FCA Updates & Developments

The FCA has updated its website regarding data reporting service providers (DRSPs) and the Market Data Processor (MDP). Under MiFID II, any entity intending to provide a data reporting service (DRS) as a regular occupation or business must be authorised by their national competent authority (NCAs) prior to providing the service.

 It is noted that Approved Reporting Mechanisms (ARMs) and Trade Data Monitors (TDMs) who are currently providing reporting services in the UK will need to submit new applications for authorisation if they wish to continue from MiFID II’s implementation date, 3 January 2018.

 The authorisation process includes two forms to be filled out, both of which can be found on the FCA website.

 Applications received from 3 July 2017 will be determined within six months beginning from the date of the received application. Entities wishing to be non-equity consolidated tape providers from 3 September 2019 should apply by 3 March 2019.

The FCA has further announced the following as authorised DRSPs for MiFID II’s implementation date:

  • Abide Financial DRSP limited;
  • Bats Trading Limited;
  • Bloomberg Data Reporting Services Ltd;
  • London Stock Exchange plc (UnaVista);
  • Tradeweb Europe Limited; and
  • Xtrakter Ltd.

 Any entities that need to submit MiFID II market data to the FCA should follow the FCA’s on-boarding process and timetable. Regarding authorisation, an ARM which seeks to satisfy their market data provision obligations must demonstrate compliance with the FCA’s market interface specification (MIS).

The FCA has published guidance for benchmark administrators to obtain authorisation or registration under the Benchmark Regulation. The guidance sets out how to apply through the system Connect and when applications may be made.

While formal applications open on 1 January 2018, the FCA allows for early draft applications from 1 October 2017. This will allow the FCA to review draft applications before the time limits are triggered.

The FCA has published its latest Policy Development update which provides information on recent FCA publications and also lists future publications. The future publications include:

  • Policy Statement to Consultation Paper 17/28: Financial Advice Market Review: implementation of part II and insistent clients (expected December 2017);
  • Policy Statement to Consultation Paper 16/42: Reviewing the funding of the Financial Services Compensation Scheme (expected in Q4 2017); and
  • Policy Statement to Consultation Paper 17/31: Market Infrastructure Providers (expected date December 2017).

 For more details on future publications, please visit the FCA.

The House of Lords Select Committee on the European Union has published a transcript of oral evidence by Chris Woolard, FCA Director of Strategy and Competition, from a hearing on consumer protection rights in relation to Brexit.

The transcript mentions several principles that the FCA considers important in the context of Brexit:

  • Open markets, a certain degree of cross border market after Brexit;
  • Globally consistent standards for financial services regulation; and
  • Co-operation between regulatory authorities by a robust framework.

 Mr Woolard concludes that the FCA wants the markets in the UK to work well and for it to be well regulated and meet international norms.

The House of Commons Treasury Committee has published a letter to Andrew Bailey, Chief Executive FCA, proposing an arrangement regarding the leaked skill persons’ report submitted to the FCA in connection with its independent review of the Royal Bank of Scotland’s (RBS) Global Restructuring Group (GRG).

Having considered the leaked report – now in the hands of the media and also possibly in the public domain - the Committee has proposed an arrangement with the FCA to address the concern.

The letter proposes that the Committee appoints a legal adviser to assess whether the FCA’s summary of the report provides a fair and balanced account. Further action will be decided upon receiving the report. The Committee further highlights that should the FCA decline the report, it is within the Committee’s formal powers to require the FCA to produce the report.

The FCA has announced that a hub has been launched to support new asset management firms. This introduction will assist in the application for authorisation both during and after the process. The FCA notes that the hub will not lower entry standards for firms wishing to join.

Phase one of the hub will offer pre-application meetings, dedicated case officers and access to new portals for new firms. Future phases will feature open days and surgeries for firms.

Four principal objectives formed the creation of the system:

  • Better guidance and clear clarification for firms;
  • Easy access of information;
  • Better engagement between the FCA and new entrants; and
  • Provided support through start-up cycle.

The introduction of this hub is intended to aid new entrants and enable new firms to understand the FCA better as an organisation.

