Financial Regulatory Developments (FReD) - 10 February 2012

Headlines

ESMA speaks on financial advice

FS Bill has second reading

BoE speaks on financial sector reform

FSA confirms twin peaks introduction

FSA consults on 2012/13 fees

European Union and International

Financial Stability Board (FSB)

FSB holds Sub-Sahara meeting: The FSB Regional Consultative Group for Sub-Saharan Africa held its first inaugural meeting on 3 February 2012 in Pretoria. The group includes financial authorities from nine countries in the region. (Source: FSB Sub-Saharan Africa Group Meets)

Contact: Rosali Pretorius or Emma Radmore.

FSB announces LEI Panel: FSB has announced the membership of its Legal Entity Identifier (LEI) Initiative Industry Advisory Panel. (Source: FSB Announces LEI Panel Membership)

Contact: Rosali Pretorius or Josie Day.

European Parliament (EP)

MEPs back Eurozone FTT: Members of the Economic and Monetary Affairs Committee (ECON) agreed a Eurozone Financial Transaction Tax (FTT) would control high-frequency trading and could also help to stabilise the economy. But they were concerned the cumulative impact of the tax would be high and would not be the "magic solution" to everything. (Source: ECON Discussed FTT)

Contact: Rosali Pretorius or Josie Day.

ECON starts MAD debate: ECON has started discussions on the proposals to amend the Market Abuse Directive. The rapporteur, Arlene McCarthy, argued that both criminal and administrative sanctions for breach should apply. MEPs discussed the definition of inside information, the proposals on whistle-blowing, and surveillance. Ms McCarthy's draft report is to be tabled on 26 March. The deadline for amendments is 24 April, and the committee vote will follow in July. (Source: ECON Starts MAD Debate)

Contact: Rosali Pretorius or Josie Day.

ECON publishes MiFID overview: ECON has published a working paper setting out the key changes between the original Investment Services Directive and the current Markets in Financial Instruments Directive (MiFID), and then looking at the changes proposed in the MiFID Review. (Source: ECON Overview of MiFID)

Contact: Rosali Pretorius or Emma Radmore.

ECON publishes EESC Opinion on CRD IV: ECON has published the opinion of the European Economic and Social Committee on the proposal for the Directive and Regulation that will comprise what is known as the fourth Capital Requirements Directive (CRD IV). It believes the proposals address, in theory, all the issues raised in the light of CRD III. However, it says implementation and the players involved will be critical, as will the introduction of recovery and resolution procedures. It supports the proposals, but makes several specific comments and cautions that some Member States may not be able to move at the same speed as others. (Source: EESC Opinion on CRD IV)

Contact: Rosali Pretorius or Matthew Hodgson.

MEPs support Iran measures: MEPs have backed the EU sanctions imposed on Iran, which they hope will make Iran respect United Nations resolutions. However, they cautioned that sanctions should be targeted at the "accountable elites" and should not have an adverse effect on the ordinary Iranian people. (Source: MEPs Support Iran Sanctions)

Contact: Emma Radmore or Dominic Gilmore.

ECON publishes remuneration workshop papers: ECON has published the papers from a workshop that looked at the implementation of the third Capital Requirements Directive's (CRD III) rules on remuneration, and whether they work in practice. (Source: ECON Publishes Banks’ Remuneration Rules Papers)

Contact: Rosali Pretorius or Josie Day.

European Commission (Commission)

Commission writes to EIOPA on equivalence: The Commission has written to EIOPA explaining the proposals in the Omnibus II Directive to allow a transitional regime for third country equivalence, and listing the jurisdictions that have expressed an interest in being considered for this transitional regime. (Source: Commission Writes to EIOPA on Transitional Equivalence)

Contact: Emma Radmore or Dominic Gilmore.

European Banking Authority (EBA)

EBA publishes overview of SCFI objectives: EBA has published an overview of the objectives and work of their Standing Committee on Financial Innovation (SCFI) over the past year in the area of consumer protection and financial innovation. It plans to publish an annual report from 2012 onwards covering areas of concern and interest, which will also make recommendations for possible further action by EBA. The paper for 2011-12 looks at the purpose of consumer protection rules, and EBA's work in identifying and dealing with potentially harmful financial innovations. (Source: EBA Publishes Overview of SCFI Objectives)

Contact: Dominic Gilmore or Josie Day.

