master regulatory reporting agreement for EMIR and SFTR

Explanatory memorandum

ICMA press release

ISDA press release

AFME press release

FIA press release

ISLA press release

24. European Securities and Markets Authority

24.1 MAR - ESMA publishes annual report on accepted markets practices - 13 December 2019 – The

European Securities and Markets Authority (ESMA) has published its annual report to the European

Commission on the application of accepted market practices (AMPs) in the EU in accordance with

the Market Abuse Regulation (596/2014/EU) (MAR). AMPs constitute a defence against allegations

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of market manipulation, such that dealings in financial markets which are carried out for

legitimate reasons and in conformity with an established AMP will not constitute market

manipulation.

The report considers the AMPs established in the EU under the Market Abuse Directive (2003/6/EC)

(MAD) which still apply, and three AMPs established in the EU under the MAR. ESMA notes that

AMPs remain a matter of interest for only a small number of countries and states that the data

provided by national competent authorities (NCAs) indicates that the number of liquidity contracts

and the liquidity of shares benefitting from AMPs and trade volumes remain stable and comparable

with 2018.

ESMA annual report on the application of AMPs under MAD and MAR

Press release

25. European Money Markets Institute

25.1 EONIA benchmark statement – published by EMMI – 18 December 2019 – The European Money

Markets Institute (EMMI) has published the benchmark statement for the administration of the

Euro overnight index average (EONIA) following its authorisation by the Belgian Financial Services

and Markets Authority on 11 December 2019 under the Benchmarks Regulation (EU) 2016/1011

(BMR). Consequently, EONIA can continue to be used until 3 January 2022, the date on which the

benchmark will be discontinued.

The statement provides information on EONIA in relation to: (i) market or economic reality; (ii)

potential limitations of the benchmark; (iii) input data and methodology; (iv) exercise of

judgement or discretion by the administrator or contributors; (v) cessation and change of the

methodology; and (vi) specific disclosures for interest rate and critical benchmark.

EMMI EONIA benchmark statement

Press release

26. Association for Financial Markets in Europe

26.1 LIBOR transition – AFME publishes report on the management of conduct and compliance risks

– December 2019 – The AFME has published a report on the management of conduct and

compliance risks arising from the transition away from LIBOR ahead of its planned cessation after

2021. The report aims to provide practical guidance on the management of conduct risks by firms

engaged in the transition away from LIBOR to risk-free rates (RFRs), including suggested steps to

establish a robust governance structure to mitigate such risks.

AFME report on the management of conduct and compliance risks arising from the transition

away from LIBOR

Press release

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27. Bank of England

27.1 LIBOR transition – RFRWG publishes Consultation Paper on credit adjustment spread

methodologies for fallback provisions in cash products referencing LIBOR – December 2019 –

The Bank of England’s Working Group on Sterling Risk-Free Reference Rates (RFRWG) has

published a Consultation Paper on the credit spread adjustment methodologies to be included

within contractual fallback provisions in sterling cash instruments referencing LIBOR in order to

facilitate a smooth transition from LIBOR to the Sterling overnight index average rate (SONIA). The

paper considers four proposed methodologies that could be used to calculate the credit

adjustment spread.

The consultation period closes on 6 February 2020.

RFRWG Consultation Paper on credit adjustment spread methodologies for fallback provisions

in cash products referencing LIBOR

Webpage

28. Financial Conduct Authority

28.1 Primary Market Bulletin No. 26 – published by the FCA – December 2019 – The FCA has published

its Primary Market Bulletin No. 26, which contains the first stage of updates to the FCA’s technical

and procedural notes to reflect the entry into force of the Prospectus Regulation (EU) 2017/1129.

These changes consist of updated terminology and rule references which are a direct consequence

of the change of prospectus regime, and do not materially affect the substance of the guidance in

the respective notes. Three technical notes are also deleted.