The FCA has updated its webpage on commodity derivatives regarding the introduction of position limits and the reporting regime, which comes into force under MiFID II. The aim of the regime is to prevent market abuse and improve transparency and oversight of financial markets.

All trading venues in the UK fall under the position reporting obligations if it facilitates the trading of commodity derivatives, emission allowances and their derivatives, and for all investment firms trading economically equivalent over the counter (EEOTC) contracts on these instruments. Trading venues and investment firms will be able to submit position reports through the new MDP system which can be found on the FCA webpage.

From October 2017, the FCA started to publish position limits that will come into effect on 3 January 2018 on commodity derivatives contracts traded on UK trading venues.

The FCA has published a report on the progress of the regulatory sandbox which was established in 2016, the objective of which is to promote effective competition in the interest of consumers. The report shows the overall impact of the sandbox on the adoption of new technologies, increasing access and improving experiences for consumers. Findings of the report show the key benefits of the sandbox to:

  • Help reduce time and cost of getting innovative ideas to market
  • Help facilitate access to finance for innovators
  • Enabled products to be tested and introduced to the market

The FCA concludes that it is still too early to draw a conclusion on the overall impact of the sandbox but from its first year of operation, there is a clear indication that it has been successful in meeting its objective and providing the market with the benefits the FCA identified.

The FCA has published Handbook Notice 48 setting out the changes made to the handbook in September and October in a number of legislations including:

  • Payment Services Direction Instrument 2017 (FCA 2017/54) (FOS 2017/4)
    • Glossary
    • PRIN 3 regarding rules about application
    • SYSC 1 Annexes 1 and 9 on the detailed application of SYSC
    • GEN 5 on regulators’ and key facts’ logos, GEN 7 on charging consumers for telephone calls and changes in in GEN Schedule 4 relating to powers exercised
    • COBS 5 relating to distance communication
    • BCOBS 1 regarding application, BCOBS 3 on distance communication, BCOBS 4 on information to be communicated to banking customers, BCOBS 5 on post sale, and BCOBS TP 1 on transitional provisions.
    • SUP 15 on notifications to the FCA, SUP 16 on reporting requirements and TP 1 on transitional provisions.
    • DEPP 2 on statutory notices and the allocation of decision making
    • DISP 1 on treating complainants fairly, DIPS 2 on Jurisdiction of the financial Ombudsman Service, DISP 3 on complaint handling procedures of the Financial Ombudsman Service, DIPS 4 on standard terms, and TP 1 on transitional provisions.
    • CONC 2 on conduct of business standards: general.
  • Financial Services Compensation Scheme (Funding and Scope) Instrument 2017 (FCA 2017/58)
    • Glossary
    • FEES 6 on financial service compensation scheme funding
    • SUP 13A on qualifying for authorisation under the Act and SUP 16 reporting requirements
    • COMP 1 – 7, 10 to 12, 14 to 16, and schedules 2 and 5
    • CONC 3 financial promotions and communications with customers and CONC 8 debt advice
  • Occupational Pension Scheme Firm (Conduct of Business and Organisational Requirements) Instrument 2017 (FCA 2017/59)
    • Glossary
    • SYSC 10A on taping for transactions in instruments not relevantly linked to trading on a trading venue
    • COBS 2 on conduct of business obligations and COBS 18 on specialist regimes
  • Conduct of Business (Initial Public Offering Research) Instrument 2017 (FCA 2017/60)
    • Glossary
    • COBS 11A on dealing and managing, COBS 12 on investment research, and Schedule 1, record keeping requirements.
  • Supervision Manual (Reporting No 6) Instrument 2017 (FCA 2017/61)
    • SUP 16 on reporting requirements
  • Listing Rules Sourcebook and Fees Manual (Resignation and Miscellaneous Amendments) Instrument 2017 (FCA 2017/62)
    • Glossary
    • FEES 3 on application, notification and vetting fees
    • LR 5 and 6, 8 to 11, 13, 15, 16 and App 1

The FCA has published a policy statement (PS17/23) relating to the availability of the information in the UK equity Initial Public Offering (IPO) process. The PS proposes new provisions in the COBS which is intended to improve the range, quality and timeliness of information made available to market participants during the UK equity IPO process.

