Being better informedFS regulatory, accounting and audit bulletin
PwC FS Risk and Regulation Centre of Excellence
August 2015
In this month’s edition:
Proposal for a new pan-European pension product
EC consults on CRD IV review
ESMA advises on extending AIFMD passport to non-EU countries – but not US at the moment
PRA and FCA publish near final Senior Managerrules
In-depth analysis of how countries are usingmacroprudential tools to control financial stability
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 1
Welcome to this edition of “Beingbetter informed”, our monthly FSregulatory, accounting and auditbulletin, which aims to keep you up tospeed with significant developmentsand their implications across all thefinancial services sectors.
As we predicted, July was another busy
month as regulators publish expected
papers before enjoying a summer holiday.
As Grexit fears have eased, EU regulators
are now focused as much on the economic
growth agenda (including CMU) as they are
on systemic risk issues. This is borne out by
the EC consultation on reviewing CRD
IV, potentially reducing the existing rules
for some less risky banks and identifying
mechanisms to increase lending to SMEs
and individuals.
Similarly, EIOPA published a proposal for
a pan-European personal pension product
(PEPP) in July. This product leans heavily
on the CMU plans which envisage a “29th
regime”. It would allow product
manufacturers to establish a new product
outside the existing (and diverging)
Member State tax, regulatory, legal and
insolvency requirements. One to watch for
the future - such products would make it
easier for individuals to work across
different companies in the EU and take
their pension with them.
In the UK the PRA and FCA published a
number of consultations setting out near
final rules to the new SM&CR which will
replace the existing approved persons
regime for banks and significant investment
firms. In these latest consultations, the PRA
and FCA set out to meet one of the FEMR
recommendations from June to extend the
Certification Regime to wholesale market
activities. Because we have recently seen the
first custodial sentence handed out for
benchmark fixing activities, this issue
should be an issue at the front of firms’
minds.
Sticking with UK regulators, the PRA’s role
is likely to change soon after HMT
published a technical consultation on
the BoE’s structure. It proposes that the
PRA ceases to be a subsidiary and becomes
a division of the BoE instead, with a new
Prudential Regulation Committee created to
decide its policy in future. This change
(along with other changes to the BoE) will
need to be carefully managed, not least
because BRRD requires that the resolution
authority is operationally independent from
the banking supervisor. HMT plans to ask
the BoE to publish a policy statement
setting out how it has achieved this
independence between its two functions.
In asset management, ESMA issued new
AIFMD and UCITS consultations that will
interest firms. For those outside the EU, the
ESMA opinion on extending the passport
will have pleased you or disappointed you,
depending on where your manager and
funds are located. Most controversially, it
has closed the door on extending the
passport to US firms and funds – for now.
Whilst in the short-term this change
shouldn’t be an issue, it may be more of a
focus in 2018/19 if the passport is the only
way to access EU investors. Certainly one to
watch. Better news came from ESMA’s
UCITS and AIFMD remunerationconsultation. Here ESMA reaffirmed its
view that the wording in each Directive
allows a proportional approach to be taken
– at odds with the EBA’s view of similar
wording in CRD IV. The proposals here are
largely sensible and should be welcomed by
most firms.
Finally, in our feature article this month we
explore the evolving role of central banks.
They are stretching their wings and
experimenting with developing and using
more macroprudential tools in wider
contexts. They are becoming increasingly
important players as their remits expand
from managing financial stability to also
dealing with systemic risks in the banking
sector and more widely.
We hope you will all find time during
August for a well-earned holiday from all
things risk and regulation to enjoy the
summer sunshine with your family and
friends.
Laura Cox
FS Risk and Regulation Centre of Excellence
020 7212 1579
@LauraCoxPwC
Executive summary
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 2
How to read this bulletin?
Review the Table of Contents therelevant Sector sections to identify thenews of interest. We recommend yougo directly to the topic/article ofinterest by clicking in the active links
within the table of contents.
ContentsExecutive summary 1
Macro-prudential approach revisited 3
Cross sector announcements 8
Banking and capital markets 24
Asset management 32
Insurance 35
Monthly calendar 39
Glossary 46
Contacts 51
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 3
When the UK’s previous coalition
government restored responsibility for
prudential regulation to the Bank of
England five years ago, some commentators
questioned whether it was a symbolic
gesture or a regressive step. But with the
benefit of hindsight it is clear that the role of
central banks has changed fundamentally
and not just in the UK. The monetary
systems over which central bankers preside
continue to be heavily scrutinised, as bank
runs and capital controls reappear in the
Eurozone and alternative currencies like
bitcoin mushroom globally.
Central bankers must feel a bit vulnerable in
the current climate. They continue to carry
the reputational risks associated with
regulating banks - some are sounder but
others are still struggling to improve their
capital and liquidity positions. And central
banks’ roles continue to be questioned. In
the UK, UKIP’s lone MP has become the
unlikely proponent of scrapping fractional
reserve banking. Iceland’s parliament is
currently pondering an alternative. The use
of macro-economic tools once thought of as
radical measures continues to gain traction,
as experimentation increases. Amongst
policy makers and academics a less radical
debate rumbles on over the appropriate use
of so called ‘macro-prudential’ tools and
their interaction with conventional
monetary policy.
Can we really maintain easy credit
conditions while pursuing macro-prudential
tightening to tackle the financial stability
risks that arise from asset bubbles and
surging capital flows? If so, perhaps the old
debate over interest rates ‘leaning against
the wind’ versus Alan Greenspan’s favoured
approach of cleaning up after a bubble has
burst may be conveniently consigned to the
past. At the very least, it now seems to offer
too narrow a lens. In this article we
examine attempts to escape the old
dichotomy, including the UK’s new leverage
ratio which is being implemented at the
FPC’s direction.
What do we mean bymacro-prudential tools?The financial crisis highlighted a
disconcerting lack of appreciation amongst
financial regulators for the importance of
macro-prudential regulation and its role in
fostering financial stability. Andy Haldane,
the BoE Chief Economist, describes macro-
prudential tools as ‘prudential tools used for
macroeconomic ends.’ The IMF
characterises macro-prudential
management as taking the ‘holistic
approach’ to ‘counter growing risks in the
financial system.’ All definitions cite
financial stability as their objective.
In the UK, the previous coalition
government’s decision to address financial
stability concerns by creating the FPC and
integrating the BoE’s mandate to oversee
monetary policy and prudential regulation
under the same roof was taken in that spirit.
HMT is currently considering further
changes to the regulatory architecture,
including full integration of the PRA into
the Bank of England and making the FPC a
full BoE committee consistent with the MPC
and new PRC (Prudential Regulation
Committee). Quarterly meetings between
the MPC and FPC are also due to begin in
2016.
Macro-prudential measures can take many
forms but have been classified into four
groups:
housing related measures such as
Loan to Value (LTV) or Debt to
Income (DTI) ratios
credit measures such as credit
limits and reserve requirements on
local currency deposits
capital, dynamic provisioning and
liquidity measures
capital flow measures such as
quotas on foreign investors to
invest in domestic bonds.
In advanced economies these measures
have been out of fashion since the 1970’s as
financial liberalisation and globalisation
heralded the decline of the ‘command and
control’ approach to the economy. But some
Macro-prudential approach revisited
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 4
emerging countries in receipt of large
capital flows continued to intervene to
temper volatile flows, in contravention of
the IMF advice prevailing at the time. The
IMF has since reversed its position on
capital flow measures accepting the part
they can play in pursuing macroeconomic
goals. It now fully endorses a broad suite of
macro-prudential measures. Despite having
a past golden era on which to reflect,
experience of these measures in complex
globally-interconnected economies such as
the UK is somewhat lacking so most
economists still regard them as being in the
experimental phase.
From theory to practiceA key issue is deciding which indicators best
reflect our position in the financial cycle and
at what level they should be activated. The
financial cycle tends to be twice as long and
twice as large as the business cycle- the
indicator used to steer monetary policy,
which makes it harder to predict and
monitor. The FPC recognises the complexity
of the task and has signalled its openness to
suggestions of additional indicators which
business economists and financial market
experts find useful. Clearly the decision to
enact macro-prudential measures
(especially those with a time varying aspect)
requires judgement and the appropriate
institutional underpinning to guard against
inaction bias (or any other kind of bias).
While efforts can be made to create suitable
institutions, it may prove harder to prevent
errors in judgement. Similar to monetary
policy, the debate about the appropriate use
of rules/quantitative measures continues.
Although most parties seem united in their
support for this broader approach and its
execution using new tools, questions still
loom over their appropriate use. Some still
regard monetary policy levers as pre-
eminent because of its ability to ‘get into all
the cracks.’ Amongst central bankers there
is debate over using monetary policy tools
and macro-prudential tools when they pull
in opposite directions. ‘What can be
achieved by telling consumers
simultaneously to borrow less and borrow
more?’ is a criticism often levelled at this
policy mix. A recent paper produced by BIS
looked at 12 Asia Pacific countries from
2004 to 2013. It found that macro-
prudential tightening works best as a
complement to monetary tightening. The
finding of complementarity may disappoint
policymakers in advanced countries hoping
to address the financial stability risks that
brew while inflation remains stubbornly
absent. But given that our knowledge of
how these tools work remains in its infancy,
it should not be surprising if policy makers
remain keen to experiment. Andy Haldane
last year described measures which pull in
opposite directions as ‘precisely the right
mix.’
A final dimension concerns leakages and the
international picture between which there is
some overlap. Macro-prudential measures
are known to have spill-over effects which
need to be managed and may require
coordination. For example, the BIS paper
finds that where capital flow measures have
been applied to the banking sector,
issuances of international debt securities
increased as capital moved from banks to
capital markets. The scope of the measures
is also important, particularly as non-banks
which may operate outside the regulatory
perimeter increase their role in credit
intermediation. The regulatory perimeter is
an area on which all the main central banks
are keeping a close eye.
Spotlight on the UKThe UK was a trendsetter in adopting
macro-prudential tools. With a large
external balance sheet and gaping current
account deficit, the UK’s financial sector is
vulnerable to external shocks.
Also, given the size of the financial system
relative to the UK economy, UK authorities
cannot afford to be complacent. In the wake
of the financial crisis the FPC was set up as
a sub-committee of the BoE’s Court of
Directors with a mandate to protect and
address systemic risk and to enhance the
resilience of the financial system. It also has
a secondary objective to support the
economic policy of the government. It was
given the power to make directions to the
PRA and FCA or make recommendations to
any other body. It currently has power over
capital requirements, housing market tools
and leverage (which we explore in greater
detail below).