FCA Primary Market Bulletin No. 26 on amendments to the FCA’s Knowledge Base following

the entry into force of the Prospectus Regulation

28.2 Open Finance – FCA publishes call for input – December 2019 – The FCA has published a call for

input in order to explore the opportunities and risks arising from the utilisation of open finance in

financial services. Open finance refers to the extension of open banking-like data sharing to a

wider range of financial products, providing customers and businesses with new ways in which to

utilise their finances. This follows the launch of the FCA’s Advisory Group on Open Finance in

August 2019. The FCA states that open finance has the potential to increase the accessibility and

efficiency of financial services, particularly in the general insurance, cash savings and mortgage

markets, but that the FCA also wants to ensure that it develops in the best interests of consumers.

The call for input is expected to shape the FCA’s future strategy towards open finance.

The FCA has also published a series of notes from various working groups of its Advisory Group on

Open Finance, which has informed the FCA’s call for input on open finance.

The call for input closes on 17 March 2019, after which the FCA intends to publish a Feedback

Statement in summer 2020.

FCA call for input on open finance

Advisory Group note on cohesion and interoperability

Advisory Group note on data rights

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Advisory Group note on incentives

Webpage on call for input on open finance

Webpage on Advisory Group on Open Finance

Press release

29. The City of London Law Society

29.1 MAR review – CLLS publishes response to ESMA consultation – 13 December 2019 – The City of

London Law Society (CLLS) Regulatory Law Committee has published its response, dated 29

November 2019, to ESMA’s consultation on MAR. ESMA’s consultation, published in October 2019,

covers a wide range of issues, including: (i) the inclusion of spot foreign exchange (FX) contracts

within the scope of MAR; (ii) the definition and delayed disclosure of inside information; (iii) the

appropriateness of the trading prohibition and insider lists for persons discharging managerial

responsibilities; and (iv) the cross-border enforcement of sanctions. The Committee’s response

discusses several points, including:

reservations about whether extending the scope of MAR to include spot FX contracts is

appropriate, owing to the fact that spot FX contracts have different characteristics to the

instruments for which the MAR prohibitions were designed;

the practical challenges faced by market participants in identifying inside information,

specifically with regards to precision and the assessment of when the information is likely

to have a significant effect on price;

concerns that the proposed amendments to Article 11 of MAR (market soundings), which

make market soundings requirements which do not involve the provision of inside

information obligatory, are disproportionate and overly burdensome on market

participants; and

the lack of clarity surrounding how Article 19 of MAR (managers’ transactions) applies to

employee share schemes.

ESMA is undertaking the consultation following a formal request for technical advice from the

European Commission. ESMA intends to submit a final report to the Commission by spring 2020.

CLLS Regulatory Law Committee response to ESMA consultation on the MAR

See the Enforcement section for an item on ESMA publishing a Consultation Paper on the procedural rules

regarding the imposition of penalties on third-country CCPs, TRs and CRAs under EMIR.

Asset Management 30. International Organization of Securities Commissions

30.1 Financial stability - IOSCO launches framework for monitoring leverage in investment funds

that may pose stability risks – December 2019 – The International Organization of Securities

Commissions (IOSCO) has published a report setting out its recommendations for establishing a

two-step framework for the assessment of leverage-related risks in investment funds which may

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pose a threat to financial stability. The framework covers: (i) how regulators could exclude from

consideration funds that are unlikely to produce financial stability risks; and (ii) how to identify

and analyse a subset of funds which may pose financial stability risks.

IOSCO recommends that regulators use the framework as a basis for their assessment of leverage-

related risks in funds. IOSCO plans to publish an annual report in 2021 reflecting leverage trends

within the asset management industry at a global level.

IOSCO report on a framework on the assessment of leverage-related risks in investment funds

which may pose a threat to financial stability

Press release

31. European Parliament

31.1 Taxonomy on sustainable investments – European Parliament announces agreement with the

Council of the EU on criteria determining the sustainability of an economic activity – 17

December 2019 – The European Parliament has announced that it has reached agreement with the

Council of the European Union on new criteria to determine whether an economic activity is

considered environmentally sustainable under the proposed Regulation (EU) 2018/0178(COD)

(Taxonomy Regulation) on the establishment of a framework to facilitate sustainable investment

and identify green economic activities.