The FCA ultimately wants to see an IPO process where a prospectus plays a central role as well as an enhanced standard during the production and distribution of research.

The proposal will apply and affect investment banks, issuers, investors, independent research providers, corporate finance advisers and operators of regulated markets.

The FCA has published a consultation paper CP17/36 proposing to change how the Financial Services Compensation Scheme (FSCS) is funded and the ways to increase the protection it provides to customers. It builds on previous consultation paper CP16/42 in the following areas:

  • Merging the Life and Pensions and Investment Intermediation Funding classes
  • Requiring product providers to contribute to compensations costs which fall to the intermediation classes
  • Moving protection from the Life and Pensions funding class to the General Insurance Distribution class

A consultation has also been done to increase the compensation limit for investment provision, investment intermediation, home finance and debt management claims to £85,000.

The consultation paper further incudes final rules for changes from the result of the previous consultation paper CP16/42 including:

  • The introduction of coverage for debt management firms
  • Extending coverage for fund management
  • Applying protection to advice and intermediation of structure deposits
  • Requiring the Society of Lloyds to contribute to the retail pool
  • Introduction of additional reporting requirements
  • Amending payment arrangements

The FCA is further considering requiring Personal Investment Firms to pay money into a trust account to ensure claims are paid for. This option is intended to reduce harm to consumers and views are welcomed by the FCA.

This paper will be applicable to all firms whether current or potential contributors to FSCS funding, and to consumers and consumer groups.

PRA Updates & Developments

The PRA and FCA have published a joint consultation paper (03 October 2017) which sets out changes to both the PRA Rulebook and FCA Handbook as well as statements and forms respectively. The amendment of the forms is part of the obligation to comply with the technical standards under MiFID II. This consultation will be applicable to MiFID Investment firms.

The changes are as follows:

  • Conditions governing business
  • Market risk
  • Application requirements
  • Whistleblowing
  • Joint PRA and FCA form, PRA Rulebook and FCA handbook; (deadline for comments 3 November 2017)
  • Short Form A; (deadline for comments 3 November 2017)
  • Application of European Banking Authority’s (EBA) guidelines
  • Name convention for life insurers

Firms are invited to send in comments via email by 3 November 2017.

The PRA has published a policy statement (PS 24/17, 3 October 2017) to provide feedback on responses from the previous consultation paper 8/17 on strengthening accountability in banking in relation to changes to the senior management regime (SMR) forms. The statement includes amendments to a number of forms used in the SMR.

This PS is applicable to banks, building societies, credit unions and PRA designated investment firms.

The PRA has published a policy statement (3 October 2017) providing responses to the previous consultation paper 3/17 on refining the PRA’s Pillar 2A capital framework. The PRA made proposals concerning:

  • Adjustments to firms using the standardised approach for credit risk
  • Revisions to internal ratings-based (IRB) benchmark used for assessing credit risk
  • Additional considerations for standardised approach firms using International Financial Reporting Standards.

The policy statement contains the final amendment to the reporting Pillar 2 Part of the PRA Rulebook and is relevant to banks, building societies and PRA-designated investment firms.

The PRA has released a clarification (25 October 2017) on how firms should incorporate International Financial Reporting Standard 9 (IFRS) into stress testing and capital planning carried out as part of the internal capital adequacy assessment process (ICAAP) obligations from 2018. This clarification is only applicable to firms to whom the Capital Requirements Directive IV (CRD IV) applies, or who apply IFRS, FRS 101 or FRS 202 and have opted to use IFRS 9 for their financial instruments in relation to ICAAPs based on account at 31 December or a later date. The PRA expects those firms to whom the above conditions refer, to prepare their ICAAP on an IFRS 9 basis, specifically:

  • Firms switching to IFRS 9 for the first time where the starting point should be immediately after the year-end, should have IFRS 9 as a starting point
  • IFRS 9-based forecasts, a set of forecasts based on IFRS 9 for base and stress test scenarios
  • Firms should include in their ICAAPs both fully loaded and transitional forecasts for their base and stress scenarios.

The PRA recognises that the IFRS 9 processes and practices will need time to improve and refine but cautions that it may take action if the PRA is unable to assess adequately the impact of a stress on a firm’s capital position under IFRS 9. If the firm is unable to provide sufficient information, the PRA may take action.