The FPC ‘s power over capital requirements
includes the ability to activate the
countercyclical capital buffer to tackle
cyclical risks, such as those arising from
unsustainable levels of leverage, debt or
credit growth and to set sectoral capital
requirements (SCRs) where assets relate to
a sector which poses a risk to the system as
a whole. The FPC can adjust SCRs for three
broad sectors: residential property,
commercial property and other parts of the
financial sector. It can also target more
granular subsectors such as mortgages with
high loan to value or loan to income ratios
at origination. So far, the FPC has not used
these powers.
Its powers over housing include the ability
to set LTV and DTI limits in respect of
owner-occupied lending. In June of last year
it made use of this power by recommending
that larger mortgage lenders not make more
than 15% of their new residential mortgages
at loan to income ratios that were at or
greater than 4.5. At the same time it
recommended that mortgage lenders should
assess affordability by applying an interest
rate stress test which considers whether
borrowers could still afford their mortgages
if the interest rate increased by 3% at any
time in the first five years of the loan. The
FPC’s June meeting minutes suggest that it
remains concerned about the continuing
growth in buy-to-let lending, particularly
because it lacks powers in this area. When
the FPC acquires these powers, it is likely to
use them at least to create consistency with
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 5
the measures it has implemented over
owner-occupied lending. It intends to
consult on tools related to buy-to-let
lending later in 2015.
In addition to its directions, the FPC has
made a recommendation to the FCA and
PRA to work with the UK financial system
and infrastructure providers to put in place
a programme of work to improve and test
firms’ resilience to cyber-attack. It
recommends that firms complete cyber
security tests (CBEST) and adopt individual
cyber resilience action plans. It also
recommended the regular stress testing of
the banking system.
Introducing leverage ratiosThe EU is due to implement the leverage
ratio under CRR in 2018, but the FPC has
decided that the UK needs to act sooner in
light of the its large financial sector relative
to the size of the economy and the number
of G-SIBs operating in the UK. The FPC sent
a direction to the PRA on this, in response
to which the PRA published a consultation
paper on 10 July 2015. The PRA proposed
that large UK banks and building societies
with more than £50 billion in deposits
maintain a leverage ratio of at least 3% from
1 January 2016. The leverage ratio is
calculated using total assets rather than
RWAs and is intended to guard against the
risk that a firm’s internal risk models or
regulatory models fail to assign appropriate
risk weights. A 3% minimum is proposed so
that firms with lower RWAs on average
(such as mortgage lenders) are not unfairly
penalised.
The FPC further recommended that while
Additional Tier 1 instruments can comprise
25% of the minimum requirement,
instruments should only count towards Tier
1 capital if they have a trigger event that
occurs when the CET1 ratio falls below 7%
at least.
The 3% minimum will be supplemented by
an additional leverage buffer (ALB) for UK
G-SIBs and domestic systemically
important banks, building societies and
PRA-regulated investment firms that are
subject to a systemic risk buffer. The ALB
will be calibrated at 35% of the firm’s G-SIB
buffer rate to be phased in from 2016
alongside the risk weighted buffer and from
2019 for non G-SIBs. The second add-on is
a countercyclical leverage buffer (CCLB)
applicable to all firms subject to the
minimum requirement. It will be activated
where the FPC (or its international
equivalents in jurisdictions where UK firms
are active) considers the economy to be
overheating or growing unsustainably. The
CCLB will be calibrated at 35% of a firm’s
countercyclical capital buffer (CCB) and
applies immediately.
In contrast the leverage ratio implemented
in 2018 under CRR will be less onerous - it
does not include the ALB or the CCLB. It
also allows for the grandfathering of certain
Other Tier 1 instruments into the Additional
Tier 1 bracket. Unlike the PRA ratio, it
applies to FCA-regulated full scope
investment firms. But the FPC intends to
conduct a review in 2017 at which time it is
expected to extend the UK framework to all
PRA regulated banks and designated
investment firms.
The internationaldimensionGlobal imbalances are often cited as a cause
of the global financial crisis of 2008
whereby capital flows migrated from
exporting countries such as China, Japan
and Germany to the US and EU periphery
countries. The resultant imbalances
facilitated low interest rates in the US and
saw a huge boom in the EU periphery -
trends which proved unsustainable in the
subsequent phases of the financial crisis
through 2010.
Macro-prudential measures are frequently
advanced as a possible solution when these
capital flows amplify credit booms leading
to financial instability. As a result of these
spill-overs, there is much emphasis on
international coordination. This can be best
seen in the context of the CCB. If Hong
Kong sets a CCB, which it plans to do in
2016, and the UK reciprocates then UK
banks’ exposures to HK assets are subject to
the higher capital requirement. The UK is
currently reciprocating Norway’s and
Sweden’s CCBs. Coordination in other areas
such as harmonised rules over margin
haircuts of securities financing transactions
and the systemic importance of non-bank
institutions are making headway at the FSB
level. But where measures are aimed at
taming the cycle rather than enhancing
resilience, it is likely to spark heated debate
between stakeholders within countries and
cause frictions between countries with
different economic agendas. On a more
positive note, the Eurozone has reason to
embrace coordinated use of these tools (as
we discuss below).
What are we seeing in theEU?There are two reasons why the Eurozone
should embrace macro-prudential measures
with gusto. If interest rates are considered a
blunt instrument when applied to a country,
how much less subtle will they appear to a
group of 19 disparate nations united by a
single currency? The increased capital flows
between these countries have been blamed
by some economists for the Eurozone crisis
and could shift further into focus as the
capital markets union project comes to
fruition. The second reason concerns the
position of the Eurozone in the financial
cycle. While the US and UK are seeing
economic growth and deliberating over
when to embark on the path of monetary
tightening, the ECB is engaged in the
expansionary policy of quantitative easing
to head off the threat of deflation. In these
circumstances, the Eurozone clearly does
not have the option of addressing financial
stability risks through monetary tightening
at present.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 6
Various speeches by European central
bankers show they are cognisant of these
risks and regard macro-prudential tools as
the appropriate defence. A paper by the
Central Bank of the Netherlands found that
if the CCB and systemic risk buffers in the
current framework had been in place most,
if not all of the banks losses in 2009-2012
would have absorbed by banks in Italy,
Portugal and Spain.
Responsibility for macro-prudential policy
in the EU rests with the ESRB. Its powers
include providing guidance (e.g. on the
counter-cyclical capital buffer) to issuing
opinions and recommendations on specific
macro-prudential measures notified by
national authorities to ensure consistent
implementation across the EU. The ESRB
has recently published an update to its
macro-prudential handbook concerning the
leverage ratio and two reports on macro-
prudential policy in the EU. These reports
found that macro-prudential policy has
been actively pursued in the EU in 2014.
The top users of macro-prudential tools
were Denmark, Slovakia, Sweden and the
United Kingdom. Germany, Greece, Spain,
France, Austria and Portugal reported no
measures. Most of the measures (8 out of
10) were aimed at reducing excessive credit
growth and leverage, with most of these
targeted at residential mortgage lending.
Actions to mitigate TBTF and maturity
mismatches/market illiquidity came a
distant second and third.
The ESRB has initiated work over cross
border effects because EU countries have
offered limited analysis on these effects and
often do not use reciprocity. In a speech last
month entitled ‘Strengthening macro-
prudential policy in Europe’, Vitor
Constâncio, the Vice President of the ECB,
called for increased use of these tools in the
EU. He advocates giving EU policy makers
borrower-based tools such as LTV and DTI,
because they have the strongest effects on
credit and real estate developments. He
suggested the review of the CRR/CRD IV
framework as an opportune time to
introduce these instruments. He also
recommended extending the reach of tools
so that they cover the shadow banking
sector- an area of increasing importance as
the EU moves towards a more market-based
finance system.
Although global imbalances have fallen back
since the financial crisis, the stakes will
remain high with capital flows between
countries expected to double in the next 40
years as emerging markets pursue the
financial integration needed for
development and advanced economies
deepen their integration to encourage
growth. Record levels of global debt further
increase the risks should inaction bias
prevail.
What about the US?The US has taken a slightly different
approach to the UK while acknowledging a
‘clear need for macro-prudential policy’1.
Rather than view the financial sector as a
transmitter of shocks to the rest of the
economy, US authorities look to the
macroeconomic shocks which may affect
institutions and financial stability. As a
result, they have focussed on stress testing,
addressing TBTF and implemented higher
systemic risk charges than those agreed
internationally. They see a more limited role
for time-varying measures although they
have implemented the CCB recommended
by the Basel Committee and they see a role
for cyclical adjustment of stress tests and
margin haircuts. The US regulatory
architecture also reflects the difference in
approach. Rather than consolidate its
agencies, US legislators dispersed
responsibility amongst agencies, creating
the FSOC which has responsibility for
financial stability but allowing the Federal
Reserve to flex its supervisory muscles
more, particularly with the largest banks.
Like the FPC, FSOC can make
recommendations but differs in that it
cannot act on its own except to designate
institutions as systemically important. It is
also chaired by the Secretary of the Treasury
so is not intended to be independent like a
central bank. The reason for these
differences is partly political but also stems
from issues such as the difficulty in
1 Janet L Yellen Chair of the Federal Reserve at the 2014
Michel Camdessus Central Banking Lecture,
International Monetary Fund, Washington, D.C
measuring systemic risk and calibrating the
measures as well as creating the appropriate
institutional framework for wielding new
powers. Daniel K Tarullo, a governor of the
Federal Reserve, recently suggested that
loosening measures at the nadir of an
economic cycle would likely prove difficult
as market discipline will weigh on
management to exercise prudence. This
view is supported by an IMF working paper
which finds measures are less productive
during downturns and speculates that such
measures could even exacerbate downturns
if not relaxed sufficiently.
Impact on firmsFirms will need to watch developments
from the FPC and other macro-prudential
bodies closely. The FPC has shown its
willingness to respond proactively to the
perceived build-up of risks. Firms should
pay careful attention to the financial cycle in
addition to the business cycle, as the
reaction of the FPC and other monetary
authorities to changes in the financial cycle
could impact capital or liquidity
requirements. These impacts are likely to
vary by country. Firms should also keep an
eye on their exposure to sectors considered
“risky”. With the current focus on housing,
mortgage lenders in particular should take
note.
Firms may also want to consider their
impact on financial stability more generally
as the FPC has shown the breadth of its
interest and remit, e.g. by intervening on
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 7
cyber risk. Finally, the FPC has started to
consider other sectors beyond banking,
looking at whether these have the potential
to generate or act as a conduit for financial
stability risk. As the FPC turns its gaze to
new sectors, this could result in new
requirements or restrictions for firms active
in those sectors.
