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Selected Headlines

General

Brexit

Banking and Finance

Securities and Markets

Asset Management

Insurance

Financial Crime

Enforcement

Financial Regulation

Weekly Bulletin 14 March 2019 / Issue 1002

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

Selected Headlines General

FCA Policy Statement PS19/7: The Directory 2.1

FCA Policy Statement PS19/8: Increasing the award limit for the Financial Ombudsman Service

2.2

FCA Finalised Guidance FG19/2 – SM&CR: Guidance on statements of responsibilities and responsibilities maps for FCA firms

2.3

Brexit

The Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

4.1

MiFID II/MiFIR and BMR - FCA sets out its position on issues identified by ESMA

7.1

EMIR - two Brexit related Delegated Regulations published in the Official Journal

8.1

EMIR 2.2 - political agreement reached between the Council of the EU and the European Parliament

9.1

Participation in SEPA schemes - EPC approves continued participation of UK PSPs in a no-deal Brexit

11.1

Banking and Finance

FSB’s Principles for Sound Compensation Practices and Implementation Standards - FSB publishes key workshop takeaways

12.1

PSD2 - European Commission publishes Delegated Regulation on central contact points

14.1

High earners in EU banks - EBA publishes annual report for 2017 16.1

Oversight of SIPS - ECB publishes draft Decision for consultation 17.1

Euro risk-free rates - ECB publishes working group recommendations 17.2

PRA Policy Statement PS8/19 - Credit risk mitigation: eligibility of guarantees as unfunded credit protection

19.1

PRA Consultation Paper CP5/19 - Pillar 2 capital: updates to the framework

19.2

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Financial Regulation / 14 March 2019 / Issue 1002 2

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Securities and Markets

Crypto-assets - Basel Committee publishes statement 20.1

MiFID II/MiFIR - ESMA includes level 2 and level 3 measures in its Interactive Single Rulebook

25.1

Asset management

PRIIPS KIDs - Joint Committee of the ESAs submits draft RTS for endorsement

27.1

Investment consultants market investigation - HM Treasury, the Pensions Regulator and DWP respond to CMA recommendations

28.1

Investment platforms market study - FCA publishes final report and CP19/2

29.1

Insurance

Solvency II - European Commission adopts amending Delegated Regulation

31.1

PRA Policy Statement PS9/19 - Solvency II: Group own funds availability

32.1

Financial Crime

Economic Crime - Treasury Committee publishes report on AML supervision and sanctions implementations

34.1

Cyber security - FCA publishes report collating industry insights 35.1

Enforcement

Insurance mis-selling - FCA fines The Carphone Warehouse Limited £29m

36.1

General 1. Prudential Regulation Authority and Financial Conduct Authority

1.1 Climate Financial Risk Forum - first meeting held on 8 March 2019 - 12 March 2019 - The PRA

and the FCA hosted the first meeting of the Climate Financial Risk Forum on 8 March 2019. The

Forum, which includes banks, insurers, asset managers and others (including observers from trade

bodies), aims to develop practical tools and approaches to help firms address climate-related

financial risks. It will meet three times a year and will report to Sam Woods (Chief Executive of

the PRA and Deputy Governor at the Bank of England) and Andrew Bailey (Chief Executive of the

FCA). At its first meeting, the forum set up four working groups to focus on risk management,

scenario analysis, disclosure and innovation.

PRA and FCA press release: first meeting of the PRA and FCA’s joint Climate Financial Risk

Forum held

Financial Regulation / 14 March 2019 / Issue 1002 3

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2. Financial Conduct Authority

2.1 FCA Policy Statement PS19/7: The Directory – March 2019 - The FCA has published a Policy

Statement (PS19/7) setting out final rules on the Directory of financial services workers, a new

public register on key individuals working in financial services. It also summarises feedback to

CP18/19 and sets out the FCA’s responses. The FCA has made some changes to what was proposed;

these are summarised in Table 2 to PS19/7.

The Directory will include information available through the Financial Services Register, as well as

information about other individuals, including those performing roles no longer made public on the

Register following the introduction of the Senior Managers & Certification Regime (SM&CR).

‘Directory persons’ include:

all certified staff (those holding a certification function under the SM&CR);

directors who are not performing senior manager functions; and

other individuals who are sole traders or appointed representatives (including those

working within appointed representative businesses) where they are undertaking business

with clients and require a qualification to do so.

Banking firms and insurers can start submitting data on Directory persons using the FCA’s Connect

system or the multi-entry facility around September 2019. All other firms can start submitting

data as of 9 December 2019 following the extension of the SM&CR to solo-regulated firms.

The Directory is expected to go live in March 2020.

FCA Policy Statement PS19/7: The Directory

Webpage

Press release

2.2 FCA Policy Statement PS19/8: Increasing the award limit for the Financial Ombudsman Service

- March 2019 - The FCA has published a Policy Statement (PS19/8) which contains the FCA’s final

rules increasing the Financial Ombudsman Service’s (FOS) award limit to £350,000 for complaints

about acts or omissions by firms which took place on or after 1 April 2019, and to £160,000 for

complaints about acts or omissions by firms which took place before 1 April 2019 and which are

referred to the FOS on or after 1 April 2019. These award limits will be automatically adjusted

each year in line with inflation. For any complaints referred to the FOS before 1 April 2019, the

limit will remain at £150,000.

The new award limit will come into force at the same time as the extension of the service to

larger small and medium-sized enterprises.

The new rules come into force on 1 April 2019.

The FCA advises firms to:

update consumer-facing information about complaint handling procedures;

Financial Regulation / 14 March 2019 / Issue 1002 4

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ensure they are using the most recent version of the FOS’s standard explanatory leaflet;

and

make sure complaint handling staff are aware of the increased limits.

