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.
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Upcoming key dates
16 May 2017 is the closing date for comments on the European Commission's March 2017 consultation paper on the operations of the European Supervisory Authorities.
19 May 2017 is the deadline for comments to the Investment Association's consultation on a new code for enhanced disclosure of charges and transaction costs.
22 May 2017 is the closing date for comments on HM Treasury's February 2017 consultation paper on transposing the Insurance Distribution Directive.
FCA policy statement on exam standards
The FCA has published policy statement PS17/11 which sets out the outcomes of its review of the appropriate qualification exam standards. This follows the FCA’s consultation paper CP16/24 which was published in September 2016 and set out its proposals to revise the appropriate exam standards (AES) to reflect relevant developments since they had last been reviewed. PS17/11 sets out the FCA's feedback to responses it received to CP16/24. These include noting that respondents unanimously welcomed a reduction in the number of "regulation and ethics" AES from three to two. Respondents noted that this will help avoid duplication in standards and make them more relevant to individuals and firms and allow for standards to be applied based on the individual’s attainment level of either level three or four qualifications. Respondents also welcomed the introduction of guidance to the Handbook to enhance navigation of the qualification tables in Appendix 4.1 to the Training and Competence sourcebook (TC Appendix 4.1) but suggested improvements be made to the format and presentation of the tables to make them more interactive, user friendly and easier to understand. The FCA intends to add the new guidance as proposed. However, to address these issues, as part of its broader work on TC in 2017 the FCA aims to update its webpage on training and competence and will work towards separating the current qualifications in TC Appendix 4 from legacy qualifications that are no longer available to study so as to improve the layout. The final revised AES are set out in Appendix 2 to PS17/11 and have been published on the FCA's exam standards webpage. They will be kept under review to ensure they remain up to date, with the FCA noting that the content of the AES is indicative and it expects that qualification providers will regularly review their qualification syllabi to incorporate relevant regulatory and legislative changes as appropriate.
FCA policy development update: May 2017
On 5 May 2017, the FCA updated its policy development webpage for May 2017, which sets out the information on the FCA's recent and future publications schedule. The update summarises the FCA's proposed publications and highlights those changes which have been made since the its previous publications schedule was updated on 7 April 2017.
Criminal Finances Act 2017
The text of the Criminal Finances Act 2017 has published online on legislation.gov.uk. The legislation contains provisions amending the suspicious activity reporting (SARs) regime and providing for enhanced information sharing between entities in the regulated sector. Also included are new civil recovery powers for the FCA and the extension of certain powers to apply to investigations relating to terrorist property and financing. The act also contains new corporate offences dealing with the failure to prevent the facilitation of tax evasion.
JMLSG consultation on AML and CTF guidance
The Joint Money Laundering Steering Group (JMLSG) has published revised versions of Part II and III of its anti-money laundering (AML) and counter-terrorist financing (CTF) guidance. Part II, contains industry-specific chapters dealing with particular issues faced by a range of sub-sectors of the financial services sector. while Part III sets out specialist guidance on a number of topics. JMLSG has also published a webpage which explains that it has revised the guidance in line with the proposed Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 , these 2017 Regulations having been designed to transpose the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4) and the revised Wire Transfer Regulation (Regulation (EU) 2015/847) (revised WTR) in the UK.. HM Treasury has been consulting on the proposed 2017 Regulations and advised that they will come into force by 26 June 2017,this being the transposition date for both MLD4 and the revised WTR.
Legal uncertainties in Market Abuse Regulation
The Financial Markets Law Committee (FMLC) has published a discussion paper highlighting what it considers to be certain legal uncertainties in the context of the Market Abuse Regulation (Regulation 596/2014) (MAR). These include: (i) the FMLC believes that the legislation allows for market abuse to be committed in respect of instruments that are not themselves admitted to trading in the EU but whose price or value depends on or has an effect on the price or value of EU-traded securities and considers there to be uncertainty over what is meant by "or has an effect on" and different interpretations are possible; (ii) when looking at the meaning of the terms "transaction" and "announcement" in Article 11(1) of MAR in the context of the market soundings regime, FMLC believes there to be a lack of clarity as to the scope of the transactions contemplated by Article 11 which may lead to an issuer considering that it has to comply with the market soundings regime in relation to a transaction which may not be come within scope; (iii) as t he term announcement is undefined in MAR there is potential for debate as to when a transaction is announced. To address these uncertainties, which are already having a practical impact on third country issuers, the FMLC suggests further guidance by ESMA in the form of amendments to the existing MAR Q&A document, or other guidance by national competent authorities.