The PRA has published a note regarding the implementation of IFRS 9 applicable to non-executive directors (NEDs). The note makes special reference to those who are on the firm’s audit committee and emphasises the importance of NEDs having the support needed to challenge management effectively.

The note lists four questions that are of importance to discuss with a firm’s board:

  • What is your firm’s approach to transitional arrangements?
  • Does your board understand the impact of the new provisioning for ECL and how it affects types of lending and overall capital planning - both in business-as-usual and stressed conditions?
  • Is your firm’s governance upgraded sufficiently to cope with the higher volume of forward-looking credit risk data?
  • Will disclosures enable investor and other users of financial data to transition effectively to IFRS 9?

The Bank of England (BoE) has published an update to the approach of resolution to a failing bank, building society or investment firm. The document explains the BoE’s responsibilities and powers and how it would implement the resolution. In addition, the document clarifies when a resolution would take place if a bank is ‘failing or likely to fail’.

The document also notes that shareholders and creditors must bear losses equal to at least 8% of the liabilities of a firm before public funds are used to stabilise the firm. The publication further sets out three likely ways that a resolution would be implemented:

  • Bail in (complex firms)
  • Partial transfer (medium sized firms)
  • Insolvency (small firms)

In the event that the BoE find there are barriers to resolvability, it has powers to direct a firm to restructure or change their operation. From 2019, the BoE will publish summaries of major UK firms’ resolution plans and its assessment of their effectiveness.

EU Regulatory Developments

The European Securities and Markets Authority (ESMA) has published a briefing about the importance of compliance with the Legal Entity Identifier (LEI) under MiFID II. ESMA expects market participants to take all steps to ensure compliance with the requirements ahead of MiFID II’s implementation and cautions not to delay in obtaining a LEI.

The LEI serves to enable clear and unique identification of legal entities in financial transactions and plays an important role in market surveillance and transparency. It is also important for firms as it allows them to fulfil reporting obligations under financial regulations.

Steven Maijoor, chair of ESMA, delivered statements to the Economic and Monetary Affair Committee (ECON) at the annual hearing of the chairs of the European Supervisory Authorities. The statement focused on ESMA’s work on the implementation of MiFID II, UK’s withdrawal from the EU and third country related issues.

Regarding MiFID II implementation, the statement highlights that a single rule book needs to be complemented by supervisory measures to ensure a coherent and consistent application of MiFID II. Consumer protection was also highlighted as a main aim for the reform in MiFID II and is an important part of ESMA’s effort to strength that protection. ESMA remains optimistic about the implementation date of MiFID II in January 2018 but cautions that people should be aware that with MiFID II’s complexity, certain glitches or challenges may appear.

ESMA has launched several opinions in order to gather responses concerning UK’s withdrawal from the EU and, more specifically, the Single Market access. ESMA asserts that they have been looking closely at the effects for investors and markets and are working with other authorities on mitigating actions. It will further maintain dialogue with stakeholders to reduce the risk of disruptions.

Lastly, the statement discussed third country issues relating to the adequacy of the current third country equivalence model. ESMA has recently reviewed the Guidelines for Endorsement of third country credit Rating Agencies and asserts that significant legislative changes will need to be considered. On the ESA’s review proposal, which would have ESMA become the direct supervisor of certain key third country benchmarks, the Chair of ESMA believes that centralising the third country supervision would bring benefits for the Union. He notes that there will be an opportunity to discuss the review proposal in the coming weeks and months.

ESMA has published a template for the assessment of collective suitability. This template is annexed to the joint ESMA and EBA guidelines (ESMA71-99-598) on the assessment of the suitability of members of the management body and key function holders under MiFID II and CRD IV.

The guidelines and the template comes into force on 30 June 2018.

ESMA has published the responses received in its consultation on guidelines on certain aspects of the MiFID II suitability requirements.

This document is relevant to advisory firms and discretionary investment managers that are subject to the requirements in MiFID II.

ESMA has published three Q&As regarding investor protection, implementation of MiFID II and post-trading issues as well as a FAQ regarding MiFID II’s interim transparency calculations. These documents aim to provide a clarification ahead of MiFID II’s implementation date.