FCA Policy Statement PS19/8: Increasing the award limit for the Financial Ombudsman Service

Webpage

Press release

2.3 FCA Finalised Guidance FG19/2 – Senior Managers & Certification Regime: Guidance on

statements of responsibilities and responsibilities maps for FCA firms - March 2019 - The FCA

has published Finalised Guidance (FG19/2) on statements of responsibilities (SoRs) and

responsibilities maps under the Senior Managers & Certification Regime (SM&CR) to provide

guidance to solo-regulated firms to whom the SM&CR is extended from 9 December 2019. This

follows the FCA’s October 2018 consultation (GC18/4), following which the FCA has made some

revisions.

The Guidance sets out the purpose of SoRs and responsibilities maps, provides some questions for

firms to ask themselves and outlines examples of good and poor practice. It builds on, and should

be read alongside, the information the FCA published in its SM&CR Guide for solo-regulated firms

in July 2018.

The FCA states that the Guidance might also be of interest to dual regulated firms.

FCA Finalised Guidance FG19/2 - SMCR: Guidance on statements of responsibilities and

responsibilities maps for FCA firms

Summary of Feedback

Webpage

SM&CR Guide for solo-regulated firms

2.4 Digital regulatory reporting - FCA publishes report on phase 1 - 13 March 2019 - The FCA has

published a report on the first phase of its joint initiative with the Bank of England and six initial

participant firms on digital regulatory reporting, which explored how firms and regulators could

use technology to make the current process of regulatory reporting more accurate, efficient and

consistent. During the pilot, participants built a prototype using distributed ledger technology.

A second phase of the pilot began in February 2019 with the aims of identifying which regulatory

reports are appropriate for digital regulatory reporting, whether there is value in investing in such

reporting, and how best to create machine executable regulatory reporting and efficiently

standardise firm data.

FCA and others: digital regulatory reporting pilot phase 1 report

Webpage

Financial Regulation / 14 March 2019 / Issue 1002 5

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3. Competition and Markets Authority

3.1 Loyalty penalty charges - CMA publishes working group’s terms of reference - 12 March 2019 –

Following the publication of the Competition and Markets Authority’s (CMA) response to the

loyalty penalty super-complaint, as previously reported in this Bulletin, the CMA has set up a

working group to oversee the implementation of recommendations made by the CMA, and

published its terms of reference. The working group is chaired by the CMA and its members

include representatives from the FCA, Ofcom, Ofgem, the Department for Business, Energy and

Industrial Strategy, the Department for Digital, Culture, Media and Sport, HM Treasury and the UK

Regulators Network.

An update on progress is to be published in summer 2019.

CMA terms of reference for its loyalty penalty working group

Webpage

See also the Brexit section for an item on matters of interest in relation to financial regulation in the

Spring Statement 2019.

Brexit 4. UK Parliament

4.1 The Equivalence Determinations for Financial Services and Miscellaneous Provisions

(Amendment etc) (EU Exit) Regulations 2019 (SI 2019/541) were made on 11 March 2019 in

exercise of powers conferred by section 8(1) of, and paragraph 1 of Schedule 4 to, the European

Union (Withdrawal) Act 2018. This follows the laying before Parliament of an earlier draft on 17

January 2019, as previously reported in this Bulletin. Regulations 7 and 8 and Schedule 2 come

into force on exit day, and the remainder came into force on 12 March.

Equivalence determinations are relevant under the Benchmarks Regulation (EU) 2016/1011 (BMR),

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

(EC) 2060/2009 (CRAR), the European Market Infrastructure Regulation (EU) 648/2012 (EMIR), the

Markets in Financial Instruments Regulation (EU) 600/2014 (MiFIR), the Prospectus Directive

(2003/71/EC), the Transparency Directive (2004/109/EC), the Securities and Financing

Transactions Regulation (EU) 2015/2365 (SFTR), the Short Selling Regulation (EU) 236/2012 and

the Solvency II Delegated Regulation (EU) 2015/35.

The Equivalence Determinations for Financial Services and Miscellaneous Provisions

(Amendment etc) (EU Exit) Regulations 2019 (SI 2019/541)

Explanatory memorandum

4.2 The Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit)

Regulations 2019 (SI 2019/542) were made on 11 March 2019 in exercise of powers conferred by

section 8(1) of, paragraph 1 of Schedule 4 to, and paragraph 21 of Schedule 7 to, the European

Union (Withdrawal) Act 2018. This follows the publication of an earlier draft of the Regulations on

18 December 2018, as previously reported in this Bulletin. The Regulations come into force on exit

day.

Financial Regulation / 14 March 2019 / Issue 1002 6

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The Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit)

Regulations 2019 (SI 2019/542)

Explanatory memorandum

5. HM Treasury

5.1 Spring Statement 2019 - financial regulation matters of interest - 13 March 2019 - The

Chancellor of the Exchequer, Phillip Hammond MP, delivered the Spring Statement 2019 on 13

March 2019. Matters of interest in relation to financial regulation include an announcement by the

government that, ahead of the summer, it will set out its approach to consulting on how to ensure

that the UK’s financial services regulatory framework can adapt to its new constitutional position

outside of the EU.

HM Treasury Spring Statement 2019 written ministerial statement

Phillip Hammond’s speech

Press release

6. Treasury Committee

6.1 Interchange fees - PSR clarifies issues in a no-deal scenario - 7 March 2019 - Hannah Nixon

(Managing Director of the Payment Systems Regulator (PSR)) has replied to the inquiries of Nicky

Morgan MP (Chair of the Treasury Committee) concerning a number of matters including the

application of interchange fees under the Interchange Fee Regulation (EU) 2015/751 (IFR) and the

onshored IFR regime in a no-deal scenario.