BoE publishes MREL data for UK firms
The Bank of England (BoE) has published an Excel document containing indicative data for the minimum requirement for own funds and eligible liabilities (MREL) obligations for UK banks, building societies and large investment firms and updated its webpage on MREL to explain the context for the data. The document sets out indicative data on the interim and final MRELs for UK firms in of two tables, these being: Table 1 - indicative MRELs for the UK's systemically important banks; and Table 2 - average indicative MREL of other firms with a resolution plan that involves the use of bail-in or transfer powers. The BoE’s intention is that MREL obligations will apply in full to those UK firms which are within the scope of MREL from 1 January 2022, with interim requirements coming into force from 1 January 2020.
LOU implementation of parent entity data collection
The Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier (LEI) system has published a press release relating to the launch of data collection on parent entities in the global LEI system. The LEI ROC says that it welcomes the 1 May 2017 launch of the collection of information on the direct and ultimate parents of legal entities, noting that the data collected has been available on the Global Legal Entity Identifier Foundation (GLEIF) website since 8 May 2017. They report that a majority of local operating units (LOUs) have implemented parent entity data collection as planned and that these LOUs cover more than 82% of managed LEIs. However, as of 9 May 2017, the other LOUs are expecting delays of a few weeks or months in implementing this capability. For the time being, these LOUs will continue to manage existing LEIs and to issue new LEIs. However, as of 9 May 2017, no porting to these LOUs is allowed until they implement the parent entity data collection. The ROC will closely monitor their implementation plans, and notes that full implementation of GLEIF standards is a condition of LOU's future accreditation.
FSB global shadow banking monitoring report 2016
The Financial Stability Board (FSB) has published its global shadow banking monitoring report 2016. The report presents the results of the FSB’s sixth annual monitoring exercise, reflecting data up to the end of 2015, covering 28 jurisdictions that together account for approximately 80% of global GDP. The report compares the size and trends of financial sectors across jurisdictions, based on sector balance sheet data then focuses on . those parts of non-bank credit intermediation that may pose financial stability risks. The main findings are: (i) the activity-based, narrow measure of shadow banking was $34 trillion in 2015, which is up by 3.2% compared to 2014, and equivalent to 13% of total financial system assets and 70% of GDP of the jurisdictions that were assessed; (ii) credit intermediation associated with collective investment vehicles comprised 65% of the narrow measure of shadow banking and has grown by around 10% on average over the past four years and this has been accompanied by liquidity and maturity transformation, and, in the case of jurisdictions that reported hedge funds, relatively high level of leverage: (iii) non-bank financial entities engaging in loan provision that are dependent on short-term funding or secured funding of client assets represent 8% of the narrow measure and grew by 2.5% in 2015. Mark Carney, FSB Chair, has previously advised that FSB member authorities must maintain and continue to invest in an effective and ongoing programme of surveillance, data sharing and analysis to support judgements on any required regulatory response in the future
IA guidance on long-term financial reporting
Following its publication in November 2016 of a public position statement in which the it called for companies to cease reporting quarterly in favour of meaningful long-term reporting, the Investment Association (IA) has published guidance on long-term reporting. The guidance was written to complement the requirements in the Companies Act 2006 and the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013. The guidance sets out a detailed set of recommendations in a number of areas. In relation to business models and long-term reporting it calls on companies to stop issuing quarterly reports and quarterly earnings guidance in favour of greater attention being given to longer term performance and strategic issues and review their current approach to business model disclosures against the FRC Reporting Lab's Business Model Reporting recommendations. Expectations as to how companies should report on the drivers of productivity within their business are set out, as are expectations on capital management disclosures and how companies can improve reporting on the connection between capital management and its long-term strategy. The guidance applies to companies with a premium listing of shares. Companies with a standard listing of shares or with shares admitted to trading on AIM or to the High Growth Segment of the Main Market are encouraged to adopt the guidance as best practice.
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12 May 2017