European Securities and Markets Authority (ESMA)

ESMA launches CEREP: ESMA has launched a Central Rating Repository (CEREP) that gives information on credit ratings issued by EU registered or certified credit rating agencies (CRAs). CRAs must submit data semi-annually. (Source: ESMA Launches CEREP)

Contact: Rosali Pretorius or Lauren Donnelly.

ESMA speaks on financial advice: Steven Maijoor spoke on problems consumers face when seeking financial advice. He focused on:

• lack of quality of advice;
• unsuitable products; and
• inducements to advisers.

He discussed how ESMA is addressing these and proposals for change, particularly within the UCITS Directives and the review of the Markets in Financial Instruments Directive (MiFID 2). (Source: ESMA Speaks on Financial Advice)

Contact: Emma Radmore or Dominic Gilmore.

European Insurance and Occupational Pensions Authority (EIOPA)

EIOPA reports on consumer trends: EIOPA has published a report on key consumer trends in the European insurance and occupational pensions sectors. The report identifies:

• consumer protection issues around payment protection insurance;
• increased focus on unit-linked life insurance; and
• increased consumer use of comparison websites.

(Source: EIOPA Overview of Consumer Trends in the EU)

Contact: Emma Radmore or Dominic Gilmore.

UK Government and Parliament

Parliament

FS Bill has second reading: The Financial Services Bill (FS Bill) had its second reading in Parliament on 6 February. It now moves to Committee stage, the date of which has not been announced, but a motion was agreed that the Committee should finish its deliberations by 20 March. A further motion was agreed that if the FS Bill does not complete its passage during the current session it will be carried over into the next parliamentary session. (Source: FS Bill Completes Second Reading)

Contact: Rosali Pretorius or Emma Radmore.

Bank of England (BoE)

BoE speaks on financial sector reform: Chris Salmon spoke on three principles for successful financial sector reform. He said these are:

• managing the costs of change by having a long transition period, rather than watering down the reform to achieve it quickly;
• strong dialogue between authorities so there is a consistent approach; and
• building in mechanisms to amend, recalibrate or adjust rules as future developments demand.

(Source: Three Principles for Successful Financial Sector Reform)

Contact: Rosali Pretorius or Emma Radmore.

HM Treasury (Treasury)

Treasury speaks on regulatory change: Mark Hoban spoke on the importance of strengthening the financial system for the future. In this context he discussed:

• reforms to the regulatory structure;
• international regulation, implemented consistently and protecting open and competitive markets;
• the need to live up to G20 commitments;
• the importance of proper implementation of Basel III, and of ensuring the negotiations towards CRD IV embed high and consistent standards;
• tackling the issue of "too big to fail" and the implementation of the Independent Commission on Banking's recommendations; and
• the UK stance on key EU initiatives.

(Source: Treasury Speaks on Reform and UK's Position)

Contact: Rosali Pretorius or Emma Radmore.

Regulators publish 2012 market-wide exercise report: Treasury, BoE and FSA published the results of the 2011 market-wide exercise that took place in November. Feedback was generally positive. Regulators discovered the market needs more information on surveillance and market interruption techniques regulators might use, and would benefit from better communication. The scenario involved a concentrated cyber attack on financial systems during the Olympics, which caused disruption to wholesale and retail payments and to online services. (Source: 2011 Market-Wide Exercise Results)

Contact: Emma Radmore or Josie Day.

Treasury updates sanctions: Treasury has updated the sanctions list in respect of Iraq and has amended the list of designated persons in respect of terrorism and terrorist financing. The Asset Freeze targets list has also been updated. (Source: Treasury Updates Sanctions)

Contact: Emma Radmore or Dominic Gilmore.

Information Commissioner's Office (ICO)

ICO gets undertaking over data loss: ICO has obtained an undertaking from E*Trade Securities Limited, after the company discovered a large number of customer files were missing in 2010. ICO said: "The fact that customer records are being archived in a storage facility and not regularly accessed does not give businesses license to forget about them". (Source: ICO Gets Undertaking Over Data Security)

Contact: Nick Graham or Dominic Gilmore.