Letter from PSR to the Treasury Committee on the application of interchange fees in a no-deal

scenario, among other matters

Letter from Treasury Committee to PSR

7. Financial Conduct Authority

7.1 MiFID II/MiFIR and BMR - FCA sets out its position on issues identified by ESMA - 13 March 2019 -

The FCA has published a statement setting out its position on issues identified by the European

Securities and Markets Authority (ESMA) in its statement of 7 March 2019 on the impact of a no-

deal Brexit on certain key provisions of the Markets in Financial Instruments Directive

(2014/65/EU) (MiFID II) and the Markets in Financial Instruments Regulation (EU) 600/2014 (MiFIR),

and the Benchmarks Regulation (EU) 2016/1011 (BMR). The FCA’s statement covers: (i) post-trade

transparency and positions limit; (ii) post-trade transparency for OTC transactions between UK

investment firms and EU counterparties; (iii) the trading obligation for derivatives; and (iv) the UK

public register of benchmarks and administrators in the UK.

FCA statement on MiFIR II/MiFIR and BMR issues in a no-deal Brexit identified by ESMA

ESMA’s statement of 7 March 2019

Financial Regulation / 14 March 2019 / Issue 1002 7

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8. Official Journal of the European Union

8.1 EMIR - two Brexit related Delegated Regulations published in the Official Journal - 13 March

2019 - Two Commission Delegated Regulations supplementing the European Market Infrastructure

Regulation (EU) 648/2012 (EMIR) have been published in the Official Journal of the European

Union:

Commission Delegated Regulation (EU) 2019/396 of 19 December 2018 amending

Delegated Regulation (EU) 2015/2205, Delegated Regulation (EU) 2016/592 and Delegated

Regulation (EU) 2016/1178 supplementing EMIR as regards the date at which the clearing

obligation takes effect for certain types of contracts; and

Commission Delegated Regulation (EU) 2019/397 of 19 December 2018 amending

Delegated Regulation (EU) 2016/2251 supplementing EMIR as regards the date until which

counterparties may continue to apply their risk-management procedures for certain OTC

derivative contracts not cleared by a central counterparty.

The Regulations entered into force on 14 March 2019, and apply from the date the UK leaves

the UK, but will not apply if a withdrawal agreement is entered into by that date, or Article 50

is extended.

Official Journal: Delegated Regulation supplementing EMIR as regards the date at which the

clearing obligation takes effect for certain types of contracts

Official Journal: Delegated Regulation supplementing EMIR as regards the date until which

counterparties may continue to apply their risk-management procedures for certain OTC

derivative contracts not cleared by a central counterparty

9. Council of the European Union

9.1 EMIR 2.2 - political agreement reached between the Council of the EU and the European

Parliament - 13 March 2019 - The Council of the European Union and the European Parliament

have reached political agreement on the proposal for a Regulation amending Regulation (EU)

1095/2010 establishing the European Securities and Markets Authority (ESMA) and amending the

European Market Infrastructure Regulation (EU) 648/2012 (EMIR) as regards the procedures and

authorities involved in the authorisation of central counterparties (CCPs) and requirements for the

recognition of third-country CCPs. The agreed text establishes a CCP supervisory committee within

ESMA and strengthens the existing system for recognising and supervising third country clearing

houses. Some CCPs established outside the EU may be of such systemic importance that they are

made subject to additional conditions.

Further technical work is required before formal adoption of the text.

In light of this agreement, Valdis Dombrovskis (European Commission Vice-President) and J.

Christopher Giancarlo (Chairman of the US Commodity Futures Trading Commission (CFTC)) have

published a joint statement regarding their commitment to ensuring the implementation of the

G20 reforms, and the involvement of the CFTC in the consultation process for delegated acts.

On 7 March 2019, HM Treasury updated two Parliamentary Committees on progress on EMIR 2.2.

Council of the EU press release: political agreement reached

Financial Regulation / 14 March 2019 / Issue 1002 8

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Procedure file

European Commission press release

Joint statement by Valdis Dombrovskis and J. Christopher Giancarlo on implementation of G20

reforms

Letter from John Glen to Lord Boswell on proposed Regulation amending EMIR and ESMA

Regulation

Letter from John Glen to Sir William Cash

10. European Parliament

10.1 No-deal contingency planning - European Parliament publishes Decisions not to object to

amending Delegated Regulations - 13 March 2019 - The European Parliament has published the

provisional versions of four Decisions on the European Commission’s contingency planning for a no-

deal Brexit:

non-objection to Commission Delegated Regulation (C(2019) 791 final) 30 January 2019

amending the European Market Infrastructure Regulation (EU) 648/2012 (EMIR) with regard

to the list of exempted entities, adding the Bank of England and public bodies charged

with or intervening in the management of the public debt to this list;

non-objection to Commission Delegated Regulation (C(2019) 792 final) of 30 January 2019

amending Delegated Regulation (EU) 2016/522 as regards the exemption of the Bank of

England and the UK Debt Management Office from the scope of the Market Abuse

Regulation (EU) 596/2014 (MAR);

non-objection to Commission Delegated Regulation (C(2019) 793 final) of 30 January 2019

amending Delegated Regulation (EU) 2017/1799 as regards the exemption of the Bank of

England from the pre- and post-trade transparency requirements in the Markets in

Financial Instruments Regulation (EU) 600/2014 (MiFIR); and

non-objection to Commission Delegated Regulation (C(2019) 794 final) of 30 January 2019

amending the Securities Financing Transactions Regulation (EU) 2015/2365 (SFTR) with

regard to the list of exempted entities, adding the Bank of England and public bodies

charged with or intervening in the management of the public debt to this list.

European Parliament Decision to not object to adding the UK to the list of exempted entities

under EMIR

Procedure file

European Parliament Decision to not object to the exemption of the Bank of England the UK

Debt Management Office from MAR

Procedure file

European Parliament Decision to not object to the exemption of the Bank of England from the

pre- and post-trade transparency requirements in MiFIR

Financial Regulation / 14 March 2019 / Issue 1002 9

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Procedure file

European Parliament Decision to not object to adding the UK’s central bank and others to the

list of exempted entities under the SFTR

Procedure file

10.2 MiFID II - European Parliament publishes Decision not to object to amending Delegated

Regulation on the tick size regime - 13 March 2019 - The European Parliament has published the

provisional version of its Decision not to object to Commission Delegated Regulation (C(2019) 904

final) of 13 February 2019 amending Delegated Regulation (EU) 2017/588 as regards the possibility

to adjust the average daily number of transactions for a share where the trading venue with the

highest turnover of that share is located outside of the EU.