More Questions thanAnswersWill economic growth be served by the
diversion of credit flows into more
productive areas of the economy than real
estate? Will further constraints on lending
be detrimental to young people forced to
defer or even abandon the dream of home
ownership? Will central bankers have the
chutzpah to stand up to politicians and
moderate the excesses associated with
booms at the expense of achieving short
term economic growth? Will the public
support central bankers’ agendas for
managing financial stability? What will
investors make of new measures which
cloud the interest rate signal?
Central bankers and other bodies
responsible for financial stability clearly
face an exciting but challenging task in
selecting the appropriate combination of
measures and timing them to good effect.
Firms and the public may view these
measures with ambivalence or mistrust.
Firms in particular may not welcome central
banks meddling in their ability to conduct
business for the sake of the wider economy.
But the void that existed where
responsibility for financial stability should
rest is gradually being filled, and firms
should welcome a safer financial system
that reduces the macroeconomic risks that
they face. The apparent enthusiasm of the
UK, the EU and to a lesser extent the US to
try new approaches suggests that we can
expect to see continued experimentation in
this area, impacting both the regulated
sector and the wider economy. Proponents
of more radical economic approaches
should be pleased.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 8
In this section:
Regulation 8
Benchmark reform 8
Capital and liquidity 8
Competition 10
Conduct 11
Cybersecurity 12
Financial crime 12
Financial stability 13
Individual accountability 14
Market-based finance 15
Market infrastructure 16
Other regulatory 17
Pensions 20
Remuneration 21
Securities and derivatives 21
Accounting 23
PwC publications 23
Regulation
Benchmark reformProgress on reforming benchmarks
The FSB published a report on progress in
reforming major interest rate benchmarks
on 9 July 2015. The report is an update on
the implementation of the FSB's July 2014
recommendations to enhance existing
benchmarks for key interbank offer rate
(IBOR) benchmarks which prompted
reforms to IBOR benchmarks and the
development of new 'risk-free' rates (RFRs).
All major IBOR administrators have made
progress in line with the recommendations,
including reviews of methodologies and
consultations with stakeholders. The FSB
noted sure steps were made towards RFRs,
although a number of challenges have been
identified, such as how to facilitate the
availability of RFRs at terms longer than
overnight.
The Official Sector Steering Group, which
oversees the reforms, is due to report the
FSB on further progress in July 2016.
Reforming SONIA
The BoE consulted on new sterling money
market data collection and the reform of the
Sterling Over Night Index Average rate
(SONIA) on 30 July 2015.
The BoE plans to collect transaction-level
data from banks, building societies and
major investment firms on their secured
and unsecured sterling money market
borrowing activity to secure and improve
the information available to it. This
information will provide the BoE with a
better understanding of developments in
short-term interest rates, therefore
improving its understanding of monetary
and financial conditions.
The BoE also set out its plans to reform
SONIA, which is currently administered by
the Wholesale Market Brokers Association.
The BoE intends to take over as the
administrator of SONIA in early 2016. This
will facilitate a transition to a broader basis,
making use of the new sterling money
market data the BoE plans to collect.
The BoE plans to publish a consultation on
the broader SONIA reforms in Q2 2016. The
consultation closes on 1 October 2015.
FCA finds shortcomings in benchmarkreforms
The FCA published the results of TR15/11:
Financial Benchmarks: Thematic Review of
Oversight and Controls on 29 July 2015.
The FCA was disappointed at the lack of
urgency that many firms are showing in
evaluating their business and making
necessary improvements, particularly given
the importance of benchmarks and the high
level of public concern. It also emphasised
that firms' senior management must satisfy
themselves that current approaches are
coordinated across their businesses, in line
with regulatory requirements where
applicable, and take into account the IOSCO
Principles for Financial Benchmarks.
Capital and liquidityBasel impact study on CVAs
The Basel Committee published
Instructions: impact study on the proposed
frameworks for market risk and CVA risk
on 20 July 2015. It relates to the Review of
the Credit Valuation Adjustment (CVA) risk
framework consultation of 1 July 2015 and
the ongoing Fundamental review of the
trading book. Participation in the study is
voluntary, albeit expected for large
internationally active banks. In addition, the
BCBS asks participating firms to only use
workbooks issued to them by their national
supervisors to submit their returns. Data is
to be reported as of 30 June 2015 with
submission by 14 September 2015.
Basel outlines CVA overhaul
The Basel Committee published a
Consultative document - review of the
Credit Valuation Adjustment (CVA) risk
framework on 1 July 2015. It proposes
overhauling the approaches that banks use
to calculate CVA.
The Basel Committee proposes an internal
models approach and a standardised
Cross sector announcements
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 9
approach for CVA risk that it has developed
from its Fundamental Review of the Trading
Book. It also proposes to introduce a basic
approach for CVA risk for banks that are
less likely to need to calculate complex CVA
due to their business models.
The consultation closes on
1 October 2015, after which the Basel
Committee plans to conduct a Quantitative
Impact Survey in the second half of 2015 to
inform the ongoing development of the
framework.
Updated Basel III monitoring
The Basel Committee published
Instructions for Basel III monitoring on 31
July 2015 alongside an updated worksheet
and FAQ which it specifically asks
participating banks to observe.
The instructions cover the:
scope of the exercise
structure of the questionnaire
different worksheets for collecting data
on the interest rate risk in the banking
book, large exposures, operational risk
and sovereign exposures
Basel III leverage ratio and liquidity.
In addition, the Basel Committee
introduced new worksheets to further its
policy initiatives in these areas.
Reviewing CRR's effectiveness
The EC published a Consultation paper on
the possible impact of the CRR and CRD IV
on bank financing of the economy on 15
July 2015. CRD IV and CRR were
implemented on 1 January 2014 and
required three follow-up reports on the
appropriateness of the new requirements
against:
the need to fund all forms of long-term
economic financing
the need to encourage long-term
investment in growth-promoting
infrastructure
the impact of the own funds
requirements on lending to SMEs and
ordinary people.
As part of these reports, the EC will also
consider whether or not the new CRD IV
requirements are proportionate to the risks
they were introduced to address. It will also
examine whether some of the requirements
could be simplified by considering a firm's
risk or size, without compromising the
original objectives to increase financial
soundness and security in markets. The
production of these reports is timely
because there are obvious links with the
ongoing work on creating a CMU and
examining how entities get access to capital.
The consultation closes to comments on
7 October 2015. The EC plans to hold a
follow-up open hearing before the end of
2015 to discuss the feedback in more detail.
EBA amends RTS on liquid assets
The opinion of the EBA on the EC intention
to amend draft RTS specifying derogations
concerning currencies with constraints on
the availability of liquid assets was
published on 3 July 2015. When the
Delegated Regulation on the LCR for credit
institutions was adopted in May 2015 it
required consequential changes to the draft
final RTS on currencies with constraints on
the availability of liquid assets.
Most notably, the draft RTS contained a
requirement that the value of collateral
posted at a central bank must be subject to a
15% haircut. The EC proposed its removal
since the Delegated Act on the LCR did not
include this requirement. The EBA agrees
and has therefore amended the draft final
RTS and resubmitted it to the EC in the
form of a formal opinion.
EBA's CRD IV benchmarking study
The EBA published the results of its
supervisory counterparty credit risk
benchmarking study. While noting that the
sample size was small (nine banks) and that
the data was submitted on a voluntary basis,
the EBA considers the main findings should
provide useful insight into EU internal
model method (IMM) and credit valuation
adjustment (CVA) models. The results
indicate that:
there is evidence of variability of initial
market values for IMMs across banks,
especially for equity and FX OTC
derivatives
the variability is notably lower for
interest rate derivatives
participating banks had an exposure at
default of -30 to + 60% with respect to
the benchmark.
The EBA wants the report to stand as a
useful framework for the upcoming annual
benchmarking exercise under Article 78
CRD IV.
Encouraging SME lending
The EBA issued a discussion paper and call
for evidence on SMEs and the SME
supporting factor (SMF) on 31 July 2015. It
seeks to understand the impact of SMF (a
capital reduction factor introduced to CRR)
on increasing bank lending to SMEs, as a
way to remove obstacles to SME funding,
under the EU's CMU agenda.
The EBA set out that it will:
analyse the evolution of lending trends
and conditions for SMEs
analyse the effective riskiness of EU
SMEs over a full economic cycle
report on the consistency of the own
funds requirement in CRR for credit risk
on exposures to SMEs with the
outcomes of the above analyses.
It also asks stakeholders to respond to 16
questions on a range of areas including
regulatory treatment of SMEs and the SMF,
the riskiness of SMEs and SME lending
trends. The discussion paper closes to
comments on 1 October 2015. The EBA
expects its final report to be published in
February 2016.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 10
Update on CRR liquidity ITS
The EBA published an update on the status
of final draft ITS on liquidity monitoring
metrics for CRR on 17 July 2015. The ITS
was initially due to apply from 1 July 2015,
but the draft submitted to the EC in
December 2013 is yet to be adopted. Given
this delay, the EBA explained that it's likely
the application date of the ITS - once
published in the Official Journal - will be
postponed by at least three months.
But the EC confirmed on 24 July 2015 that
it intends to amend the application date to 1
January 2016. The EC wants the draft ITS
amended to remove references to the
'maturity ladder' template and related
instructions because these provisions will
need to be adapted on 1 October 2015 (in
line with EC regulation 2015/61 concerning
liquidity coverage ratio). As a result, the
EBA now has six weeks to submit revised
draft ITS to the EC.
…and another updated CRR ITS
On 31 July 2015 Implementing Regulation
amending Implementing Regulation laying
down ITS with regard to supervisory
reporting of institutions as regards
instructions, templates and definitions was
published in the Official Journal. The
updated Implementing Regulation makes
changes to the reporting templates included
in the existing ITS on supervisory reporting
required under CRR.
It enters into force on 20 August 2015 with
a retrospective application date, applying to
reporting starting from 1 June 2015.
Toughened ICAAP requirements
The PRA published PS17/15: assessing
capital adequacy under Pillar 2 on 29 July
2015. It was accompanied by linked
documents on the PRA's methodologies for
setting Pillar 2 capital and background to
the Pillar 2 framework. The changes are in
line with CRR requirements and ensure
firms are correctly considering their capital
buffer, to protect against business risks.
In particular here the PRA finalises changes
to its methodology on:
credit risk
operational risk
conduct risk
credit concentration risk
interest rate risk in the banking book.