The agreement states that the following criteria should be considered when evaluating an

activity’s sustainability: (i) climate change mitigation and adaptation; (ii) sustainable use and

protection of water and marine resources; (iii) transition to a circular economy, including waste

prevention and increasing the uptake of secondary raw materials; (iv) pollution prevention and

control; and (v) protection and restoration of biodiversity and ecosystems. A sustainable economic

activity should contribute towards one or more of these objectives, and not significantly harm any

of them. The text does not preclude or blacklist any specific technologies or sectors from green

activities, apart from solid fossil fuels, such as coal or lignite. Gas, and nuclear energy production

are not explicitly excluded from the proposed Regulation. The new legislation should also protect

investors from the risks of ‘greenwashing’ as it makes it compulsory to provide a detailed

description of how the investment meets the environmental objectives.

The agreement reached by the European Parliament negotiating team will have to be approved

first by the two committees involved and by a plenary vote.

Press release: European Parliament and Council of the EU reach agreement on the criteria

determining the sustainability of an economic activity under the Taxonomy Regulation

32. Financial Conduct Authority and Bank of England

32.1 Open-ended funds – FCA and Bank of England publish statement on joint review – 16 December

2019 – The Financial Policy Committee (FPC) has published a report setting out the initial findings

of a joint review by the FCA and the Bank of England on open-ended investment funds and the

risks posed by their liquidity mismatch. The FPC has reviewed the progress of the work and has

identified that, if greater consistency between the liquidity of fund’s assets and its redemption

terms is to be achieved:

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the liquidity of funds’ assets should be assessed by reference to the price discount needed

for a quick sale of a representative sample of those assets or the time period needed for a

sale which avoids a material price discount;

redeeming investors should receive a price for their units in the fund that reflects the

discount needed to sell the required portion of a fund’s assets in the specified redemption

notice period, ensuring fair outcomes for redeeming and remaining investors; and

redemption notice periods should reflect the time needed to sell the required portion of a

fund’s assets without discounts beyond those captured in the price received by redeeming

investors.

The review will now consider how these principles could be implemented in a proportionate and

cost-effective manner and the FCA intends to use the conclusions of the review, which will be

released in 2020, to inform the development of the FCA’s rules for open-ended funds.

Press release: FCA and Bank of England statement on joint review of open-ended funds

33. Financial Conduct Authority

33.1 FCA Policy Statement PS19/29: Making transfers simpler – December 2019 – The FCA has

published a Policy Statement (PS19/29) setting out its final rules which seek to make it easier for

consumers to transfer their assets from one platform to another without unnecessary liquidation

of investments. This follows the FCA’s March 2019 Consultation Paper (CP19/12) on the matter,

and forms part of the package of remedies resulting from the findings of the FCA’s investment

platforms market study.

The new rules will amend the FCA’s Conduct of Business sourcebook (COBS) to introduce

requirements for investment platform service providers to: (i) offer consumers the choice to

transfer units in investment funds that are common to both platforms using an in-specie transfer;

(ii) request a conversion of unit classes where necessary to facilitate an in-specie transfer; and

(iii) ensure that customers moving to a new platform are given an option to convert to discounted

units where these are available for them to invest in.

The new rules will come into force on 31 July 2020. The FCA plans to consult separately on exit

fees in Q1 2020.

FCA Policy Statement PS19/29: Making transfers simpler

Webpage

Webpage on the investment platforms market study

34. Recent Cases

34.1 Case C-272/18 Verein für Konsumenteninformation v TVP Treuhand und

Verwaltungsgesellschaft für Publikumsfonds mbH & Co KG, 3 October 2019

Unfair terms in consumer contracts - choice of law clause in an investment trust agreement

concluded between a professional and a consumer for the management of shares in a limited

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partnership – interpretation of the Rome Convention, the Rome I Regulation (593/2008/EC) and

the Unfair Contract Terms Directive (93/13/ECC)

The European Court of Justice (First Chamber) (ECJ) has given a preliminary ruling on the

interpretation of the Rome Convention, the Rome I Regulation (593/2008/EC) and the Unfair

Contract Terms Directive (93/13/ECC) (UCTD) in the context of a potentially unfair choice of law

clause in an investment trust agreement concluded between a professional and a consumer for the

management of shares in a limited partnership. The trust agreement was governed by German

law. The law and jurisdiction clause was not individually negotiated and could be found in the

standard form contract. The ECJ held that:

