Welcome to Legal Shorts, a short
briefing on some of the week’s developments in the financial services industry.

If you would like to discuss any of the
points we raise below, please contact me or one of our other
lawyers.  

 

Claire Cummings

020 7585 1406

[email protected]

www.cummingslaw.com

 

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FCA guidance consultation on financial
crime systems and controls: insider dealing and market manipulation 

The FCA recently published a guidance
consultation on amending its Financial Crime guide for firms.  The guide
consolidates the FCA’s guidance on financial crime. Although it is not binding
on firms, the guidance is intended to enhance firms’ understanding of the FCA’s
expectations, and firms are expected to take note of it and use it to inform
their own financial crime systems and controls.  The proposed changes
include, among others, updating the guide with an additional chapter on insider
dealing and market manipulation which will outline the FCA’s observations of
good and bad market practice around the requirement to detect, report and
counter the risk of financial crime, as it relates to insider dealing and
market manipulation.  The FCA also points out that where firms separate
their surveillance function from their financial crime or money laundering
reporting officer teams, it is important that they ensure that there is
adequate communication between the two areas such that the firm can effectively
counter the risk of insider dealing and market manipulation. 

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Insurance Europe publishes final
template for data breach notifications under GDPR  

Insurance Europe has published its
final template for data breach notifications under GDPR, which will apply as of
25 May 2018.   GDPR will require companies processing personal data
to comply with new and more stringent data protection rules. One obligation
will be for companies to notify breaches of personal data to the competent
supervisory authority.  Companies will have to submit the relevant
information without undue delay and, where feasible, no later than 72 hours
after having become aware of the breach. Such information includes the nature
of the breach, categories and approximate number of data subjects and of
personal data records concerned, likely consequences and measures taken to
address and mitigate the breach. The template is designed so that the
information gathered can be shared without the need to be anonymised or aggregated,
thereby enhancing the available information and data on cyber risks and so
increasing society’s cyber resilience. 

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High Court considers 2002 ISDA Master
Agreement close-out provisions 

The High Court has held that a party
determining a Close-out Amount for a swap was not entitled to withdraw its
original determination of that amount served under Section 6(d)(i) of the 2002
ISDA Master Agreement and replace it with a revised calculation. In making this
determination it had to use procedures that are, objectively, commercially
reasonable to produce, objectively, a commercially reasonable result. This is a
higher standard than a rational determination, which is effectively what is
required under the 1992 ISDA Master Agreement. 

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BOE speech on internal FinTech
initiatives  

The BoE recently published a speech, by
Dave Ramsden, BoE Deputy Governor for Markets and Banking on the BoE’s open
approach to FinTech.  Items of interest from the speech include: (i) the
BoE has set up a new Fintech hub that will sit “at the heart of the
Bank” and will consider both how the BoE understands and applies FinTech
relevant to its mission. The Hub will be a central point of contact for the
FinTech sector to engage with the BoE, and will play an active role in the new
joint BoE, HM Treasury and FCA cryptoassets task force; (ii) the BoE is using
its FinTech accelerator proof-of-concept approach with a small cohort of firms
to consider how its renewed service could interface with innovative settlement
systems, such as those built on distributed ledger technology; and (iii) the
BoE has initiated work to understand how machine readable technology could be
applied to the next iteration of the PRA Rulebook.   

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ESMA final report on guidelines for
position calculation by trade repositories under EMIR 

ESMA recently published a final report
containing guidelines for position calculation by trade repositories (TRs)
under ESMA.  The guidelines apply to TRs registered or recognised by ESMA
and they create a framework for TRs to calculate positions in derivatives in
accordance with EMIR. They aim to provide regulatory authorities with
consistent and harmonised position data, focusing on the time of calculations,
the scope of the data used in calculations, and calculation
methodologies.  ESMA proposes that four separate datasets of calculations
are used (position sets, collateral position sets, currency position sets, and
currency collateral position sets). The guidelines provide specific
instructions on the aggregation of certain data fields and how those should be
calculated by TRs before the data is provided to regulatory authorities. 
The guidelines will start to apply on 3 December 2018 and require an annual
assessment of compliance. 