It is also creating a new PRA buffer (known
as Pillar 2B). This is an additional amount
the PRA will require firms to hold based on
its supervisory judgement. This additional
capital will typically relate to the PRA's
perception of risk management and
governance in a firm.
Finally the PRA also issued a new
supervisory statement providing assistance
on completing reporting requirements
under the new Pillar 2 framework. The new
requirements apply to all banks, building
societies and PRA-designated investment
firms.
The new Pillar 2 framework will come into
force on 1 January 2016.
And updated guidance on ICAAPs
The PRA published SS31/15 - The internal
capital adequacy assessment process
(ICAAP) and supervisory review and
evaluation process (SREP) on 29 July 2015.
It replaces two earlier supervisory
statements (SS5/13 and SS6/13 on stress
testing, scenario analysis and capital
planning), providing extra detail in respect
of the PRA's high-level expectations.
It covers:
the PRA's expectations of firms
undertaking an ICAAP and in relation to
stress testing, scenario analysis and
capital planning
the factors the PRA considers when
assessing a firm's ICAAP.
The PRA asks firms to consider SS31/15
together with its statement of policy on
methodologies for setting Pillar 2 capital.
CompetitionCompetition and internal audit
The CMA produced a 60-second summary -
Competition law: advice for internal
auditors on 2 July 2015, explaining the
consequences of breaching competition law.
Firms face fines of up to 10% of global
turnover, disqualification for directors and
possibly prison. The CMA notes certain
firms are at higher risk because employees
frequently talk to other businesses in the
same industry, or the firm works in
partnership with competitors.
The CMA suggests internal auditors:
incorporate competition law in their risk
dashboards and give assurance that
internal controls work effectively
look at how anti-competitive behaviours
are defined in an organisation's culture
flag issues to board members so they
under the ramifications
understand the CMA's leniency
programme for where firms identify a
breach, which can provide immunity
from fines and sanctions.
Internal audit is seen by the CMA as being
well placed to identify anti-competitive
conduct and give boards assurance over the
systems and procedures in place.
Re-examining old competitionremedies
The CMA announced on 14 July 2015 that it
was re-visiting historic competition
remedies imposed by its predecessors
before 2005. This includes reviewing the
Credit Cards (Merchant Acquisition) Order
1990, introduced to address barriers to
companies becoming merchant acquirers.
The CMA launched an Invitation for
Comment as part of the review, noting the
markets for merchant acquisition and card
payments have materially changed since
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 11
1990 alongside legislative and regulatory
changes (PSD and the PSR).
The CMA asked for comments by
14 August 2015.
FCA finalises competition framework
The FCA published the final framework
governing the exercise of its competition
powers in PS15/18 - FCA competition
concurrency guidance and Handbook
amendments: Feedback on CP15/01,
finalised guidance and rules, on 15 July
2015. It also released final versions of its
guide to enforcement powers and
procedures under the Competition Act 1998
(CA98) (FG15/8) and its guide to market
studies and market investigation references
(FG15/9) (the guides included with PS15/18
are 'marked-up' with changes).
In FG15/8, the FCA set out:
it may use information obtained under
either FSMA or CA98 to exercise its
functions under the other power,
observing any restrictions on use and/or
disclosure of such information
it will only use leniency information
passed to it by the CMA to apply and
enforce competition prohibitions (unless
the leniency applicant agrees otherwise),
or to remind firms and/or approved
persons of their obligations under the
FCA's Handbook
it expects leniency applications to be
made to the CMA (since the CMA has
more experience and can grant
immunity for a cartel offence)
it's likely to ask parties to waive their
right to appeal to the Competition
Appeals Tribunal when settling a CA98
case (even though the CMA does not
require this).
The FCA set out how it will use its
competition powers in FG15/9, including its
choice to use FSMA or the Enterprise Act
2002 when carrying out a market study, and
its ability to switch between the two powers
where necessary. It plans to consult with the
CMA before launching a competition
market study under either power and will
try to be proportionate in data requests it
send out to firms.
The FCA also finalised proposed
amendments to its SUP sourcebook to
reflect its scope and treatment of
information it receives under SUP and its
Principles.
FCA Director of strategy and competition,
Christopher Woolard’s appointment to the
board on 31 July 2015 will bring greater
focus on competition at the regulator. Firms
should ensure that they understand their
obligations (especially for disclosure) and
how the new regime will work.
ConductSales incentives need change
The FCA published FG15/10 - risks to
customers from performance management
at firms and accompanying feedback on 27
July 2015. Widespread issues were not
found in firms' use of performance
management structures, though the FCA
received feedback from whistleblowers that
suggested some reward changes have failed
to move away from a sales-based culture.
The FCA believes performance management
may still result in misalignment of
incentives between sales staff and
customers.
The final guidance applies to firms with
staff that deal directly with retail customers.
The FCA clarifies that firms should also
apply the guidance and accompanying good
practice examples to small and medium-
sized companies.
Firms should now consider how their
internal performance management regimes
compare to the good and poor practice
highlighted. The FCA describes this
guidance as a "first step" in its ongoing
forward-looking supervision of this issue
and notes that the introduction of the
SM&CR should improve performance
management and incentive schemes.
Revised complaint handling rules
The FCA published PS15/19: Improving
complaints handling, feedback on CP14/30
and final rules on 27 July 2015, setting out
changes to the complaints handling regime.
These include:
replacing the ‘next business day’ process
with a summary resolution process that
gives a firm three business days to
resolve a complaint (without having to
issue a final response)
requiring firms to send a written
'summary resolution communication'
that includes information about FOS to
customers whose complaints are closed
under the summary resolution process
requiring firms to report all complaints
– included those resolved by summary
resolution – to the FCA and complete a
new bi-annual return on the number of
complaints they receive
capping the cost to make post-
contractual and complaint calls at the
'basic rate' (i.e. banning the use of
premium phone numbers).
The new rules come into force on 30 June
2016, except for the limit to call costs which
applies from 26 October 2015.
FCA on wholesale conduct risk
Tracey McDermott, speaking as FCA
Director of Supervision, Investment,
Wholesale and Specialists, outlined the
FCA's approach to wholesale conduct risk in
a speech delivered on 24 July 2015.
McDermott said that very significant
progress has been made in recent months
and years, but unless focus on the end
outcome remains there is a risk that the
effort will be wasted. She argued that firms
should treat conduct risk as seriously as any
other risk on their balance sheets, and
manage it accordingly.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 12
She outlined five conduct questions, which
form the basis of the FCA's approach to
wholesale conduct risk:
How do you identify the conduct risks
inherent within your business?
Who is responsible for managing the
conduct of your business?
What support mechanisms do you have
to enable people to improve the conduct
of their business or function?
How do the board and executive
committees gain oversight of the
conduct of the organisation?
Do firms have any perverse incentives or
other activities that may undermine any
strategies put in place to answer the first
four questions?
McDermott also stressed the importance of
individual accountability, arguing that the
SM&CR will hard-wire responsibility for
good conduct into firms' governance. She
added that the SM&CR will not replace
other forms of governance, but it means
that individuals must run their business
well.
Treating fraud victims fairly
The FCA published Fair treatment for
consumers who suffer unauthorised
transactions (TR 15/10) on 28 July 2015. It
also published technical and research
reports on the experiences of victims of
unauthorised transactions in pursuing their
claims with payment providers.
The FCA looked at:
customer communications and general
awareness after unauthorised
transactions took place
preventing unauthorised transactions
how firms make decisions
governance, oversight and measuring
outcomes.
Firms were typically adhering to legal
requirements and attempting to deliver fair
outcomes, often siding with a customer
when reviewing claims. The FCA found no
evidence of prescriptive, tick-box analysis of
customer compliance with account terms
and conditions. But it did identify
weaknesses in organisational structures and
policies to handle more complex cases,
where firms were too over-reliant on a small
number of experienced staff.
The FCA is not planning further thematic
work. Firms should read the findings and
satisfy themselves that they comply with the
relevant rules and have appropriate systems
and procedures in place.
Refreshing unfair contract terms
The CMA published a suite of documents on
31 July 2015 in respect of unfair contract
terms, including:
its response to its January 2015
consultation on draft guidance
final guidance on provisions in the
Consumer Rights Act 2015 (CRA15)
historic examples of fair and unfair
terms (unchanged from the original
Office of Fair Trading document)
index of changes introduced by CRA15
(non exhaustive)
an overview and short guide for
businesses
an unfair contract terms flowchart.
The FCA has the power to enforce CRA15
provisions on unfair contract terms against
the firms it regulates. Changes introduced
by the CRA15 most relevant to it include the
extension of the fairness and transparency
requirements to cover all consumer contract
terms (and not just pro forma terms) and all
consumer notices, making transparency an
enforceable requirement and including
prominence as a criteria for a term to meet
the 'core exemption' which gives relief from
the fairness test.
CybersecurityFPC concerned about cyber risks
On 8 July 2015 the FPC published Record of
its 24 June 2015 meeting. It identified the
main risks it believes the UK financial
system faces at this time, namely:
global environment
reduction in market liquidity in some
markets
UK’s current account deficit
housing market in the UK
consequences of misconduct in the
financial system
cyberattack.
The FPC believes that financial stability
risks from emerging market economies have
increased since December. Further, after a
period of strong capital inflows and rising
private sector debt, a number of emerging
market economies were experiencing slower
growth and might now face more difficult
financing conditions.
It also recommended that the BoE, PRA and
the FCA work with firms at the core of the
UK financial system to ensure that they
adopt individual cyber resilience action
plans.
Financial crimeManaging AML risks in crowdfunding
ESMA published a Q&A on Investment-
based crowdfunding: money
laundering/terrorist financing on 1 July
2015. It previously identified a gap in
understanding the risk of money laundering
and terrorist financing in crowdfunding.
This paper endorses a common supervisory
approach to identifying and preventing
AML and terrorist financing issues,
particularly relating to:
using platforms
evaluating the different risk profiles of
firms (depending on their authorisation)
considering the impacts of AMLD3 on
investment-based crowdfunding firms.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 13
These crowdfunding firms may be already
subject to MiFID or the Payment Services
Directive.
ESMA devised the Q&A with the Joint
Committee's sub-committee on AML. At the
moment it does not plan to issue anything
further, but it may revisit this issue in the
future depending on future crowdfunding
and other regulatory developments.
FCA supports FATF de-risking
The FCA endorsed FATF's recent work on
de-risking drivers in a press release
published on 1 July 2015, directing banks
providing correspondent banking services
to the FATF's statement on due diligence.