Article 1(2)(e) of the Rome Convention and Article 1(2)(f) of the Rome I Regulation must

be interpreted as not excluding from the scope of that convention or of that regulation

contractual obligations which are based on a trust agreement for the purposes of

administering shares in a limited partnership;

Article 5(4)(b) of the Rome Convention and Article 6(4)(a) of the Rome I Regulation must

be interpreted as meaning that a trust agreement, where the services owed to a consumer

must be provided in the country of the consumer’s habitual residence at a distance, from

another country, do not fall within the scope of the exclusion in those provisions; and

Article 3(1) of the UCTD must be interpreted as meaning that a choice of law clause in an

investment trust agreement, which is concluded between a professional and a consumer

for the management of shares in a limited partnership, which has not been individually

negotiated and which states that the applicable law is the law of the member state of the

partnership’s seat, is unfair where it leads the consumer into error by giving them the

impression that only the law of that member state applies to the contract, without

informing them that they also enjoy the protection of the mandatory provisions of the

national law that would be applicable in the absence of that term.

Verein für Konsumenteninformation v TVP Treuhand und Verwaltungsgesellschaft für

Publikumsfonds mbH & Co KG

See the General section for an item on the FCA clarifying solo-regulated firms’ ongoing requirements

under the Senior Managers and Certification Regime (SMCR).

Insurance 35. International Association of Insurance Supervisors

35.1 FinTech Developments: Disruption or dividends? – speech by Jonathan Dixon, Secretary

General of the IAIS – 13 December 2019 – Jonathan Dixon (Secretary General of the International

Association of Insurance Supervisors (IAIS)) has delivered a speech, dated 10 December 2019,

addressing the IAIS’ regulatory achievements in 2019 and the issues, challenges and opportunities

posed by FinTech developments in the insurance sector, at the Asia Insurance Forum 2019 held in

Hong Kong.

Mr Dixon highlights the IAIS’ key regulatory achievements in 2019, including: (i) the creation of a

substantially revised set of insurance core principles (ICPs); (ii) the adoption of the first global

frameworks for the effective and globally consistent supervision of internationally active insurance

groups (IAIGs); (iii) the adoption of a framework for assessing and mitigating systemic risk in the

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global insurance sector; and (iv) a significant step forward in the development of a global

insurance capital standard (ICS).

In relation to FinTech developments, Mr Dixon states that FinTech poses various issues, challenges

and opportunities for the insurance sector globally. He acknowledges that while developments in

FinTech have the potential to increase access to finance and improve the efficiency of services,

such developments may also cause disruption to traditional digital models and challenges for

regulators attempting to strike an appropriate balance between risk and benefit. Among other

points, Mr Dixon outlines the action taken by the IAIS to address the risks and benefits of FinTech

developments from a regulatory perspective, including:

establishing an IAIS virtual FinTech Forum, designed to provide a platform for experts to

share their practical experiences of technical innovation impacting the insurance sector,

including on the use of alternative data, artificial intelligence and smart contracts;

organising digital-themed events and workshops to increase insurance supervisors’

awareness of FinTech developments and how best to address them; and

developing IAIS working groups to formulate guidance on the risks, trends and

opportunities posed by technological innovation in the insurance sector, including the

Market Conduct working group which recently published a draft issues paper on the

increasing use of algorithms and advanced data analytics by insurers.

Speech by Jonathan Dixon (Secretary General of the IAIS) on the IAIS’ key achievements in

2019 and the issues, challenges and opportunities posed by FinTech developments in the

insurance sector

35.2 2019 G-SII identification process – IAIS publishes report - 13 December 2019 – The IAIS has

published a report on the annual process for identifying global systemically important insurers (G-

SIIs), whose distress or disorderly failure may potentially cause significant disruption to the global

financial system and economic activity.