European Parliament Decision to not object to amending Delegated Regulation on the tick size

regime

11. European Payments Council

11.1 Participation in SEPA schemes - EPC approves continued participation of UK PSPs in a no-deal

Brexit - 7 March 2019 - The European Payments Council (EPC) has approved the application from

UK Finance for the continued participation of UK payment service providers (PSPs) in Single Euro

Payments Area (SEPA) schemes after 29 March 2019 in the event of a no-deal Brexit.

EPC press release approving the continued participation of UK PSPs in a no-deal Brexit

See also the Securities and Markets section for an item on the FCA publishing its Consultation Paper

CP19/11 on proposed changes to its Handbook (DEPP and EG) in light of the Securitisation (Amendment)

(EU Exit) Regulations 2019 and the Securitisation Regulations 2018.

Banking and Finance 12. Financial Stability Board

12.1 FSB’s Principles for Sound Compensation Practices and Implementation Standards - FSB

publishes key workshop takeaways - 8 March 2019 - The Financial Stability Board (FSB) has

published the key takeaways from a workshop it hosted for international banks on 9 October 2018

to discuss their experience with regulation and supervisory practices that implement the FSB’s

Principles for Sound Compensation Practices and Implementation Standards. The FSB welcomes

comments on its note submitted by 7 May 2019.

FSB key takeaways from its compensation workshop on 9 October 2019

Webpage

13. Official Journal of the European Union

13.1 EEA Agreement - Decision amending Annex IX (Financial Services) and Annex XIX (Consumer

protection) to incorporate the Mortgage Credit Directive published in the Official Journal - 11

March 2019 - Council Decision (EU) 2019/380 of 4 March 2019 on the position to be adopted on

behalf of the European Union within the EEA Joint Committee, concerning the amendment of

Annex IX (Financial services) and Annex XIX (Consumer protection) to the EEA Agreement, has

Financial Regulation / 14 March 2019 / Issue 1002 10

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been published in the Official Journal of the European Union. The Decision incorporates the

Mortgage Credit Directive (2014/17/EU) into the EEA Agreement.

Official Journal: Council Decision incorporating the Mortgage Credit Directive into the EEA

Agreement

14. European Commission

14.1 PSD2 - European Commission publishes Delegated Regulation on central contact points - 14

March 2019 - The European Commission has published a Delegated Regulation (C(2019)1997 final)

of 14 March 2019 supplementing the Payment Services Directive (EU) 2015/2366 (PSD2) with

regard to regulatory technical standards (RTS) on the criteria for appointing central contact points

within the field of payment services and on the functions of those central contact points.

Commission Delegated Regulation supplementing PSD2 on the criteria for appointing central

contact points

15. European Parliament

15.1 Credit servicers, credit purchasers and the recovery of collateral - ECON publishes draft report

on proposed Directive - 11 March 2019 - The European Parliament’s Committee on Economic and

Monetary Affairs (ECON) has published a draft report on the proposal for a Directive on credit

servicers, credit purchasers and the recovery of collateral (2018/0063(COD)).

ECON draft report on proposed Directive on credit servicers, credit purchasers and the

recovery of collateral

Procedure file

16. European Banking Authority

16.1 High earners in EU banks - EBA publishes annual report for 2017 - 11 March 2019 - The

European Banking Authority (EBA) has published its annual report on high earners in EU banks in

2017 as required by Article 75 of the Capital Requirements Directive (2013/36/EU) (CRD IV).

EBA annual report on high earners in EU banks

Press release

16.2 PSD2 - EBA clarifies issues raised by its working group on APIs - 11 March 2019 - The EBA has

published clarifications on the first set of issues raised and discussed by participants of its working

group on application programming interfaces (APIs) under the Payment Services Directive (EU)

2015/2366 (PSD2) at its first meeting on 21 February 2019. The issues relate to the practical

aspects of the reliability of testing platforms, the alignment of functionalities between API

schemes and the identification of qualified trust service providers that issue PSD2 eIDAS

certificates.

EBA clarifications to issues raised by its working group on APIs under PSD2

Press release

Financial Regulation / 14 March 2019 / Issue 1002 11

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17. European Central Bank

17.1 Oversight of SIPS - ECB publishes draft Decision for consultation - 8 March 2019 - The European

Central Bank (ECB) has published for consultation its draft Decision on the procedure and

conditions for exercise by a competent authority of certain powers in relation to oversight of

systemically important payment systems (SIPS).

The consultation period closes on 12 April 2019.

ECB draft Decision on the oversight of SIPS by competent authorities

Webpage

17.2 Euro risk-free rates - ECB publishes working group recommendations - 14 March 2019 - The ECB

has published the recommendations of its working group on euro risk-free rates concerning the

transition path from the euro overnight index average (EONIA) to the euro short-term rate (€STR,

previously referred to as ‘ESTER’) and on a €STR-based forward-looking term structure

methodology.

The ECB has also announced that it will start publishing the €STR as of 2 October 2019 to reflect

the trading activity of 1 October 2019.

Recommendations of the ECB working group on euro risk-free rates on the transition path

from EONIA to €STR and on an €STR-based forward-looking term structure methodology

Webpage on working group

Webpage page on €STR

Press release on working group recommendations

Press release on €STR start date

18. Bank of England

18.1 Partial service disruption - Bank of England announces supervisory action in respect of Visa

Europe - 8 March 2019 - The Bank of England has announced that it is using its statutory powers to

direct Visa Europe to fully implement the recommendations of the independent review into the

partial service disruption to its card authorisations system in June 2018. It is also using its powers

to require Visa Europe to appoint an independent third party to assess its progress in

implementing the recommendations. The Bank states that it recognises that Visa Europe has

accepted all of the recommendations of the independent review, in full, and is committed to

implementing them in a timely manner.