The FCA's endorsement follows a statement
released in April 2015 which expressed
concern over reports that some banks were
effectively engaging in wholesale de-risking
by withdrawing services (including
correspondent banking) from customers
(including money transmitters, FinTech
companies and charities). The FCA expects
banks to take a risk-based, proportionate
approach to handling money laundering
risk.
Prosecuting REMIT offences
Ofgem published a consultation on its
proposed Prosecution Policy Statement on
2 July 2015. It will apply to all offences that
Ofgem can prosecute, including the REMIT
offences of insider trading and market
manipulation in wholesale energy products
(e.g. derivatives). Ofgem is asking for input
on:
its approach to using its prosecution
powers
three additional factors it proposes to
consider when deciding whether to
prosecute market abuse in wholesale
energy markets
any additional factors it should consider.
The consultation closes on
25 September 2015.
Financial stabilityImproving the EU's macro-prudentialmeasures
ECB Vice President Vitor Constancio spoke
about (Strengthening macroprudential
policy in Europe) on 3 July 2015. He
stressed the importance of using
macroprudential measures, noting that
monetary policy is not available to address
financial stability concerns in the current
low interest rate environment. This
situation is particularly problematic in the
Eurozone where cyclical conditions are
diverging across countries.
Constancio cited borrower based
instruments as the most effective
macroprudential tools – with his preference
affixing to income related measures. He
wants to see instruments with a time
varying dimension that is adjusted with
reference to stress tests (conducted against
future changes in interest rates/house
prices) as a common standard.
Consequently, Constancio calls for serious
consideration to be given to strengthening
the legal basis of the macroprudential
framework for borrower based instruments,
particularly in the SSM area. He sees the
review of the CRR/CRD IV framework as an
opportunity to achieve this.
Constancio also recommended extending
the macroprudential framework to the
shadow banking sector. He felt
policymakers need better information on
the accumulation of non-bank leverage. For
the time being, he considered haircuts or
margins on securities financing transactions
should be included in measures to manage
non-bank leverage. He would also like to see
stress-tests designed by regulators that shed
light on the loss absorption capacity of non-
bank institutions. Finally, Constancio
warned that reputational problems in the
largest asset managers could spill over to
parent companies, which in the Euro area
are almost all owned by banks or bank
holding companies.
FPC explains its powers over housingtools
The BoE published The Financial Policy
Committee’s powers over housing tools on 1
July 2015, outlining the indicators reviewed
by the FPC when identifying risks to
financial stability from the housing market.
The indicators include:
Loan to Income (LTI) and Loan to Value
(LTV) ratios on new residential
mortgages
household credit growth
household debt to income ratio
mortgage approvals
housing transactions
house price growth
house price to household disposable
income ratio
rental yield
spreads on new residential mortgage
lending.
The FPC is more likely to adjust LTV or
Debt to Income (DTI) limits when the
degree of imbalance is greater, different
indicators convey a more uniform image
and when that image is supported
intelligence (market and supervisory). But
judgement will play a material role.
The BoE intends to consult on tools related
to buy-to-let lending in 2015 to obtain
evidence on the risks that the buy-to-let
housing market may pose to financial
stability.
Market participants evaluate systemicrisks
On 1 July 2015, the BoE published Systemic
Risk Survey: Survey results 2015 H1. The
BoE carries out this survey with market
participants on a biannual basis to identify
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 14
systemic risks in the UK market. For the
first half of 2015 it found that:
the probability of a short-term high
impact event increased for the second
consecutive survey
respondents remain confident in the
stability of the UK financial system over
the next 3 years
respondents are most concerned about
sovereign risk, followed by the risk of an
economic downturn
perceived risks from financial market
disruption/dislocation have increased
markedly and two thirds of respondees
expressed concerns over liquidity
the perceived risk of cyber-attack
increased noticeably and is now at its
highest recorded level.
These surveys are a useful guide to how
industry participants view the
macroeconomic issues that the UK market
faces in the near and medium term.
Individual accountabilityPRA approach to SM&CR
The PRA published Strengthening
individual accountability in banking –
SS28/15 on 7 July 2015. The statement sets
out the PRAs approach and expectations in
respect of the SM&CR regime in banking. It
covers:
how Relevant Firms and individuals
performing a senior management
function (SMF) should comply with the
SM&CR
the responsibilities of non-executive
director (NED) functions in scope of
SM&CR
the contents of Statements of
Responsibilities and Management
Responsibilities Maps
how the PRA expects to apply the
Presumption of Responsibility (i.e.
sections 66B(5) and (6) FSMA)
how firms should act when deciding
which roles are ‘certification functions’
how individuals who are subject to the
Individual Conduct Rules and the Senior
Manager Conduct Rules should comply
with them
how deposit-takers and PRA-authorised
investment firms are expected to comply
with associated rules in Notifications 11.
The statement also outlines that the PRA
will consider an individual’s honesty,
integrity and reputation; competence and
capability; and financial soundness when
assessing whether that individual is fit and
proper to perform an SMF, certification
function or NED function. The PRA expects
firms to also take into account these factors
when assessing whether an individual is fit
and proper to perform the roles.
FCA finalises and extends it approach
On 7 July 2015 the FCA published CP15/22
- strengthening accountability in banking:
final rules (including feedback on CP14/31
and CP15/5) and consultation on extending
the Certification Regime to wholesale
market activities. The new SM&CR will
replace the existing approved persons
regimes for banks and building societies. In
addition, the FCA is also consulting on
extending the Certification Regime to some
wholesale market activities, in part in
response to the recent FEMR
recommendation.
FCA provides clarification and more
practical guidance for aspects of SM&CR
such as:
in addition to the eight prescribed
responsibilities applied to smaller firms
under the PRA's rules, smaller firms will
have to allocate only one further
prescribed responsibility under FCA
rules around financial crime controls
if two individuals hold the same
responsibility in relation to different
aspects of a firm's business, this would
need to be clearly set out in their
Statements of Responsibility and the
firm's responsibility map
if an individual who has overall
responsibility for an activity, function or
area is not otherwise included in the list
of Senior Management Functions, that
person will need to be pre-approved for
SMF18, the 'Other Overall
Responsibility' function
where a person provides temporary
cover for a senior manager or certified
person without seeking approval or
becoming certified they are
automatically subject to the conduct
rules during that period.
The consultation on extending the
Certification Regime closes to comments on
7 September 2015.
Feedback to SM&CR responses
The PRA published PS16/15 Strengthening
individual accountability in banking:
responses to CP14/14, CP28/14 and CP7/15
on 7 July 2015, setting out the final rules for
elements of the SM&CR.
The PRA provides limited information on
regulatory references provided by current or
former employers when a firm is
considering the appointment of an
individual to a senior manager or certified
role, in part because the PRA wishes to
consider the recommendations of FEMR
before finalising its approach. The PRA
extends the requirement for a reference
from a former employer to apply where
non-executive directors are appointed. A
further consultation on regulatory
references is expected later this summer.
Final rules should be issued before the
SM&CR regime commences in March 2016.
The PRA will issue a further policy
statement that will provide feedback on
responses to CP9/15 (Strengthening
accountability in banking: UK branches of
foreign banks) and include final and near-
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 15
final rules on the application of the new
regimes to UK branches of non-EEA firms
(i.e. incoming branches) later in 2015.
Market-based financeFSB launches peer review on ShadowBanking
The FSB press released its intention to carry
out a thematic peer review on the
implementation of the FSB policy
framework for other shadow banking
entities on 2 July 2015. The FSB is assessing
the progress made by its members in
implementing key principles, particularly
focusing on the:
assessment of economic functions of
shadow banks
adoption of policy tools in mitigation of
identified financial stability risks
participation in FSB information sharing
process.
The FSB invites feedback from financial
institutions and other stakeholders.
Comments should cover:
institutional arrangements that may be
required to re-jig regulatory boundaries
so new forms of shadow banking are
caught, if necessary
what types of information is needed to
assess the shadow banking risks of
entities identified as having the potential
to pose risks to the financial system
how to enhance public disclosure of
shadow bank entities’ risks
the design of policy tools to mitigate
identified financial stability risks.
The FSB has sent a questionnaire for
national authorities to its members. It
intends to publish the report in early 2016.
Feedback should be submitted by
24 July 2015.
Financing SMEs via capital markets
IOSCO reported on SME financing through
capital markets on 9 July 2015, after
surveying 45 jurisdictions (of which 31 are
part of its Growth and Emerging Markets
Committee). It made eight
recommendations for developing SMEs'
finance in emerging markets:
create separate fixed income markets for
SMEs and increase the use of separate
equity markets
tailor listing requirements in the SME
fixed income and equity markets to
SMEs (reducing issuing costs)
use the same procedures for custody,
clearing and settlement in the SME
markets to encourage interest from
investors
create liquidity in the corporate bond
and debt securities markets by pooling
SME securities (equity or debt) into one
product, thus attracting institutional
investors
introduce a market adviser system for
SMEs that helps them to prepare for
issuing securities
create a market making system for
securities issued by SMEs to improve
market liquidity
introduce policies that encourage private
placements for SMEs
explore the suitability of private equity,
venture capital and securitisation for
SME finance along with other
alternative methods.
Although the report largely reflects
developments from emerging economies, it
is timely when considering the European
CMU agenda.
EP issues resolution on CMU
On 9 July 2015 the EP issued a provisional
resolution on the CMU expressing both its
institutional support for the initiative, as
well as articulating some of its underlying
assumptions, ahead of the EC's roadmap
(expected to be released in the autumn of
2015).
The EP stressed that CMU must have a
European character and not simply adopt
US models, despite the relative strength of
US capital markets. Specifically, it calls
upon the EC to look at the
economic/cultural composition of each
Member State and work to ensure that CMU
does not exacerbate existing imbalances in
access to finance across the EU. The EP
insists that CMU development occur
simultaneously with a review of existing
regulation to determine whether there is
adequate investor protection. The EP also
wants a review of post-crisis regulation to
ensure that the cumulative effect on firms
isn't too onerous, with a specific focus on
banking and insurance capital
requirements.
Putting P2P loans in ISAs
HMT published ISA qualifying
investments: responses to the consultation
on including Peer-to-Peer loans (P2P loans)
on 8 July 2015, setting out its response to its
October 2014 consultation and final rules. It
has changed little through feedback,
meaning it will:
create a new 'Innovative Finance ISA' as
the vehicle to accommodate P2P loans
amend existing ISA rules concerning
legal ownership of investments to
include the established P2P operating
model
amend ISA rules on withdrawals and
transferability so they only apply to cash
held in an Innovative Finance ISA.