UK Financial Services and Markets Regulator

Financial Services Authority (FSA)

FSA confirms twin peaks introduction: Hector Sants has spoken on the regulatory reform agenda. FSA announced, and published a Dear CEO letter confirming, that FSA will introduce a “twin peaks” model of regulation from 2 April. The model will replicate so far as possible the Prudential Regulation Authority (PRA)/Financial Conduct Authority (FCA) model that the Government wants to see in place in early 2013. The main changes firms will see are:

• two independent groups of supervisors for firms that will be “dual regulated” – covering prudential and conduct regulation separately;
• separate judgments from each regulator, in line with their own specific objectives; and
• the introduction of “independent but coordinated regulation” so the two sets of supervisors exchange information but act separately when engaging with firms.  

FSA confirmed firms will need to submit data only once. FSA will continue the current ARROW cycle, but the risk mitigation programme will where appropriate be split between supervisors. Hector Sants said this presents an opportunity to accelerate the process of behavioural change that FSA started in 2008. Separately, Mr Sants spoke on the challenge of Europe and how the European Supervisory Authorities (ESAs) operate. He stressed the increased shift of domestic rule-making power to the ESAs and said FSA will focus now on pure policy analysis and influencing. He said he believes supervision must be delivered locally, but supports colleges and data sharing. (Source: Dear CEO Letter on Twin Peaks and FSA Updates on Regulatory Reform and European Issues)

Contact: Rosali Pretorius or Emma Radmore.

FSA and FINMA confirm UBS enforcement action: FSA has published a statement confirming both it and the Swiss Financial Market Supervisory Authority (FINMA) have commenced formal enforcement investigations against UBS in respect of trading losses incurred by the UBS AG London branch. (Source: FSA Statement on UBS Enforcement Action)

Contact: Rosali Pretorius or Matthew Hodgson.

FSA review leads to SRB market closure: An FSA review into sale and rent back (SRB) transactions  found most were either unaffordable or unsuitable and never should have been sold. It referred one firm to enforcement, while others have stopped taking on new business or cancelled their permissions. This has had the effect of temporarily closing the market. FSA reviewed 22 firms, of which nine were active. Five of these firms are now undertaking past business reviews. FSA has published a guidance consultation on the results of its review, on which it asks for comments by 29 March 2012. (Source: FSA Finds Major SRB Sales Failings)

Contact: Josie Day or Dominic Gilmore.

FSA consults on 2012/13 fees: FSA has announced its proposed annual funding requirement for 2012/13. It says it has tried to keep costs to firms to a minimum, but there will be increases, mainly on larger firms, to reflect the resources FSA applies to intensive supervision of high-impact firms. FSA proposes a 25.2% increase for deposit acceptors, 36.7% for general insurers, 37.3% for life insurers and 43.7% for firms dealing as principal. It also plans a 32.4% rise to the fund managers' block. However, some blocks, such as advisers, dealers and brokers that hold client money or assets (-19%) and corporate finance advisers (-35.9%), will decrease. The consultation also includes policy proposals on specific issues, including how fees are charged to payment services providers and electronic money issuers, and how to value derivatives in fund management. FSA asks for comments on some of the proposals by 29 February 2012 and others by 2 April 2012. (Source: FSA Consults on Fees)

Contact: Josie Day or Dominic Gilmore.

FSA publishes insurance newsletters: FSA's latest general and life insurance newsletters cover:

• an update on Solvency II implementation. FSA says that although the date for the ECON debate on Omnibus II has been delayed from January until March, it has had no indication that dates beyond 2014 will change;
• FSA's consultations on guidance on payment protection, structured products and insurance in packaged banking products, and a warning that FSA intends to consult later this year on banning sales of traded life policy investments to mass retail markets;
• the Office of Fair Trading's review of motor insurance;
• proposed changes in fees for insurers and intermediaries; and
• an update on the Retail Distribution Review (RDR) implementation.

(Source: General Insurance Newsletter Issue 7 and Life Insurance Newsletter Issue 7)

Contact: Emma Radmore or Dominic Gilmore.