1. Investor protection

ESMA has added to its Q&A document concerning investor protection under MiFID II. The document’s aim is to provide clarity on certain MiFID II requirements allowing firms to be ready ahead of MiFID II’s implementation date on 3 January 2018. 

The new topics which are covered in this Q&A are:

  •  Best execution
  • Recording telephone/electronic communications
  • Post-sale reporting
  • Information on costs and charges
  • Client categorisation

This document is applicable to firms which are under the MiFID regime. 

2. Implementing MiFID II

This Q&A includes new answers to questions regarding market structure and transparency issues and is applicable to firms that are under the MiFID regime. 

3. Post-trading issues.

The Q&A on post-trading issues addresses the implementation of MiFID II and Market in Financial Instruments Regulation (MiFIR). The implementation of MiFID II will strengthen the protection of investors from both new and existing requirements.

FAQs on Interim Transparency Calculations

ESMA has published FAQ regarding MiFID II’s publication of Transitional Transparency Calculations (TTC). This is in relation to all non-equity instruments on transparency requirements in respect of bonds, structured, finance products, emission allowances and derivatives under MiFIR’s RTS 2.

Commission Delegated Regulations have been published in the Official Journal of the EU in relation to MiFID II. The following have been supplemented:

  • Commission Delegation Regulation (EU) 2017/943 relating to Regulatory Technical Standards (RTS) on information and requirements for the authorisation of investment firms (applicable from 3 January 2018)
  • Commission Implementing Regulation (EU) 2017/1944 relating to the Implementing Technical Standards (ITS) with regards to standard forms, templates and procedures for the consultation process between relevant competent authorities in relation to the notification of a proposed acquisition of a qualifying holding in an investment firm in accordance with MiFID and MiFID II (comes into force on 15 November 2017)
  • Commission Implementing Regulation (EU) 2017/1945 relating to ITS with regard to notifications by and to applicant and authorised investment firms according to MiFID II (applicable from 3 January 2018); and
  • Commission Delegated Regulation (EU) 2017/1946 relating to supplementing MiFID and MiFID II regarding RTS for an exhaustive list of information to be included by proposed acquirers in the notification of a proposed acquisition of a qualifying holding in an investment firm (in force on the twentieth day of its publication in OJ).

ESMA has published a consultation and Q&A regarding the Benchmark Regulation (BMR). This is followed by the European Commission adopting level 2 measures to supplement the BMR. 

Consultation Paper

The consultation paper relates to a guideline dealing with the obligations which apply to non-significant benchmarks under the BMR. The paper proposes lighter requirements for administrators and their supervised contributors in the following ways:

  • Procedures, characteristics and oversight function
  • Appropriateness and verifiability of input data
  • Transparency
  • Governance and control requirements for supervised contributors 

The consultation paper is applicable to those affected by the BMR, as well as administrators, contributors to, and users of, ESMA is inviting feedback with the deadline for comments being 30 November 2017.


The published Q&A provides an update on the implementation of the Benchmarks Regulation, with scope of the regulation and definitions of benchmarks being covered. 

The document aims to provide clarity to investors and market participants on the requirements of ESMA and at the same time, promote a common supervisory approach and practice in the application of the BMR. 

Level 2 Measures

The European Commission has adopted the following level 2 measures supplementing the Benchmarks Regulation regarding the following:

  • C (2017) 6469, article 20(1)(c)(iii), regarding the criteria for assessment of events that would result in significant and adverse impacts on market integrity
  • C (2017) 6464, assessment of nominal amount of financial instruments/derivatives
  • C (2017) 6474, technical elements of the definitions in paragraph 1 of Article 3 of the Regulation
  • C (2017) 6537, supplementing the Benchmarks Regulation regarding the establishment of the conditions to assess the impact, resulting from the cessation of or change to, existing benchmarks.

The Benchmark Regulation serves as a tool to ensure the accuracy and integrity of benchmarks by benchmark administrators.  ESMA will provide draft RTS and ITS and also provide the Commission with technical advice on a number of areas of the regulation. 