HMT plans to publish draft legislation later
in 2015 and make Innovative Finance ISAs
available from 6 April 2016.
Crowdfunding in ISAs
HMT published ISA qualifying
investments: consultation on whether to
include investment based crowdfunding on
8 July 2015. It wants to explore whether
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 16
including investment based crowdfunding
in ISAs would support growth and also help
meet the government's policy objective to
promote choice in the ISA market.
It asks firms to consider:
four core principles HMT proposes to
use in assessing the case for extending
ISA eligibility to crowdfunding
(maintaining the reputation of ISAs as
trusted and effective savings products,
protecting consumers, supporting a
sustainable tax system and simple to
administer)
the characteristics of crowdfunding,
which includes crowdfunding platforms,
debt-based securities and equity-based
securities offered through crowdfunding
platforms (the government isn't
proposing to define crowdfunding at this
time)
how and the extent to which including
investment based crowdfunding will
meet the core principles.
The consultation closes on
30 September 2015.
Market infrastructureESMA hints at MiFID II unknowns
Steven Maijoor, ESMA Chair, spoke at the
ECON MiFID II/MiFIR Scrutiny Hearing on
15 July 2015. Maijoor noted that MiFID
II/MiFIR is the most significant and
voluminous piece of Level 2 regulation that
ESMA has ever undertaken and that ESMA
is committed to work as transparently as
possible with the EU institutions. He
explained that the draft RTS are undergoing
an early legal review by the EC legal
services, but this should not give the
impression that ESMA intends to limit the
EP and Council's scrutiny role for finalising
these technical standards.
On non-equity transparency, Maijoor noted
that ESMA will not be able to find the ideal
system balancing transparency and liquidity
and at the same time satisfy the preferences
of all stakeholders. But it believes it has
made significant progress towards creating
a more adaptable and better calibrated
system and its public consultation process
has provided valuable input.
On position limits, he said that the scope of
the EU regime is extremely broad, and a
flexible and gradual approach is necessary
for national regulators to address specific
contracts and markets that serve the real
economy. ESMA's approach means that
national regulators can set strict limits
where these are needed.
Finally Maijoor stated that ESMA wants to
be cautious on how ancillary certain
activities are to a firm's main activities. But
the point of the test is that exemptions from
financial regulation should be narrowed,
opaque parts of the market should be
reduced, and large non-financial players
should compete on a level playing field. So
more firms might find themselves caught
under MiFID II than were caught by MiFID.
ESMA is due to publish its final draft RTS in
September 2015.
Extending instrument classes for CCPinteroperability
ESMA published a final report extending
the scope of CCP interoperability
arrangements under EMIR to include
exchange-traded derivatives (ETDs) on 2
July 2015. EMIR initially covered only
interoperability arrangements for certain
classes of financial instruments (specifically
transferable securities and money-market
instruments) but it allows ESMA to review
and assess the possibility for extension.
ESMA primarily manages the risks of cross-
system execution of transactions under an
interoperability regime by allowing cross-
system execution only where risk at the level
of an instrument class can be easily
assessed. While ESMA’s review included
OTC derivatives, the agency concluded that
these types of derivatives could potentially
be too risky because the effect of the nascent
central clearing regime in offsetting the
risks of OTC complexity have yet to be fully
demonstrated. By contrast, ESMA extended
the EMIR interoperability arrangements to
ETDs because of pre-existing market-based
arrangements, complexity is lower than for
OTCs and the general framework for
assessing the risks involved with ETDs is
already in place.
Data Protection within MiFID andMAR
The Article 29 Working Party (WP29), a
group of European data protection
authorities, wrote to the EC on the possible
delegated acts implementing MIFID II and
MAR on 13 July 2015.
WP29's letter:
Suggests that ESMA should draft a list of
minimum records and insert specific
wording in the implementing legislation
requiring that any decision made by a
NCA to add another record to the list
can only be taken after a proper
proportionality and necessity check,
rather than specifying a non-exhaustive
list of records it requires to firms keep
under Article 16(6) MiFID II.
Expressed concern over the lack of
clarity on the exact scope of the
obligation to record telephone
conversations and electronic
communications, which it feels may
jeopardise compliance with
proportionality and necessity principles.
It recommends that the scope is made
very clear to all stakeholders- for
instance, ESMA does not define
electronic communications.
Recommends that implementation
measures contain specific wording in
order to protect employees’ right to be
able to make private phone calls by
using dedicated lines or a dedicated
space, especially when all telephone are
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 17
equipped with recording devices. It also
suggests employers are strongly
recommending not to allow personal
equipment to be used by employees or
contractors in the current wording of
implementation measures.
Recommends that a monitoring
mechanism is put in place to guarantee
that data is not kept longer than
necessary rather than requiring it to be
retained for 5 years under MAR. The
working party also points out that there
is no clear legal basis in MAR for
recording telephone conversations on
market soundings.
The EC and ESMA are carrying out a joint
legal review of the MiFID II, MiFIR and
MAR draft RTS, with final RTS expected by
30 September 2015.
BoE's CCP interoperability supervision
On 22 July 2015 the BoE published its
supervisory approach to CCP
interopeability. The final five standards
establish that:
CCPs should, at a minimum, calibrate
and collect inter-CCP margin equal to at
least the level of the pre-funded
resources that it would collect in initial
margin and default fund contribution
combined from a clearing member with
the same positions.
Inter-CCP margin posted by one CCP to
an interoperating CCP should be
separate from, and additional to, the
margins already collected by the CCP to
cover its exposure to its own clearing
members.
A CCP should include exposures to
interoperating CCPs when calculating its
exposure to its largest two members in
extreme but plausible conditions and
use this to size the default fund and
other pre-funded resources it holds.
The BoE will not expect a CCP to
allocate losses that exceed its pre-funded
resources to interoperable CCPs.
ESMA guidelines on the interoperability
for derivatives products will be the
minimum necessary standards.
Other regulatoryIOSCO investor disclosure review
On 30 July 2015 IOSCO published a
thematic review of the extent to which its
member jurisdictions have established
regulatory requirements in line with a set of
its principles. These include timely
disclosure of material investment
information, such as financial results, risk
and suitability of collective investment
schemes.
IOSCO found divergence around issuer
disclosure amid fairly uniform adherence to
collective investment disclosure (collective
investment schemes had requirements
broadly in place for the timely disclosure of
the value and risk reward profile). IOSCO
observed that listed issuers were more likely
to be subject to disclosure requirements
than alternatively traded issuers, who in
turn were more likely to be subject to
requirements than untraded issuers. In
addition, jurisdictions tended to have
shorter deadlines for disclosure by listed
issuers than for other types.
Despite these differences, the report did not
conclude that IOSCO's methodology should
change. The divergences could be explained
by the circumstances and maturities of
relevant domestic markets. Moreover, many
of the jurisdictions involved indicated that
they will be implementing regulatory
changes that will strengthen their disclosure
regimes.
FRC publishes Annual Report
The FRC published its Annual Report for
2014/15 on 28 July 2015. It outlines its
achievements and the challenges faced
during the year. It also outlines progress
against the FRC’s 2013/16 strategic
programme. It identified that more progress
is needed in promoting investor
stewardship, clear and concise corporate
reporting and the quality and value of audit.
As well as continuing to focus on key issues
such as culture and behaviour, the FRC will
be consulting stakeholders on its strategic
priorities for 2016/19.
FSB looks back at FY14/15
The FSB published its second annual report
on 17 July 2015. Being hosted and funded by
BIS, the FSB's financial statements are
limited to a Statement of Activities. The
report therefore highlights the FSB's
activities during the year.
Mark Carney, FSB Chair, sets out that in the
year ahead the FSB will coordinate efforts to
combat new risks and vulnerabilities to
financial stability - risks from market-based
finance (including the growing role of asset
management) and misconduct risk.
IOSCO publishes strategic direction
On 28 July 2015, IOSCO published its
strategic direction for 2015-2020. IOSCO
prioritises increased inclusiveness of
emerging market membership, both in
terms of how standards are formulated as
well as how it deploys resources to those
markets. For example, IOSCO will seek to
ensure that its assessment programmes are
relevant for both developed and developing
markets. Likewise, it will be shifting to a
more regional focus for its capacity building
initiatives, looking to better harness
member experience, expertise and
infrastructure.
The report also notes that risk and research
work should not be limited to systemic risk
but should focus more broadly on risks
faced by member jurisdictions arising from
market activities, technology and product
developments. IOSCO also emphasises that
it will be reviewing the unintended
consequences of regulatory change.
Holding FCA to account
The FCA published its Annual Report and
Accounts 2014/15 on 2 July 2015 (relating
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 18
to the last financial year). It sets out its
main activities for the last year, including:
developing new rules for pension reform
regulating consumer credit firms for the
first time
undertaking a number of competition
market studies as it starts to embed its
competition objective into ongoing
supervisory approaches
the launch of Project Innovate to give
new market entrants and existing firms
with novel ideas the opportunity to
discuss their activities with FCA in a safe
environment before market launch
internal governance changes at the FCA
following the outcome of the Davis
Review, published in December 2014
increasing the focus on senior managers
through SM&CR.
The FCA also stated it has seen good
progress against its own performance
outcome indicators, which look at how it
manages an improved consumer experience,
getting better service, carrying out
respected, joined-up regulation and
regulating clean markets.
As usual the annual report was followed by
the FCA's annual public meeting, held on 22
July 2015. This gave both firms and the
general public the opportunity to question
and hold the FCA to account. The 2015
meeting was no exception, with a number of
public questions around interest rate
hedging products and senior management
accountability.
Tweaking FOS rules
FOS consulted on amendments to rules
(complaints handling supplementary
instrument 2015) on 14 July 2015. It sets
out minor changes to the FCA's DISP rules
to:
replace references to 'consumer redress
scheme' with 'relevant complaint' so the
rules cover the situation where a
consumer and financial business do not
agree a complaint is subject to a
consumer redress scheme can be
considered by FOS under its fair and
reasonable methodology
amend jurisdiction rules to reflect that
FOS may now consider a complaint once
a complainant has received a 'summary
resolution communication' from a firm.
The changes are necessary for FOS's new
status as a certified ADR entity under the
ADR Directive. The consultation closed for
comments on 20 July 2015. Following
minor editorial changes, the final rules
were adopted by the FCA Board and
approved on 30 July 2015.
Q&A on single customer view
On 13 July 2015 the FSCS published its
guide to the single customer view (SCV).