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ESMA final report on amendments to
MiFIR RTS on systematic internalisers’ quote obligations  

ESMA was required under MiFIR to draft
regulatory technical standards (RTS) to specify, in the context of the quoting
obligation for systematic internalisers, “the determination of whether
prices reflect prevailing market conditions”. ESMA’s draft RTS were
endorsed by the EC and published in the Official Journal of the EU in March
2017.  In November 2017, ESMA consulted on revisions to RTS 1 to clarify
the concept of “prices reflecting prevailing market conditions” as
well as other amendments intended to allow for more consistent and unambiguous
application of its provisions.  In the final report, ESMA sets out the
final version of a draft Delegated Regulation which has been submitted to the
Commission. The Commission has three months to decide whether to endorse the
proposed amendments to the RTS. 

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DExEU sets out UK position on
Regulation on European crowdfunding services providers 

The Department for Exiting the European
Union (DExEU) recently published an explanatory memorandum on the European
Commission’s legislative proposals for a Regulation on European crowdfunding
services providers (ECSPs) and a Directive making consequential amendments to
MiFID II.  In the memorandum, DExEU sets out the UK government’s concerns
with the Commission’s proposals: (i) the proposed Regulation does not
distinguish between investment-based crowdfunding and peer-to-peer lending and
contains a common definition of crowdfunding that encompasses both activities.
The government’s view is that the differences between these types of
crowdfunding mean that they require different regulatory regimes;  (ii) it
would prefer national competent authorities, such as the FCA, to be responsible
for supervising crowdfunding firms, particularly in the light of the FCA’s
experience in this area; (iii) an ESMA-supervised regime means that firms could
operate domestically with no cross-border activity, but be regulated by ESMA
under the European crowdfunding passport (ECP) rather than by the FCA; (iv) the
Regulation does not introduce prudential standards for crowdfunding platforms.
The UK government believes that platforms should hold appropriate levels of
regulatory capital; and (v) the specific disclosure requirements for ECSPs and
their investors could be burdensome for platforms, borrowers and investors. 

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ECB finalises guides on bank and
FinTech bank licensing 

The ECB recently published the final
version of it’s (i) Guide to assessments of license applications; and (ii)
Guide to assessments of FinTech credit institution license applications. 
The guides are not legally binding. Instead, their aim is to support applicants
and all entities involved in the process of authorisation to ensure a smooth
and effective procedure and assessment.  The goal is to achieve maximum
transparency in the license application process and raise greater awareness of the
procedure followed and criteria applied by the ECB in its assessment of license
applications. With respect to the guide relating to FinTech credit
institutions, ECB’s aims to uphold the same supervisory standards for all
credit institutions and ensure a technology-neutral approach to assessing
license applications.   

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ESMA temporary product intervention
measures on CFDs and binary options

ESMA recently published a report
setting out temporary product intervention measures which prohibit the
provision of binary options and restrict the provision of CFDs to retail
investors.  The report sets out additional information on the measures that
have been agreed under ESMA’s product intervention power under MiFIR. The
measures are considered necessary by ESMA and NCAs to address significant
investor protection concerns relating to CFDs and binary options offered to
retail investors that arise from issues such as their complexity and lack of
transparency and particular product characteristics. The agreed measures for
binary options include a prohibition on the marketing, distribution or sale of
binary options to retail investors. For CFDs, the measures include a
restriction on the marketing, distribution or sale of CFDs to retail investors.
Among other things, the CFD restriction will limit the use of leverage and
incentives, provide a risk warning for investors and ensure that investors
cannot lose more money than they put in.   The measures will be
published in the OJ and will start to apply one month (for binary options) and
two months (for CFDs) after their publication in the OJ.