Financial Ombudsman Service (FOS)

FOS publishes GAP insurance resource: FOS has published a technical resource describing how it deals with complaints relating to Guaranteed Asset Protection (GAP) insurance. (Source: FOS GAP Resource)

Contact: Emma Radmore or Dominic Gilmore.

Financial Services Consumer Panel (FSCP)

FSCP responds on structured products: FSCP has responded to FSA’s guidance consultation on retail product development and governance for structured products. It described the results of the review FSA carried out before producing the guidance as “deplorable”, leading to the possibility of significant consumer detriment. It urges FSA to take action against firms whose non-compliance has led to mis-selling, misinformation or risk to consumers’ interests. (Source: FSCP Responds on Structured Products)

Contact: Dominic Gilmore or Josie Day.

Other Regulators/Authorities/Industry Associations    

European Fund and Asset Management Association (EFAMA)

EFAMA welcomes UCITS ETF paper: EFAMA has welcomed the ESMA consultation on UCITS Exchange Traded Funds (ETFs). (Source: EFAMA Pleased on UCITS ETFs)

Contact: Rosali Pretorius or Josie Day.

The Global Financial Markets Association (GFMA)

GFMA criticises REMIT: The commodity markets working group of three key industry associations GFMA, including the Association for Financial Markets in Europe (AFME), has criticised the Regulation on Energy Market Integrity and Transparency (REMIT). It explains how the scope of the REMIT insider dealing offence risks disrupting supply and endangering the market. It says the regulators should apply a similar approach to REMIT implementation as has been adopted under the current Market Abuse Directive (MAD). (Source: GFMA Comments on REMIT)

Contact: Rosali Pretorius or Josie Day.

British Bankers’ Association (BBA)

BBA publishes FCA speeches: BBA has published the speeches given at its recent briefing on the FCA. (Source: BBA Publishes FCA Briefing)

Contact: Emma Radmore or Lauren Donnelly.

Investment Management Association (IMA)

IMA not pleased with fees: IMA says FSA’s proposed 32% increase in fees for the asset managers block is “most unwelcome”. It feels the industry has already had to pay for the defaults of others and now may have to do so again. (Source: IMA Not Pleased with Fee Proposals)

Contact: Josie Day or Dominic Gilmore.

IMA notes FS Bill concerns: IMA published a note to MPs on the FS Bill, setting out its concerns that the Financial Services Compensation Scheme is in urgent need of reform to stop placing the burden of responsibility for paying for failures on sectors with no affinity to the failures. It is also worried that the proposed PRA veto over FCA decisions may prioritise the prudential strength of banks over consumer protection. It also wants to see PRA holding a public Annual General Meeting. (Source: IMA Publishes FS Bill Briefing)

Contact: Josie Day or Dominic Gilmore.

Lending Standards Board (LSB)

LSB publishes bulletin: LSB’s fifth bulletin covers several aspects of compliance monitoring as well as containing an opinion on the FS Bill. The editorial states that the original date of 2014 indicated for transfer of consumer credit to FCA seems extremely ambitious. (Source: LSB Publishes Bulletin Number 5)

Contact: Dominic Gilmore or Josie Day.

Lloyd's

Lloyd's publishes sanctions guidance: Lloyd's has published guidance for managing agents on how they should conduct their sanctions screening. (Source: Market Bulletin Y4560)

Contact: Emma Radmore or Lauren Donnelly.

Forthcoming Events and News

BBA Seminars: Speakers from SNR Denton will be presenting at BBA seminars on SARs and Court Orders (27 February), MLRO Masterclass (17 April), Dealing with Sanctions Regimes (30 April) and Health-Checking your AML and Financial Crime Regime (23 May).

SNR Denton Team Win Compliance Register Awards: FReD is delighted to have won the Compliance Register Platinum Award 2011 for Best Editorial Team. Its editor, Emma Radmore, also won the Best Compliance Trainer Award, while Rosali Pretorius, head of the London Financial Markets and Regulation practice, won the FSC Award for Dedication and Professionalism.

Recent Publications

Financial Crime

New EU Sanctions Expand Restrictions on Iran: Michael Zolandz, Peter Feldman, Stuart Cavet and Emma Radmore have written an update on the new EU sanctions against Iran.