The FSCS has consolidated the questions
and answers they have been asked since the
publication of PS09/11 in July 2009, CP
20/14 in October 2014 and PS 6/15 in April
2015. The guide updates and replaces the
previous ‘Faster Payout – Questions and
Answers’ document.
New role for FPC
George Osborne wrote to Mark Carney, BoE
Governor on 8 July 2015 updating the
Government's remit and recommendations
for the FPC. These were initially outlined in
a letter dated 18 March 2015. The revisions
are made to reflect the new Government's
priorities.
The Government's new recommendations
include asking the FPC to:
consider itself responsible for
identifying, monitoring and addressing
systemic non-financial risks, like cyber
risks, that impact the whole financial
system
consider and explain its assessment of
the impact on finance for productive
investment when making judgements on
whether its actions would have a
material adverse effect on the financial
sector's ability to contribute to UK
growth
act in way that supports the
Government's overall strategy for
financial services, with a particular focus
on competition and innovation
(especially in retail banking) and
retaining London's status as the leading
international financial centre
engage with industry participants,
academics, regulators and public to
supplement its own expertise.
When consulting with external experts, the
FPC must comprehensively document its
views or proposed actions and give
respondents enough time to consider its
proposals and respond. In addition, the
FPC's documentation should include a
robust quantitative assessment of the
impact of the proposed policy and set out an
estimate of the private costs to businesses,
where suitable.
FCA amends Handbook requirements
The FCA published Handbook Notice No.
23 on 10 July 2015. There are six finalised
instruments which change the FCA's
Handbook (effective date in brackets):
Fees (Consumer Buy to Let) Instrument
2015 (approved by FCA and FOS) -
finalising the application and periodic
fees for firms wishing to perform
customer buy to let activities (20 July
2015 and 1 April 2016).
ADR Directive Supplementary
Instrument 2015 (approved by FCA and
FOS) (9 July 2015).
Periodic Fees (Pensions Guidance
Providers) Instrument 2015 - setting the
fees payable by each designated
pensions guidance provider in 2015/16
(19 June 2015).
Periodic Fees (2015/2016) and Other
Fees Instrument 2015 - confirming the
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 19
periodic fees due to the FCA, MAS and
FOS and implementing changes on fees
policy for the UK Listing Authority,
benchmark administrators and
consumer credit fees (19 June 2015).
Handbook Administration (No 38)
Instrument 2015 - making minor
administrative and typographical
corrections to various FCA sourcebooks
(1 August and 1 October 2015 and 21
March 2016).
Individual Accountability Instrument
2015 - implementing the new rules for
SM&CR (13 July 2015, 7 March 2016
and 7 March 2017).
Fighting back against vishing
FOS published an insight report of
complaints about 'vishing' - or voice
phishing - on 6 July 2015. It analysed the
185 complaints it has resolved about this
type of fraud since 2012 and found that 80%
of consumers were aged over 55 years and
had, altogether, lost £4.3 million. 54% of
complaints came from London or the South
East.
FOS outlines a number of examples from
the vishing scams it received and sets out
five lessons:
the banking sector altogether could be
more consistent in how and when they
issue warnings to consumers
better education around faster payments
is needed because not all consumers
understood that only a sort code and
account number was required to transfer
the funds (i.e. names did not have to
match)
in-branch prevention could be
strengthened - some staff suspected
fraud was taking place but still
permitted withdrawals or transfers
the way banks handle vishing
complaints should reflect the material
distress the fraud has caused to the
consumer, using a sympathetic and
helpful tone and communicating and
responding quickly
consumers need to take notice of the
warning messages from the industry and
police.
The most common vishing scam - the 'no
hang-up' scam - is expected to reduce
significantly later this year with telecoms
companies working to close the system that
permits the scam to take place. FOS notes,
however, that fraudsters are ever
imaginative and telephone fraud will
continue to evolve.
PRA explains use of its powers
On 7 July 2015 the PRA issued Statement of
Policy Conditions, time limits and
variations of approval. This statement
fulfils the BRA Act 2013 requirement for the
PRA and FCA to issue a statement on their
respective policies on approving individuals
and varying approvals under FSMA.
The PRA sets out non-binding (and non-
exhaustive examples) situations where the
PRA may use its FSMA powers to impose
time limits, conditions and variations on the
approvals of senior managers. Before
exercising its powers the PRA is required to
consult with the FCA. If it wants a variation
of approval made at its own initiative to take
place immediately the firm and the senior
manager concerned must have the right to
make representations.
FOS' ADR application approved
The FCA approved FOS' application to
become an ADR entity under the ADR
Directive in a letter published on 9 July
2015, two days after FOS applied by letter
on 7 July 2015. The letter was issued
alongside ADR Directive Supplementary
Instrument 2015 (FOS 2015/6). This made
small amendments to the DISP part of the
FCA Handbook concerning the definition of
a chargeable case and FOS's jurisdiction.
The FCA noted that FOS was currently
unable to comply with two requirements in
the ADR Directive:
notifying customers within 90 days of
the outcome of their complaint (FOS
aims to do this by July 2017)
only refusing to deal with (i.e. dismiss)
complaints in the first three weeks after
receiving the parties' final submissions
and not refusing to deal with a
complaint after notifying the parties it
has received the complete complaint file
(FOS aims to do this March 2016 for
non-PPI complaints and July 2017 for
all complaints, including PPI).
The FCA asks FOS to provide regular
updates on the first requirement and an
update towards the end of the year for the
second.
Treasury publishes FSMA order
On 20 July 2015 HMT published a FSMA
Order. The Order sets out that a non-UK
firm is to be considered as an authorised
person under section 19 of FSMA if it has a
UK branch and is not an insurer, and is:
a credit institution with permission to
accept deposits
an investment firm carrying on the
regulated activity of dealing in
investments.
HMT must conduct a review of these
provisions within five years to assess and
report on its ongoing appropriateness. The
Order comes into force on 9 November
2015.
Changing BoE's governance
HMT published BoE Bill: technical
consultation on 20 July 2015. It is
consulting on the technical changes it needs
to implement before the BoE Bill can be
finalised, which was announced in the May
2015 Queen's Speech.
The BoE Bill proposes a number of
amendments to the BoE's operational
framework:
PRA - end its role as a subsidiary of the
BoE, instead operating within a new
Prudential Regulation Committee
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 20
(PRC). The PRC will be an independent
committee of the BoE.
FPC - end its role as a sub-committee of
the BoE's Court of Directors, making it a
full BoE committee (the same as the new
PRC and existing MPC).
Make the Court of Directors (the BoE's
Executive Committee) smaller by
reducing NEDs from nine to seven and
making it more aligned to a typical
unitary board. Further, a new position of
Deputy Governor for Markets and
Banking will be created and will sit on
the Court of Directors.
Update existing arrangements for
resolution planning and crisis
management between the BoE and
HMT, including a new requirement that
the BoE keep HMT more informed on
risks to public funds.
Place the BoE within the National Audit
Office's remit.
The change in role and status of the PRA
will need careful planning since EU law and
the Basel Core Principles on Supervision
require operational independence between
resolution and prudential supervision
functions. The BoE will be required to
confirm how it has achieved this operational
independence between its two functions.
The consultation closes to comments on
11 September 2015.
Auditing the regulators
The National Audit Office (NAO)
announced on 22 July 2015 that it will start
a study in spring 2016 assessing how well
the FCA, FOS and FSCS work together to
identify issues and obtain redress for
consumers from mis-selling in financial
services.
The NAO specifically states it will consider
the how the FCA regulates financial services
firms to counter mis-selling, whether the
regulatory regime includes incentives to
deter mis-selling and how the FCA identifies
and responds to mis-selling risks.
FCA finalises more Handbook changes
The FCA published Handbook Notice No.
24 on 31 July 2015. It sets out seven
finalised rule changes (effective date in
brackets):
Competition Law Infringement
(Disclosure) Instrument 2015 -
reinforcing requirements that firms
must disclose any competition law
breaches (1 August 2015).
Complaints Handling and Call Charges
Instrument 2015 - amending timeframes
for complaints handling and introducing
a maximum call charge firms can levy on
customers ringing to make a complaint
(23 July 2015, 1 October 2015, 26
October 2015 and 30 June 2016).
Retail Distribution Review (Platforms)
(Amendment No 3) Instrument 2015 -
removing the forthcoming rules (due to
be effective at the end of this year)
around distributing information to
underlying investors in regulated funds
(31 July 2015).
Mortgage Credit Directive (Amendment)
Instrument 2015 - making minor
amendments to existing MCD
implementation rules, particularly
around how firms use the APR
calculation method (21 March 2016).
Consumer Credit (Mortgage Credit
Directive) Instrument 2015 - clarifying
some guidance in PERG on contingent
lending (21 March 2015 and 21 March
2016).
Complaints Handling (Financial
Ombudsman Service) Instrument 2015 -
making changes to FOS rules in line with
the above changes to complaints
handling timeframes (31 July 2015, 1
October 2015, 26 October 2015 and 30
June 2016).
Fees Manual (Financial Ombudsman
Service Case Fees 2015/16) Instrument
2015 - implementing the new group fee
arrangement for FOS case fees (31 July
2015).
PensionsSingle pensions market
EIOPA consulted on the creation of a
standardised Pan-European Personal
Pension product (PEPP) on 7 July 2015. The
EC asked EIOPA to provide technical advice
on creating an EU internal market for
personal pension schemes or products
(PPPs) in 2012. In 2014, the EC was
considering three different approaches:
legislating to regulate most (if not all)
PPPs in the EU and creating passporting
arrangements for EU-wide distribution
legislating to create a "2nd regime" of
alternative PPPs that can be passported
across the EU, with the rules centred on
product features and information
disclosure
a combination of the above.
EIOPA's consultation only covers the
second approach, which it is proposing as a
"PEPP". It notes this approach featured
heavily in the EC's Green Paper on CMU,
where a new 29th regime was envisaged to
create single EU approaches for different
products and legal issues.
The consultation closes on
5 October 2015.
EIOPA pension stress tests
EIOPA published the eighth set of Q&A on
its occupational pensions stress test on 29
July 2015 alongside an updated defined
benefit reporting spreadsheet and a tool
enabling updates to be made to earlier
spreadsheets. Participating firms were
required to submit their data to their
national supervisors by 10 August 2015.
EIOPA plans to publish the results in
December 2015 after carrying out some
quality assurance on the results.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 21
Pension Wise recommendations
The FCA published PS15/17: Pension Wise -
recommendation policy on 3 July 2015.