Under the regulation, ESMA will publish the following:

  • A list of national competent authorities responsible for carrying out duties under the Regulation which will begin publishing from 1 January 2018 till Q3 2018
  • A register of administrators and third country benchmarks which will begin publishing as of 1 January 2018. 

Policy activities: https://www.esma.europa.eu/policy-rules/benchmarks

ESMA have published a Q&A on the Market Abuse Regulation (MAR). The Q&A provides responses to questions asked by the public in numerous areas of the MAR such as disclosure of inside information, insider lists and prevention and detection of market abuse. This update has included a new question regarding ‘An Issuer’s response to a delayed disclosure of inside information.’

The Q&A is intended to provide a common supervisory and practice approach in line with the ESMA Regulation.

The Council of the EU has published a proposal, 12618/17 (28 September 2017), regarding the proposed Regulation to amend the European Market Infrastructure Regulation (EMIR) in the following areas:

  • Clearing obligation Suspension of the clearing obligation
  • Reporting requirements
  • Risk mitigation
  • Registration and supervision
  • Requirements for trade repositories

ESMA has published an updated Q&A regarding the European Market Infrastructure Regulation (EMIR) and the Central Securities Depositaries Regulation (CSDR). Both documents contain new questions and answers which are listed below:

  • CSDR
    • Protection of securities of participants and those of their clients
    • Provision of banking-type ancillary services
    • Requirements for CSD links 
  • EMIR
    • Definition of OTC Derivatives
    • Ongoing monitoring of collateral requirements

ESMA has published a Q&A on the application of Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS). 

The AIFMD Q&A includes the following new questions and answers on:

  • application of remuneration disclosure requirements
  • disclosure of staff remuneration in annual reports
  • periodic reporting under UCITS and AIFs to investors 

The UCITS Q&A includes the following new questions and answers on ‘Periodic reporting under UCITS and AIFs to investors’. This document is applicable to those who fall under the AIFMD and UCITS.

The Financial Stability Board (FSB) has discussed its 2018 work plan (6 October 2017) and the next steps on evaluations of effects and reforms. 

The FSB maintains that monitoring and reporting on member jurisdictions’ implementation of agreed reforms remains a priority. On top of this, the FSB is also monitoring and addressing new and emerging risks. A list of assessed potential vulnerabilities have been identified in the financial system and the following work was discussed:

  • Evaluating the effects of reforms which will have two components:
    • Examining the trends in the financing of infrastructure investment which should be completed in advance of the 2018 G20 Summit
    • Examining intermediation trends by broad financing source and evaluating the effects of financial reforms on resilient financial intermediation

For the above part of the FSB’s framework, stakeholders and academics will participate in the early stages of the process. The previous evaluation of the FSB framework was discussed regarding the progress which will conclude in 2018. It included:

  • Cyber security reviewed against existing regulations and practices with international guidance
  • Misconduct risks covering:
    • A toolkit to strengthen frameworks to mitigate misconduct risks which is planned to be published in April 2018
    • A progress report on reforms to interest rate benchmarks from the FSB’s Official Sector Steering Group
  • Market-based finance with updates on the annual global shadow banking monitoring exercise and policy recommendations to address structural vulnerabilities from asset management activities. 

A public consultation will be held in mid-2018.

The Council of the EU has published the provisional version of their meeting outcome in which the Council decided not to object to the following Commission Delegated Acts:

  • Regulation supplementing the MiFIR regarding package orders; and
  • Regulation amending the Capital Requirements Regulation (CRR) regarding the waiver on fund requirements for certain covered bonds.

The Delegated Acts will now enter into force subject to the objection of the European Parliament.

The EBA has published an opinion to provide guidance in addressing the regulatory and supervisory risks that arise from entities seeking to relocate due to UK’s decision to withdraw from the EU. The aim of the document is to provide practical recommendations to entities and EU Competent Authorities (CAs) as well as highlight the key issues posed by the UK’s withdrawal to the Commission. 

The practical recommendations are focused on the 18 months period prior to the departure of the UK from the EU as EU directives will still apply to UK institutions during this period. The published document addresses a number of areas for CAs and provides detailed analysis and recommendations on:

  • The authorisation process
  • Equivalence access for the provision of investment services
  • Internal models
  • Internal governance and outsourcing;
  • Resolution and deposit guarantee schemes 

The EBA will monitor developments and assess the extent to which the recommendations in the document have been adhered to with a view of a progress report by the end of 2018.