Bank of England press release announcing supervisory action over Visa Europe’s June 2018

partial service disruption

19. Prudential Regulation Authority

19.1 PRA Policy Statement PS8/19 - Credit risk mitigation: eligibility of guarantees as unfunded

credit protection - March 2019 - The PRA has published a Policy Statement (PS8/19) on its

expectations regarding the eligibility of guarantees as unfunded credit protection under the credit

Financial Regulation / 14 March 2019 / Issue 1002 12

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risk mitigation part of the Capital Requirements Regulation (EU) 575/2013 (CRR). PS8/19 contains

the PRA’s final policy in the updated Supervisory Statement (SS) 17/3 ‘Credit risk mitigation’

(appendix 1) and in SS31/15 ‘The Internal Adequacy Assessment Process (ICAAP) and the

Supervisory Review and Evaluation Process (SREP)’ (appendix 2). It also contains feedback to

CP6/18.

The PRA states that it has made three changes to the draft proposals which it considers to be

significant, alongside other changes:

the removal of the proposal relating to the meaning of paying out in a timely manner;

a new expectation around risks arising from eligible guarantee arrangements; and

a new expectation around recognising any residual risks.

The changes to SS17/13 and SS31/15 come into force on 13 September 2019.

PRA Policy Statement PS8/19 - Credit risk mitigation: eligibility of guarantees as unfunded

credit protection

Appendix 1: SS17/3 on credit risk mitigation

Appendix 2: SS31/15 on ICAAP and SREP

Webpage

19.2 PRA Consultation Paper CP5/19 - Pillar 2 capital: updates to the framework - March 2019 - The

PRA has published a Consultation Paper (CP5/19) in which it proposes to update the Pillar 2 capital

framework to reflect continued refinements and developments (such as the Bank of England’s

approach to stress testing) in setting the PRA buffer (also referred to as Pillar 2B). The PRA also

proposes to clarify its approach to assessing weaknesses in risk management and governance, to

explain the process for updating the benchmarks used to calculate the Pillar 2A requirement for

credit risk, and to correct some minor drafting errors that have been identified in previous

publications.

The consultation period closes on 13 June 2019.

The PRA proposes to implement the proposals in CP5/19 by 1 October 2019.

PRA Consultation Paper CP5/19 - Pillar 2 capital: updates to the framework

Webpage

See also the General section for an item on the FCA publishing a Policy Statement (PS19/7) setting out the

final rules on the Directory of financial services workers, the new public register of key individuals

working in financial services.

See also the Brexit section for an item on the PSR responding to the Treasury Committee’s inquiries in

relation to issues surrounding the application of interchange fees in a no-deal scenario.

Financial Regulation / 14 March 2019 / Issue 1002 13

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See further the Brexit section for two items on the European Parliament publishing its Decisions not to

object to amending Delegated Regulations forming part of the European Commission’s contingency

planning for a no-deal Brexit.

See further the Brexit section for an item on the European Payments Council approving the continued

participation of UK payment service providers in SEPA schemes in the event of a no-deal Brexit.

See also the Securities and Markets section for an item on the Basel Committee setting out its prudential

expectations related to banks’ exposures to crypto-assets and related services.

See also the Asset Management section for an item on Chudley and others v Clydesdale Bank Plc (t/a

Yorkshire Bank), in which a letter of instruction signed by an investment manager and a bank was held to

be a binding contract, the benefit of which could be enforced by third party investors.

Securities and Markets 20. Basel Committee on Banking Supervision

20.1 Crypto-assets - Basel Committee publishes statement - 13 March 2019 - The Basel Committee on

Banking Supervision has published a statement setting out its prudential expectations on banks’

exposures to crypto-assets and related services.

If a bank is authorised and decides to accept crypto-asset exposures or provide related services,

the Basel Committee states that the following minimum steps should be undertaken:

due diligence;

robust governance and risk management;

disclosure; and

supervisory dialogue.

Basel Committee statement on crypto-assets

21. Official Journal of the European Union

21.1 EEA Agreement - Decision amending Annex IX (Financial Services) to incorporate MiFID II/MiFIR

published in the Official Journal - 12 March 2019 - Council Decision (EU) 2019/389 of 4 March

2019 on the position to be adopted on behalf of the European Union within the EEA Joint

Committee, concerning the amendment of Annex IX (Financial services) to the EEA Agreement, has

been published in the Official Journal of the European Union. The Decision incorporates the

Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Markets in Financial

Instruments Regulation (EU) 600/2014 (MiFIR) into the EEA Agreement.

Official Journal: Council Decision incorporating MiFID II/MiFIR into the EEA Agreement

22. European Commission

22.1 MiFIR - European Commission adopts Delegated Regulation exempting the People’s Bank of

China from pre- and post-trade transparency requirements - 14 March 2019 - The European

Commission has adopted a Delegated Regulation (C(2019) 2802 final) of 14 March 2019 amending

Financial Regulation / 14 March 2019 / Issue 1002 14

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Delegated Regulation (EU) 2017/1799 as regards the exemption of the People’s Bank of China from

the pre- and post-trade transparency requirements in the Markets in Financial Instruments

Regulation (EU) 600/2014 (MiFIR).