Testing your ABC – the Bribery Act Six Months on: Emma Radmore, Dominic Gilmore and Dominic Sedghi have updated our previous suite of articles on Bribery Act implementation.

Financial Crime Podcast: Emma Radmore joined Finance IQ to discuss the FSA's Financial Crime Guide and issues associated with cutting financial crime.

Compiling the Pieces: The FSA’s Financial Crime Guide: Emma Radmore wrote an article for Compliance Monitor on FSA’s new draft Financial Crime Guide.

Bribery and Sanctions presentation: Our UK and US offices gave a seminar on dealing with bribery and sanctions risks. Please check our website for up to date summaries of key sanctions regimes.

Investment Services and Markets Reform

Treasury presents FS Bill: We have produced a separate summary of the FS Bill and accompanying documents. For more information, please contact Rosali Pretorius or Emma Radmore.

MiFID 2 – Prescription and Change: Emma Radmore wrote an article for Compliance Monitor on the breadth of the proposals to amend the Markets in Financial Instruments Directive (MiFID 2).

I'm a commodity dealer – get me out of here!: Rosali Pretorius and Matthew Hodgson have written an article (published in two parts on Thomson Reuters Compliance Complete) on the effects of the MiFID II proposals on commodity dealers.

The Son of MiFID: Rosali Pretorius, Josie Day and Emma Radmore have written an article looking at the major impacts of the potential changes to the Markets in Financial Instruments Directive (MiFID) on hedge funds.

Prudential Regulation

Reform of Financial Services and Banking 2012: Rosali Pretorius and Emma Radmore look forward to some of the key changes facing UK-regulated financial institutions in 2012.

Financial Stability Board Identifies 29 Global SIFIs and Announces Agreed Policy Measures: We have written an article exploring the FSB announcements and policies endorsed at the November G20 Summit. For further information, please contact Jerome Walker (US) or Rosali Pretorius (UK).

Living Wills in the US and UK: We have written an article on the current US and UK laws and proposals on living wills. For more information contact Robert Bostrom or Jerome Walker (US) or Rosali Pretorius, Emma Radmore or Matthew Hodgson (UK).

What the Vickers Report means to you: Rosali Pretorius, Emma Radmore and Dominic Gilmore have written a note on the major impacts of the Vickers Report.

Recovery and Resolution Plans – Breaking up the banks by stealth: Rosali Pretorius and Matthew Hodgson have written an article on FSA's proposals for Recovery and Resolution Plans.

Asset Management

AIFMD’s Impact on Private Equity Funds: If you were unable to attend our briefing on an update on AIFMD implementation, critical issues and remuneration provisions, you can now watch the lecture. For further information please contact Rosali Pretorius, Richard Nicolle or Josie Day.

AIFMD Level 2: Josie Day and Emma Radmore have written an article for Compliance Monitor on ESMA's consultations on Level 2 measures and industry response.

Outsourcing for Fund Managers: Rosali Pretorius and Amanda Lewis have written a guide to key success factors for outsourcing in fund management.

Product Regulation

Product Bans – A Radical New Power: Katharine Harle has written an article for Thomson Reuters Complinet on FSA's powers to ban products.

FSA’s Product Design Consultations: Emma Radmore has written an article for Thomson Reuters Complinet on FSA’s latest consultations on product design.

Product Intervention: Hitting the Wrong Note?: Emma Radmore and Rosali Pretorius wrote an article for Thomson Reuters Accelus on industry and FSA’s responses to proposals for Product Intervention.

The Future for PRIPs: Rosali Pretorius and Emma Radmore have written an article for Compliance Monitor on current proposals affecting Packaged Retail Investment Products.

Litigation

FSA Not Obliged to Provide Cross-Undertaking in Damages: Alexandra Doucas has written an article for Thomson Reuters Complinet on Financial Services Authority v. (1) Sinaloa Gold plc and others.

The Pitfalls of Personal Recommendations: Richard Caird, Sam Coulthard and Kattalin Truman have written an article on the Zaki and others v. Credit Suisse (UK) case.

An end to the PPI Saga? Wider Implications of the PPI Judgment: Alexandra Doucas and Katharine Harle wrote an article for Thomson Reuters Accelus on learning points for firms stemming from the PPI judgment.