IAIS report on the 2019 identification process for G-SIIs

36. European Insurance and Occupational Pensions Authority

36.1 Solvency II – EIOPA publishes annual report on the use of capital add-ons – December 2019 – The

European Insurance and Occupational Pensions Authority (EIOPA) has published its third annual

report on the use of capital add-ons by national competent authorities (NCAs) under the Solvency

II Directive (2009/138/EC). The report covers the use of capital add-ons by NCAs in 2018. The

objective of the capital add-on measure is to ensure that the regulatory capital requirements

reflect the risk profiling of the undertaking or group. The report makes several findings, including

that:

in 2018, eight NCAs utilised the capital add-on measure in respect of 21 solo undertakings,

as compared to six NCAs setting capital add-ons for 23 solo undertakings in 2017; and

the amount of capital add-ons imposed on undertakings using the standard formula

remains very low overall, accounting for 1% of the total solvency capital requirement

(SCR) in 2018.

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EIOPA annual report on the use of capital add-ons by NCAs in 2018

Press release

36.2 Solvency II – EIOPA publishes annual report on long-term guarantee measures and measures on

equity risk – 17 December 2019 – EIOPA has published its annual report on the use and impact of

long-term guarantee measures and measures on equity risk under the Solvency II Directive. The

report indicates that 699 (re)insurance undertakings in 22 countries, with a European market share

of 75%, use at least one of the following voluntary measures: (i) the matching adjustment; (ii) the

volatility adjustment; (iii) the transitional measures on risk-free interest rates; (iv) the

transitional measures on technical provisions; and (v) the duration-based equity risk sub-module.

The report also finds that the volatility adjustment and the transitional measure on technical

provisions are particularly widely used and that, overall, NCAs have observed a decrease in the

size and duration of guarantees.

The analysis carried out by EIOPA in the report will serve as a basis for an Opinion on the 2020

Solvency II review.

EIOPA report on long-term guarantee measures and measures on equity risk under Solvency II

Press release

36.3 2020 Solvency II Review - EIOPA publishes report on insurers’ asset and liability management

of illiquid liabilities – 16 December 2019 – EIOPA has published a report on insurers’ asset and

liability management of illiquid liabilities, following a request made by the European Commission

in April 2018 in the context of the 2020 review of the Solvency II Directive. The report

supplements information provided in EIOPA's annual reports on long-term guarantee measures.

The report contains information collected from NCAs in respect of four key areas: (i) insurance

liabilities; (ii) asset management of liabilities; (iii) long-term guarantee measures; and (iv) market

valuation of insurance liabilities.

EIOPA intends to use the information contained in the report to develop technical advice under

the 2020 Solvency II review, which will consider the extent to which the prudential framework

acknowledges the treatment of assets held against illiquid and long-term liabilities.

EIOPA report on insurers’ asset and liability management of illiquid liabilities

Press release

Financial Crime 37. Joint Committee of the European Supervisory Authorities

37.1 4MLD – ESAs publish final Guidelines on cooperation and information exchange between NCAs –

16 December 2019 – The Joint Committee of the European Supervisory Authorities (ESAs) (the

European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the

European Insurance and Occupational Pensions Authority (EIOPA)) has published a report

containing its final joint Guidelines on cooperation and information exchange between national

competent authorities (NCAs) responsible for supervising credit and financial institutions for the

Financial Regulation / 19 December 2019 / Issue 1040 27

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purposes of the Fourth Money Laundering Directive (EU) 2015/849 (4MLD). This follows the ESAs’

consultation on draft Guidelines in November 2018.

The Guidelines aim to clarify the practicalities of supervisory cooperation and information

exchange and establish a framework of ‘colleges’ which will provide NCAs that are responsible for

the supervision of institutions which operate in three or more member states with a forum for

cooperation and exchange from an anti-money laundering (AML) and prudential perspective.

The Guidelines will apply from 10 January 2020, subject to a transitional period which is set out in

Guideline 16.

ESAs report containing final joint Guidelines on cooperation and information exchange

between NCAs responsible for supervising credit and financial institutions under 4MLD

Press release: ESAs

Press release: EIOPA

Enforcement 38. European Securities and Markets Authority

38.1 EMIR – ESMA publishes consultation on procedural rules regarding the imposition of penalties

on third-country CCPs, TRs and CRAs – 13 December 2019 – The European Securities and Markets

Authority (ESMA) has published a Consultation Paper on future procedural rules regarding the

imposition of penalties on third-country central counterparties (CCPs), trade repositories (TRs)

and credit rating agencies (CRAs) under the European Market Infrastructure Regulation

(648/2012/EU) (EMIR). This follows a provisional request for ESMA to provide technical advice to

the European Commission on the formulation of procedural rules on the imposition of penalties on

third-country CCPs, TRs and CRAs.