Commission Delegated Regulation exempting the People’s Bank of China from MiFIR pre- and

post-trade transparency requirements

Report from the Commission to the European Parliament and the Council of the EU

23. Council of the European Union

23.1 Low carbon benchmarks and positive carbon impact benchmarks - Council of the EU publishes

compromise text of proposed Regulation and invites COREPER to approve - 11 March 2019 - The

Council of the European Union has invited its Permanent Representatives Committee (COREPER) to

approve the compromise text of the proposal for a Regulation amending the Benchmarks

Regulation (EU) 2016/1011 (BMR) as regards EU climate transition benchmarks and EU Paris-

aligned benchmarks, and invited COREPER to approve the text with a view to reaching an

agreement at first reading with the European Parliament.

Item note: Council of the EU endorses Regulation on low carbon benchmarks and invites

COREPER to approve

Item note: addendum containing compromise text

Procedure file

24. European Parliament

24.1 Proposed Regulation establishing a framework to facilitate sustainable investment - ECON and

ENVI vote to adopt draft report - 11 March 2019 - The European Parliament’s Economic and

Monetary Affairs Committee (ECON) and its Environment, Public Health and Food Safety

Committee (ENVI) have jointly voted on a draft report in relation to the proposal for a Regulation

on the establishment of a framework to facilitate sustainable investment. The European

Commission has invited the Council of the European Union to reach an agreement on the proposed

rules shortly so that trilogue negotiations with the European Parliament may begin.

Draft Report on the proposal for a Regulation on the establishment of a framework to facilitate

sustainable investment

Outcome of the vote

ENVI press release

European Commission press release

Procedure file

24.2 European crowdfunding service providers for business - procedure file updated to show

indicative plenary sitting date - 13 March 2019 - The procedure file on the proposal for a

Regulation on European crowdfunding service providers for business has been updated to show an

indicative plenary sitting date of 27 March 2019.

Financial Regulation / 14 March 2019 / Issue 1002 15

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Procedure file on the proposal for a Regulation on European crowdfunding service providers

for business

25. European Securities and Markets Authority

25.1 MiFID II/MiFIR - ESMA includes level 2 and level 3 measures in its Interactive Single Rulebook -

14 March 2019 - The European Securities and Markets Authority (ESMA) has updated its Interactive

Single Rulebook to include all level 2 and level 3 measures related to the provisions of the Markets

in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Markets in Financial Instruments

Regulation (EU) 600/2014 (MiFIR).

ESMA Interactive Single Rulebook: updated to include MiFID II/MiFIR level 2 and 3 measures

Press release

26. Financial Conduct Authority

26.1 FCA Consultation Paper CP19/11: Securitisation (Amendment) (EU Exit) Regulations 2019 and

Securitisation Regulations 2018 (proposed changes to DEPP and EG) – March 2019 – The FCA has

published a Consultation Paper (CP19/11) setting out proposed changes to its Decision Procedure

and Penalties Manual (DEPP) and Enforcement Guide (EG) to reflect the application of the

Securitisation (Amendment) (EU Exit) Regulations 2019, which transfer the regulation of

securitisation repositories (SRs) from the European Securities and Markets Authority (ESMA) to the

FCA, and the Securitisation Regulations 2018.

In relation to the Securitisation (Amendment) (EU Exit) Regulations 2019, the FCA proposes to

apply its existing policy and procedures in the exercise of disciplinary and investigatory powers.

The FCA is proposing ‘minor’ amendments to reflect new enforcement powers under the

Securitisation Regulations 2018.

The consultation period closes on 8 April 2019.

The FCA intends to publish final rules by mid-June.

FCA Consultation Paper CP19/11: Securitisation (Amendment) (EU Exit) Regulations 2019 and

Securitisation Regulations 2018 (proposed changes to DEPP and EG)

Webpage

See also the Brexit section for an item on the Transparency of Securities Financing Transactions and of

Reuse (Amendment) (EU Exit) Regulations 2019 (SI 2019/542) being made.

See further the Brexit section for an item on the FCA publishing a statement on the reporting of

derivatives under the UK EMIR regime in a no-deal scenario.

See further the Brexit section for an item on the FCA setting out its position on issues identified by ESMA

in relation to MiFID II/MiFIR and the Benchmarks Regulation.

See further the Brexit section for an item on two Brexit related Delegated Regulations supplementing

EMIR being published in the Official Journal of the EU.

Financial Regulation / 14 March 2019 / Issue 1002 16

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See further the Brexit section for an item on political agreement on EMIR 2.2 being reached between the

Council of the EU and the European Parliament.

See further the Brexit section for two items on the European Parliament publishing its Decisions not to

object to amending Delegated Regulations forming part of the European Commission’s contingency

planning for a no-deal Brexit.

See also the Banking and Finance section for an item on the ECB publishing its working group

recommendations on Euro risk-free rates.

See also the Enforcement section for an item on the Board of Appeal of the ESAs publishing its decision on

the appeals of four banks fined for issuing ratings without authorisation.

Asset Management 27. Joint Committee of the European Supervisory Authorities

27.1 PRIIPS KIDs - Joint Committee of the ESAs submits draft RTS for endorsement - 7 March 2019 -

The European Supervisory Authorities (ESAs) have submitted to the European Commission, for

endorsement, draft regulatory technical standards (RTS) proposing a consequential amendment to

Commission Delegated Regulation (EU) 2017/653 supplementing the Packaged Retail and

Insurance-Based Investment Products Regulation (EU) 1286/2014 (PRIIPs Regulation). The

amendment clarifies the application of the key information document (KID) to investment funds

where these are offered as underlying investment options to a PRIIP (so-called ‘multi-option

products’). This follows the recent decision by European co-legislators to defer the application of

the KID to such investment funds by two years, from the end of 2019 until the start of 2022.

Letter from Gabriel Bernardino to Olivier Guersent submitting draft RTS amending Delegated

Regulation (EU) 2017/653 supplementing the PRIIPS Regulation

Draft RTS amending Delegated Regulation (EU) 2017/653 supplementing the PRIIPS Regulation

Press release

28. HM Treasury

28.1 Investment consultants market investigation - HM Treasury, the Pensions Regulator and DWP

respond to CMA recommendations - 12 March 2019 - HM Treasury, the Pensions Regulator and the

Department for Work and Pensions (DWP) have published a letter to the Competition and Markets

Authority (CMA) setting out their response to the CMA’s recommendations in its final report on its

market investigation into investment consultancy and fiduciary management services.