The FSB has published a report on financial sector cybersecurity regulations, guidance and supervisory practices which was delivered at the meeting of G20 Finance Ministers and Central Bank Governors. It was noted by the G20 that there are several factors linking the nature of cyber risk to financial institutions, which include evolving technology, interconnections of financial institutions and external parties and cyber criminals determined to find new methods of attack.

The FSB released two reports, a detailed analysis and a summary report regarding responses of cybersecurity from FSB member jurisdictions and international bodies. The reports are a stocktake of existing publicly available regulations and supervisory practices taken from FSB member jurisdictions and discusses the approach to cybersecurity and technological risk.

ESMA has launched the second phase of its financial instrument reference database (16 October 2017). This will provide access to current available reference data which will in future be able to identify instruments subject to the  MAR and MiFID reporting requirements. It will also allow participants to prepare their reporting systems for the implementation date on 3 January 2018.

ESMA encourages market participants to use the published data following instructions given by ESMA’s updates. This will play a role in the quality of data reported to NCAs from 3 January 2018.

Steven Maijoor, Chair of ESMA, delivered a speech (17 October 2017) regarding the challenges facing the European financial markets. The speech focused on three issues: 

1. The building of a Capital Markets Union (CMU) with special focus on protection for retail investors.

The speech noted that with better access to capital markets for retail investors, it means a higher level of protection is needed for a successful CMU. Many retail investors still do not have sufficient trust in the market and hope to remedy this by providing good service and good transparency. It further states that the MiFID II’s implementation is one of the tools that will bring more protection to investors. 

2. The development of a strong supervisory culture in relation to Brexit.

It states that discussions with the UK should not affect the global attractiveness of the EU. ESMA reminds individuals that the UK will not become an average third country and provides the statistic that it currently makes up about two thirds of EU equity trading and one tenth of EU population. It maintains that these facts will not change in the near future and neither will the ties of London and the rest of the world. 

3. Financial stability.

With the introduction of regimes and regulation, a great improvement can be seen in understanding risks, trends and vulnerabilities in financial markets. A more centralised EU approach is desired, with ESMA acting a key part of the global financial markets infrastructure.

The Basel Committee has published a progress report on the adoption of the Basel regulatory framework in adopting Basel III standards as of end-September 2017.

The report focuses on the status of the adoption of Basel III (which is effective in 2019) to ensure that the standards are being transcribed into national law or regulation within internationally agreed timeframes. The report includes the status of adoptions such as risk-based capital, liquidity coverage ratio, net stable funding ratio etc.

The European Commission has issued guidance in a FAQ to clarify the interaction of EU investment firms and non-EU countries in relation to brokerage and research services. The Commission’s objective was to deal with how firms subject to MiFID II can obtain the relevant services from other jurisdictions.

The FAQ clarifies the interaction of EU and non-EU brokerage and research services by citing relevant provisions and explaining how EU firms can procure international research brokerage services whilst being fully compliant with their obligations.

Financial Crime

The Wolfsberg Group has completed two significant pieces of work that will strengthen the international financial system. These are the new Wolfsberg Correspondent Banking Due Diligence Questionnaire and the revised Payment Transparency Standards, the latter of which will not be covered in this update.

The questionnaire reflects a significant update to the original due diligence questionnaire in constituting a ‘reasonable and enhanced’ set of questions that is likely to be applicable to most situations, except for exceptional cases. The Wolfsberg Group hopes that this will be adopted across the industry and used as a standard for Know Your Customer (KYC). This questionnaire is expected to satisfy the Financial Action Task Force’s (FATF) recommendation when completed.

The second commencement regulations made under the Criminal Finances Act 2017 have been published called The Criminal Finances Act 2017 (Commencement No. 2 and Transitional Provisions) Regulations 2017.

This regulation brings a list of provisions into force on 31 October 2017 in section 2. For a detailed list of the provisions, please visit the legislation website.

The UK Government has introduced a new bill, Sanctions and Anti-Money Laundering, into the House of Lords. The Bill’s purpose is to enable the UK to continue meeting its international obligations and to perform at a level capable of cooperating with foreign policies and national tools after leaving the EU.