The Consultation Paper sets out ESMA’s preferred options for these procedural rules, including in

relation to: (i) the rights of the persons subject to the investigation to be heard by the

investigation officer; (ii) the rights of access to the file of the persons subject to the investigation;

(iii) limitation periods for the imposition of penalties; and (iv) the rules applicable to periodic

penalty payments. In order to ensure alignment, ESMA also proposes several amendments to the

existing procedural rules on the imposition of penalties on CRAs.

The consultation period closes on 18 January 2020. ESMA intends to publish and submit its final

report and technical advice to the European Commission in Q1 2020.

ESMA Consultation Paper on procedural rules for penalties imposed on third-country CCs, TRs

and CRAs

Press release

39. Financial Conduct Authority

39.1 Misleading information in relation to PPI claims – FCA fines claims management company

£70,000 – 17 December 2019 – The FCA has published a Final Notice fining Professional Personal

Claims Limited (PPC), a claims management company (CMC), £70,000 for publishing misleading

information and submitting insufficiently accurate redress claims for mis-sold payment protection

Financial Regulation / 19 December 2019 / Issue 1040 28

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insurance (PPI) on behalf of its customers. This decision follows the transfer of regulatory

responsibility for CMCs from the Claims Management Regulator (CMR) to the FCA on 1 April 2019.

Following an investigation in December 2018, the CMR determined that PPC had breached the

previous CMC conduct rules by misleading consumers into believing that they were submitting

redress claims for mis-sold PPI directly to their banks, rather than engaging PPC as a CMC to

pursue claims on their behalf. The CMR held that PPC published website and printed material

which replicated the domain names, colour schemes and logos of five major banks. The CMR also

found that PPC had failed to present accurate, fully formed, detailed and specific complaints to

banks on behalf of its consumers. PPC had submitted Financial Ombudsman Service (FOS)

questionnaires to banks on behalf of different consumers. The questionnaires in part contained

identical factual allegations where evidence specific to each client should have been presented.

The CMR issued a penalty notice imposing a £70,000 fine in respect of PPC’s failings.

PPC appealed against the CMR’s penalty notice on 21 December 2018. While the appeal was

pending, the FCA took over the regulation of CMCs from the CMR. Having reviewed the evidence

put forward by the FCA, PPC withdrew its appeal and the FCA imposed the £70,000 fine on PPC for

the failings identified in the CMR’s penalty notice. This decision represents the first Final Notice

issued to a CMC by the FCA.

FCA Final Notice fining a CMC £70,000 for publishing misleading information and failing to

submit sufficiently accurate complaints to banks on behalf of its customers

Press release

40. Office of the Complaints Commissioner

40.1 Unpaid awards – Complaints Commissioner invites the FCA to consider the case for publishing

or disclosing information about regulated firms' professional indemnity insurers – December

2019 – The Financial Regulators Complaints Commissioner has published a final report, dated 21

November 2019, in relation to a complaint made against the FCA and the support available to

clients of financial services firms which fail to pay FOS awards.

The Commissioner did not uphold a client’s complaint against the FCA, which related to the FCA’s

failure to disclosure the identity of a financial services firm’s professional indemnity insurer for

confidentiality reasons. This followed a request by the client for such information in order to

enable them to make a claim to the insurer in respect of an unpaid FOS award. Despite not

upholding the client’s complaint, the Commissioner invites the FCA to consider whether there is a

case for allowing the publication or disclosure of information about regulated firms' professional

indemnity insurers in the future.

Complaint number FCA00664 (dated 21 November 2019)

41. Recent cases

41.1 Hall and Hanley Limited v The Financial Conduct Authority, (CMS 2019/0001), First-Tier

Tribunal, Grand Regulatory Chamber, 6 and 7 November 2019

CMC fined by the CMR – data breaches and unauthorised copying of client signatures – decision

upheld

Financial Regulation / 19 December 2019 / Issue 1040 29

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The First-Tier Tribunal has dismissed an appeal made by Hall and Hanley Limited (H&H), upholding

a decision of the CMR to impose a fine of £91,000 on H&H in connection with data breaches and

the unauthorised copying of client signatures. H&H is a CMC whose business focuses on claims for

mis-sold PPI. The CMR is the former regulator of CMCs. The FCA conducted the hearing before the

First-Tier Tribunal having taken over the functions of the CMR on 1 April 2019.