In response to the CMA’s recommendations:

DWP accepts the CMA’s recommendation to introduce legislation to enable the Pensions

Regulator to oversee the duties on trustees. DWP intends to produce draft regulations and

consult on them this year, with the aim of replacing the CMA order in 2020;

the Pensions Regulator accepts the recommendation of the CMA to produce guidance to

help trustees in running competitive tender processes for fiduciary managers. The

Financial Regulation / 14 March 2019 / Issue 1002 17

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Pensions Regulator intends to develop guidance over the coming months and to consult on

this guidance in Summer 2019; and

HM Treasury states that it will consider the CMA’s recommendation to extend the FCA’s

regulatory perimeter to cover services provided by investment consultants and will consult

on this in due course.

HM Treasury, the Pensions Regulator and DWP letter responding to CMA recommendations

from its investment consultants market investigation

29. Financial Conduct Authority

29.1 Investment platforms market study - FCA publishes final report and CP19/2 - March 2019 - The

FCA has published the final report of its investment platforms market study and has published a

Consultation Paper CP19/12: Consultation on Investment Platforms Market Study Remedies to

address the issues the report identifies.

The report finds that while competition is generally working well, some consumers and financial

advisers can find it difficult to shop around and switch to a platform that better meets their

needs. The FCA therefore proposes in CP19/12 to allow consumers to switch platforms and remain

in the same fund without having to sell their investments and to restrict exit fees.

The consultation period closes on 14 June 2019.

FCA Final Report: Investment Platforms Market Study (MS17/1.3)

Webpage

FCA Consultation Paper CP19/12: Investment Platforms Market Study remedies

Webpage

Press release

30. Recent Cases

30.1 Chudley and others v Clydesdale Bank Plc (t/a Yorkshire Bank), [2019] EWCA Civ 344, 6 March

2019

Contracts (Rights of Third Parties) Act 1999 − letter of instruction between an investment

manager and a bank to set up segregated client account

The Court of Appeal has allowed the appeal of investors, and held that a letter of instruction

signed by an investment manager and a bank in relation to a segregated client account was a

binding contract, the benefit of which could be enforced by the investors under the Contracts

(Rights of Third Parties) Act 1999.

Chudley and others v Clydesdale Bank Plc (t/a Yorkshire Bank), [2019] EWCA Civ 344

See also the General section for an item on the FCA publishing a Policy Statement (PS19/7) setting out the

final rules on the Directory of financial services workers, the new public register on key individuals

working in financial services.

Financial Regulation / 14 March 2019 / Issue 1002 18

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Insurance 31. European Commission

31.1 Solvency II - European Commission adopts amending Delegated Regulation - 8 March 2019 - The

European Commission has adopted a Commission Delegated Regulation amending Delegated

Regulation (EU) 2015/35 supplementing the Solvency II Directive (2009/128/EC). The Delegated

Regulation will permit insurers to hold less capital when they invest in equity and private debt to

provide long-term capital financing. The amendments also: (i) simplify the calculation of capital

requirements; (ii) improve alignment between the insurance and banking prudential legislation;

and (iii) update principles and standard parameters to better reflect developments in risk

management and the most recent data.

The amendments will now be subject to a scrutiny period of three months by the European

Parliament and the Council of the EU.

Valdis Dombrovskis (Vice-President of the European Commission) has also published a letter to

Roberto Gualtieri MEP (Chair of the Economic and Monetary Affairs Committee (ECON)) to respond

to concerns he set out in December 2018 concerning the review of the Delegated Regulation.

Commission Delegated Regulation amending Delegated Regulation (EU) 2015/35 supplementing

the Solvency II Directive

Annexes 1 - 12

Annexes 13 - 16

Letter from Valdis Dombrovskis to Roberto Gualtieri MEP addressing concerns related to the

Delegated Regulation

Press release

32. Prudential Regulation Authority

32.1 PRA Policy Statement PS9/19 - Solvency II: Group own funds availability - March 2019 - The PRA

has published a Policy Statement (PS9/19) on the PRA’s updated expectations for group

supervision, and the PRA’s expectations of the availability of own funds to cover the group

Solvency Capital Requirement under the Solvency II Directive (2009/138/EC). Following CP15/18 in

July 2018, the PRA states that it has made no substantive changes to its final policy in Supervisory

Statement (SS) 9/15 ‘Solvency II: Group supervision’ aside from a minor drafting correction.

The PRA’s final policy in the updated SS9/15 takes immediate effect.

PRA Policy Statement PS9/19 - Solvency II: Group own fund availability

Webpage

33. Financial Conduct Authority

33.1 Pension scams - Andrew Bailey sets out the FCA’s approach to the Work and Pensions

Committee - 7 March 2019 - Andrew Bailey (Chief Executive of the FCA) has written a letter to

Frank Field MP (Chair of the Work and Pensions Select Committee) regarding pension scams

Financial Regulation / 14 March 2019 / Issue 1002 19

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following his appearance at the Committee on 6 February 2019. Mr Bailey covers matters

including: (i) the FCA’s approach to tackling scams, including the work of the pension scam

intelligence team; (ii) alerts the FCA has issued on pension scams since 2016; (iii) figures for

decumulation products; and (iv) figures for accumulation products.

Letter from Andrew Bailey to the Work and Pensions Select Committee regarding pension

scams

See also the General section for an item on the FCA publishing a Policy Statement (PS19/7) setting out the

final rules on the Directory of financial services workers, the new public register on key individuals

working in financial services.

See also the Enforcement section for an item on the FCA fining The Carphone Warehouse Limited £29m

for insurance mis-selling.