The Bill essentially gives Ministers the power to make regulations, leaving much of the details to be contained in future legislations. The second reading of the Bill will commence on 1 Nov 2017. Guidance is expected to accompany the legislation before March 2019 when UK is due to exit the EU.

The HM Treasury and Home Office have published a 2017 national risk assessment to identify where changes or developments of risks have been made, and to explore in further detail the areas identified as high risk.

The key findings of the national risk assessment include:

  • the identification of the greatest areas of money laundering risks in UK, high-end and cash-based money laundering
  • The distinctions between typologies becoming increasingly blurred
  • A better understanding of specific services and specific types of professionals that are a greater risk for criminals to disguise their money
  • Cash intensive sectors as being the most favourable method for terrorists to move funds through the UK
  • Wide-ranging set of reforms by government and law enforcement that is starting to take effect

The report states that the areas of risks identified in services, sectors or entities does not constitute it as being likely to be criminally complicit or negligent. Rather, it is for those firms to act in a more vigilant manner to combat any vulnerabilities that criminals may exploit.

The European Commission has adopted a Delegated Regulation (EU) C (2017) 7136 amending the 4th Money Laundering Directive regarding adding Ethiopia to the list of high-risk third countries to the Annex of the document.

The Criminal Finances Act 2017 (Commencement No.3) Regulations 2017 (SI 2017/1028) has brought sections 11 and section 36 of the Criminal Finances Act 2017 into force from 31 October 2017.

These sections relate to the sharing of information within the regulated sector relevant to undertakings within the Proceeds of Crime Act 2002 and Terrorism Act 2000.

Enforcement Action

The FCA has cancelled Bayliss & Company (Financial Services) Limited’s (Bayliss) Part 4A permission following the Court’s decision to refuse permission to appeal. It further withdrew permissions and prohibited the sole director, Mr Clive John Rosier, from performing any significant influence function and fined him £10,000 for breaching the statements of principle and code of conduct for Approved Persons.

The FCA has found Mrs Chiesa to not be fit and proper, and lacking in fitness and propriety, on account of the lack of integrity she showed in her dealing with trustees in sequestration.

The FCA has made an order to prohibit Mrs Colette Chiesa from performing any function in relation to any regulated activity carried on by an authorised person, exempt person or exempt professional firm. Additionally, the approval given to Mrs Chiesa has been withdrawn and a financial penalty of £50,000 has been imposed.

The FCA has found that Rio Tinto breached the Disclosure Rules by failing to carry out an impairment test and failing to recognise an impairment loss on the value of its mining assets in the Republic of Mozambique.

The FCA considers the decision of Rio Tinto to not carry out an impairment test, despite indicators that the test should have been carried out, to be a demonstration of a serious lack of judgement. The FCA has imposed a financial penalty on Rio Tinto of the amount £27,385,400.

Rio Tinto agreed to settle at an early stage in the investigation and therefore qualified for the 30% reduction in penalty. If not for the reduction, the original penalty would have been £39,122,007.

The FCA has taken enforcement action against Merrill Lynch for failing to report details of trading in exchange traded derivatives under the EMIR. This is the first enforcement action taken against a firm for a failure to report under the EMIR and shows the importance of such obligations in the eyes of the FCA.

Between the dates 12 February 2014 and 6 February 2016, Merrill Lynch failed to report 68.5 million exchange traded derivative transactions resulting in a fine from the FCA of £34,524,000.

Merrill Lynch agreed to settle at an early stage in the investigation and therefore qualified for the 30% reduction in penalty. If not for the reduction, the original penalty would have been £49,320,000.

The FCA has updated on its webpage a press release regarding a rent-to-own firm, BrightHouse, that did not always deliver good outcomes for customers, particularly those with higher risk of falling into financial difficulty.

In response to these concerns BrightHouse undertook an extensive programme to improve its process to ensure customers are treated fairly. In addition, where BrightHouse has identified customers that may have been treated unfairly where its processes fell short of FCA expectations, it has committed to putting things right for the customers. It will provide over £14.8 million in redress to around 249,000 customers.

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