In March 2019, the CMR held that H&H had breached rules requiring CMCs to take all reasonable

steps to ensure that any referrals, leads or data purchased from third parties had been obtained in

accordance with applicable law. The CMR found that H&H sent marketing text messages to

consumers without taking sufficient steps to check whether the consumers had consented to

receiving such messages. In addition, when reviewing a sample of H&H’s client files, the CMR

found that several clients’ signatures on claim documentation had been copied without

authorisation. The CMR considered the unauthorised copying of clients’ signatures, which were

submitted to financial firms by H&H, to be a serious matter and considered H&H to have been

negligent in failing to detect and prevent this conduct by one of its employees.

The Tribunal upheld the CMR’s decision in its entirety. In relation to data breaches, the Tribunal

found that these were serious and followed from H&H not having taken previous compliance

advice and warnings on board. The Tribunal concluded that H&H failed to act with the required

degree of competence and therefore acted negligently. Regarding the copied clients’ signatures,

the Tribunal concluded that H&H acted negligently in failing to provide proper training and

supervision to its employees, and that “the underlying matter was so serious that a financial

penalty is justified”.

Hall and Hanley Limited v The Financial Conduct Authority (CMS 2019/0001)

Press release

Financial Regulation / 19 December 2019 / Issue 1040 30

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Document No

This Bulletin is prepared by the Financial Regulation Group of Slaughter and May in London.

The Group comprises a team of lawyers with expertise and experience across all sectors in which

financial institutions operate.

We advise on regulatory issues affecting firms across the financial services sector, including

banks, investment firms, insurers and reinsurers, brokers, asset managers and funds, non-bank

lenders, payment service providers, e-money issuers, exchanges and clearing systems. We also

advise non-regulated businesses involved in financial regulatory matters. In addition, our leading

financial regulatory investigations practice is regularly instructed by financial institutions

requiring specialist knowledge of financial services regulation together with experience in high

profile and complex investigations and contentious regulatory matters.

Most of the projects that we advise on have an extensive international or cross-border element.

We work in seamless integrated teams with leading independent law firms which offer many of

the most highly regarded financial institutions lawyers in Europe, the US and Asia, as well as

strong and constructive relationships with local regulators.

Our Financial Regulation Group also produces occasional briefing papers and other client

publications. The five most recent issues of this Bulletin and our most recent briefing papers

and client publications appear on the Slaughter and May website here.

The Group’s recent work includes advising:

A number of global banks, insurance and asset management groups on their preparations for

Brexit;

A number of banking groups in relation to banking structural reform, including the UK

ring-fencing regime;

Prudential plc on the proposed demerger of its UK & Europe business (M&G Prudential) from

Prudential plc, resulting in two separately-listed companies;

Standard Life plc on the recommended all-share merger with Aberdeen Asset Management and

the subsequent sale by Standard Life Aberdeen plc of its capital-intensive insurance business to

Phoenix;

UK Asset Resolution and Bradford & Bingley plc in relation to the disposal of legacy buy-to-let

mortgage assets to Prudential plc and funds managed by Blackstone for a total consideration of

£11.8bn;

On the legal implications of developments across a broad Fintech waterfront for clients such as

Euroclear, TreasurySpring, Bupa, TrueLayer, WorldRemit and Stripe, as well as other established

businesses, challengers and start-ups; and

A number of multi-national clients in relation to the UK, EU, and US economic and trade

sanctions regimes.

If you would like to find out more about our Financial Regulation Group or require advice on a

financial regulation matter, please contact one of the following or your usual Slaughter and May

contact:

Jan Putnis jan.putnis@slaughterandmay.com

Ben Kingsley ben.kingsley@slaughterandmay.com

Nick Bonsall nick.bonsall@slaughterandmay.com

© Slaughter and May 2019

This material is for general information only and is not intended to provide legal advice.

For further information, please speak to your usual Slaughter and May contact.