Financial Crime 34. Treasury Committee

34.1 Economic Crime - Treasury Committee publishes report on AML supervision and sanctions

implementations - 8 March 2019 - The House of Commons Treasury Committee has published a

report on anti-money laundering (AML) supervision and sanctions implementation as part of its

inquiry into economic crime. A second report covering consumers and economic crime is to follow

later in the year.

The recommendations made by the report include:

the government being consistently clear about its intention to lead in the fight against

economic crime, and to not compromise that intention in an effort to secure new trading

relationships after Brexit;

the government carrying out a more frequent review of AML supervision and law

enforcement in the UK rather than solely relying on the Financial Action Task Force’s

(FATF) evaluations;

the creation of a ‘supervisor of supervisors’ to ensure that there is consistency of

supervision across all AML supervisors, whether statutory or professional bodies. The

Treasury Committee believes there is a strong case for this to be the Office of Professional

Body Anti-Money Laundering Supervision (OPBAS). The Treasury Committee also invites the

government to consider moving HMRC’s statutory responsibilities to OPBAS, and giving

OPBAS a distinct identity protected under primary legislation;

the Government setting out how it will increase confidence in the Suspicious Activity

Reports regime;

giving powers to Companies House to carry out AML checks to prevent company formation

being used for money laundering;

the Government reviewing the scope to increase information flows at bank level and

reporting back to the Committee within six months; and

Financial Regulation / 14 March 2019 / Issue 1002 20

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the Government setting out a timetable for bringing forward legislation to improve the

enforcement of corporate liability for economic crime, including the Serious Fraud

Office’s (SFO) suggested reforms.

Treasury Committee report: Economic Crime - Anti-money laundering supervision and

sanctions implementations

Summary

Conclusions and recommendations

Press release

35. Financial Conduct Authority

35.1 Cyber security - FCA publishes report collating industry insights - March 2019 - The FCA has

published a report collating industry insights on cyber security. These include the following

insights and practices shared by firms: (i) put good governance in place; (ii) identify what you

need to protect; (iii) protect your assets appropriately; (iv) use good detection systems; (v) be

aware of emerging threats and issues; (vi) be ready to respond and recover; and (vii) test and

refine your defences.

FCA report containing industry insights on cyber security

Webpage

See also the Insurance section above for an item on a letter from Andrew Bailey to the Work and Pensions

Committee on the FCA’s approach to pension scams.

Enforcement 36. Financial Conduct Authority

36.1 Insurance mis-selling - FCA fines The Carphone Warehouse Limited £29m – 13 March 2019 – The

FCA has fined The Carphone Warehouse Limited £29,107,600 for breaching Principle 3

(Management and control), Principle 6 (Customers’ interests) and Principle 9 (Customers:

relationship and trust) of the FCA’s Principles for Businesses between 1 December 2008 and 30

June 2015. The FCA states that it failed to equip its sales consultants to give suitable advice to

customers in respect of regulated sales of a mobile phone insurance and technical support

product.

In particular, the FCA states that the firm failed to give its sales consultants the right training to

properly assess a customer’s demands and needs and to make a suitable recommendation, or take

reasonable care to ensure the suitability of its advice. It placed too much emphasis on four ‘Must

dos’ which omitted this essential element, trained sales consultants to encourage customers to

purchase the product and to cancel it within 14 days if they found that they did not need it, and

did not train sales consultants to disclose the limited scope of the advice that was being given. In

addition, the FCA found that it did not properly consider the high cancellation rates, or

adequately investigate and consider customer complaints.

Financial Regulation / 14 March 2019 / Issue 1002 21

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The firm qualified for a 30% discount under the FCA’s executive settlement procedure. Without

this reduction, the FCA would have imposed a penalty of £41,582,300.

FCA Final Notice fining The Carphone Warehouse Limited £29m for insurance mis-selling

Press release

37. European Supervisory Authorities

37.1 CRAR - Board of Appeal of the ESAs publishes decision on appeals of banks fined for issuing

ratings without authorisation - 13 March 2019 - The Board of Appeal of the European Supervisory

Authorities (ESAs) has published its decision on the appeals of four banks (Svenska Handelsbanken

AB, Skandinaviska Enskilda Banken AB (SEB), Swedbank AB, and Nordea Bank Abp) in relation to

the decision of the Board of Supervisors of the European Securities and Markets Authority (ESMA)

which found that the banks negligently infringed the Credit Rating Agencies Regulation (EC)

1060/2009 (CRAR) by including ‘shadow ratings’ in their credit research reports.

The Board of Appeal upheld the decision of the Board of Supervisors that the banks’ credit

research reports fell within the provisions of the CRAR and therefore required the banks to be

registered. However, it found that the banks had not acted negligently, and therefore decided

that the Board of Supervisors could not impose fines. The Board of Appeal has remitted the case to

the Board of Supervisors to adopt amended decisions.

Decision of the Board of Appeal of the ESAs on appeals of banks fined for issuing ratings

without authorisation under the CRAR

Decision of the Board of Appeal of the ESAs refusing to suspend the decision of the Board of

Supervisors of ESMA in relation to SEB

Press release

See also the General section for an item on FCA Policy Statement PS19/8: Increasing the award limit for

the Financial Ombudsman Service.

See further the General section for an item on the CMA publishing the terms of reference for its loyalty

penalty working group.

See also the Banking and Finance section for an item on the Bank of England announcing that it is using

its statutory powers to direct Visa Europe to fully implement the recommendations of the independent

review into the partial service disruption to its card authorisations system in June 2018.

See also the Securities and Markets section for an item on the FCA publishing its Consultation Paper

CP19/11 on proposed changes to its Handbook (DEPP and EG) in light of the Securitisation (Amendment)

(EU Exit) Regulations 2019 and the Securitisation Regulations 2018.

Financial Regulation / 14 March 2019 / Issue 1002 22

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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.