Guidance providers, including the Citizens
Advice Bureau, are not FCA regulated firms
but the Government asked the FCA to set
the standards for Pension Wise guidance
providers and monitor their performance
against them.
The FCA:
outlines the process for making a
recommendation to guidance providers
when it finds standards have not been
met
provides an overview of the factors the
FCA will consider when determining if
standards have not been met.
The guidance came into effect on
2 July 2015.
Reviewing pensions liberalisation
HMT consulted on Pension transfers and
early exit charges on 30 July 2015,
assessing how the pension liberalisation
reforms from April 2015 are working in
practice.
HMT requests feedback on:
early exit charges - including definition,
prevalence, unfair/excessive amounts
and how to reduce them
transferring pensions - barriers, how
transfers can be smoother and quicker
the requirement for financial advice for
certain transfers where benefits are in
excess of £30,000 - specifically the
impact of the requirement and how it
could be made smoother and quicker.
HMT's work is concurrent to the FCA and
TPR's work on pension liberalisation. HMT
welcomes comments by 1 October 2015.
Examining pension exit penalties
HMT published Pension transfers and
early exit charges: consultation on 30 July
2015. The consultation looks at options to
address excessive charges for early exit
penalties, making the process for
transferring pensions from one scheme to
another quicker and smoother. It also
considers how to improve clarity about the
circumstances in which an individual
should seek financial advice.
HMT states that if there is evidence of
excessive early exit charges restricting
individuals’ ability to access the new
pensions freedoms, it will consider
imposing a cap on such charges for those
aged 55 and over who are eligible to access
the new freedoms.
The consultation closes on 21 October
2015.
RemunerationPRA tweaks remuneration reporting
The PRA published reporting instructions
to assist completion of the High Earners
Report on 1 July 2015. It also updated its
Remuneration Rules webpage on 1 Jul
2015, requiring firms with year-ends on or
after 30 June 2015 to submit their high
earners data through the GABRIEL
regulatory reporting system. Previously
firms submitted this information by sending
their templates via email.
Excluding some material risk takers
The PRA published its remuneration policy
statement for material risk taker exclusions
on 1 July 2015.
The PRA sets out its policy for firms wishing
to take advantage of potential exclusion of
some high earners, as set out in the CRD IV
RTS. Firms seeking to exclude staff earning
in excess of €750,000 in the last financial
year must obtain approval from the PRA,
while only notify the PRA for staff earning
between €500,000 and €750,000.
Securities and derivativesSimplifying securitisations
BIS and IOSCO published Criteria for
identifying simple, transparent and
comparable (STC) securitisations on 23
July 2015. The report finalises 14 non-
exhaustive and non-binding STC criteria.
Market participants may use these to
compare and evaluate the risks of a
securitisation transaction but BIS and
IOSCO emphasis the STC criteria do not
replace investor due diligence.
The criteria are grouped according to risk:
Asset risk includes: nature of the assets,
performance history, payment status,
consistency of underwriting, asset
selection and transfer and initial and on-
going data.
Structural risk includes: redemption
cash flows, currency and interest rate
asset and liability mismatches, payment
priorities and observability, voting and
enforcement rights, documentation
disclosure and legal review, and
alignment of interests.
Fiduciary and servicer risk includes:
fiduciary and contractual
responsibilities and transparency to
investors.
BIS and IOSCO consulted on the STC in
December 2014. The final versions have
been changed to provide more clarity or
remove overly granular and prescriptive
aspects.
Progress on derivative market reform
IOSCO published a Review of
implementation progress in regulation of
derivative market intermediaries on 29
July 2015. It reviewed the extent to which
its member jurisdictions have implemented
regulatory reforms in line with its 2012
report on International standards for
derivatives market intermediary
regulation.
IOSCO is concerned that many jurisdictions
do not have enough tailored OTC
derivatives rules to satisfy its principles,
notwithstanding the confidence many
jurisdictions expressed about their
conformity to the principles (given general
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 22
licensing and registration requirements for
market participants). Likewise, IOSCO
noted similar issues with the broader capital
and conduct rules. However, IOSCO also
acknowledges that OTC derivatives reform
in many jurisdictions is well underway,
indicating wider alignment with the
principles in the future. IOSCO
recommends a second review is not
required before the end of 2016.
FSB reports on derivatives reform
On 24 July 2015, the FSB published its
ninth progress report on global
implementation of OTC derivatives reform.
It revealed that:
progress continued on implementing
trade reporting and central clearing
requirements across the majority of
member jurisdictions, especially for
interest rate derivatives (with coverage
more uneven for credit and equity
instruments)
most jurisdictions have legislative
frameworks in place to meet non-
centrally cleared margin requirements
on schedule
global implementation of organised
trading requirements has been weak,
with only the US having standards in
place for determining when products
should be traded on organised trading
platforms in place for over 90% of
transactions.
The FSB notes the difficulties with trade
repository data quality, but hopes this will
be addressed by IOSCO guidance on
consistent usage of unique trade and
product identifiers. In addition, the report
discusses international efforts to address
concerns around CCP stability, with a focus
on the adequacy of CCP loss absorption
capacity, liquidity and recovery
mechanisms.
Work on global FX code begins
BIS announced on 24 July 2015 that it has
established the Foreign Exchange Working
Group (FXWG) originally announced in
May. The FXWG will strengthen conduct
standards and principles in foreign
exchange markets. The FXWG is headed by
Guy Debelle (Reserve Bank of Australia)
and its membership covers major financial
centres in advanced and emerging market
economies.
The FXWG will establish and promote
greater adherence to a single code of
conduct standard and principles. While the
code will apply to all parts of the global
wholesale FX market, the FXWG intends to
allow for appropriate consideration of local
circumstances. It plans to finalise the Code,
and the proposals to ensure greater
adherence by May 2017.
EIOPA stakeholders evaluate EMIRcollateral requirements
EIOPA's Insurance and Reinsurance
Stakeholder Group (IRSG) published its
response to the recent consultation by the
ESAs on EMIR's risk mitigation
requirements on 16 July 2015. IRSG
expressed concern that the central role of
clearing under EMIR could have
unintended consequences for the insurance
industry, specifically that CCP requirements
around cash collateral could force insurers
into an undesirable choice of either holding
higher than optimal amounts of cash or
performing disadvantageous asset sales. In
addition, the group disagrees with including
insurance derivatives in EMIR's scope
because they are used primarily for risk
management purposes. Similarly, IRSG
argues that where a securitisation provide
risk mitigation, the requirement to post
collateral (and the amount) should be open
to modification.
The IRSG also thought that:
the time period within which initial
margin needs to be collected should be
extended from 1 day post execution to 3
days
the collateral threshold of €1 billion
should be calculated on a bilateral, non-
consolidated basis
concentration limits should not apply to
parties that have less than a specified
amount of margin
cash should be eligible as initial margin
if it's protected from an insolvency of the
collecting party.
The ESAs' consultation closed on
10 July 2015.
Clarifying the Acquisitions Directive
The ESAs published a joint consultation
paper on draft guidelines on the prudential
assessment of acquisitions and increases of
qualifying holdings in the financial sector
on 3 July 2015. The purpose of the
guidelines is to assist EU supervisory
authorities in their roles in the qualifying
holdings (or change in control) regime
originally introduced by the Acquisitions
Directive.
The ESAs proposals are intended to address
the EC's February 2013 recommendations
on the application of the Acquisitions
Directive, which indicated that certain
clarifications were needed. The guidelines
will replace December 2008 guidelines
published by the ESA’s predecessors.
The consultation closes on
2 October 2015.
Recommendations for EMIR review
On 29 July 2015 the ESRB reported on what
it expects the EC to consider as part of its
EMIR review. In particular the ESRB
proposes:
establishing swift processes for the
removal or suspension of mandatory
clearing obligations for certain classes of
OTC instruments if the market so
requires
aligning the amount of 'skin in the game'
held by a CCP with the level of the CCP's
clearing activity
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 23
clarifying the timing and procedures to
be followed for the replenishment of the
funds in order to make potential
collateral calls by CCPs more predictable
establish obligations for CCPs to publish
quantitative and qualitative
requirements consistent with the CPMI-
IOSCO disclosure framework
require ESMA to publish on its website a
list of all approved interoperability
arrangements between CCPs and the
financial instruments for which these
links are allowed to be used
provide national authorities with access
to trade repository data regarding all
subsidiaries of entities within their
jurisdiction, regardless of where the
subsidiaries are domiciled or
headquartered.
The EC is due to publish its review shortly,
which could lead to a proposal for EMIR 2.
Accounting
FRC issues suite of changes
The FRC issued a suite of changes that
update and in many cases simplify
accounting standards for smaller entities
on 16 July 2015. The changes are largely in
response to the implementation of the new
EU Accounting Directive. Changes also
include those relating to the annual review
of FRS101 - Reduced Disclosure Framework
and an implementation issue in relation to
FRS102. The main changes are effective for
accounting periods beginning on or after 1
January 2016.
Revenue from customer contracts
On 13 July 2015, the TransitionResource Group (TRG) discussedseveral implementation issues relatedto the new revenue standard (IFRS 15).We expect further discussion of theaccounting for the constraint onvariable consideration and transition tothe new standard. TRG membersgenerally agreed with the FASB andIASB staff views on other matters,including questions about applying theseries guidance and the scope of therevenue standard.
For more details see our In Transitionpublication.
The IASB also published ED/2015/6 -Clarifications to IFRS 15 ‘Revenue fromContracts with Customers’ on 30 July2015. It proposes to add details to IFRS15 on identifying performanceobligations, principal versus agentconsiderations and licensing, but not toadd information on collectability ormeasuring non-cash consideration. Italso proposes transition relief formodified contracts and completedcontracts.
The consultation closes on28 October 2015.
PwC publicationsFinancial reporting
Our Year-end accounting reminders –IFRS and UK GAAP June 2015considers reporting requirements as at30 June 2015, including topical issuesand new IFRSs and IFRICs. In thisissue we look at:
regulatory interest and key reminders
for impairment reviews
IFRS 10,’Consolidated financial
statements’, reminders
IFRS 12, ‘Disclosure of interests in other
entities’, practical application issues
cross border long term loans treated as
‘permanent as equity’
supplier finance arrangements
holiday pay
requirement to disclose more
information on related undertakings in
the notes to the accounts.
Our In brief publication ‘Going concernreporting under the 2014 UKCorporate Governance Code – at half-year and year end’ considers the newgoing concern reporting requirements.
Our In brief publication ‘A look atcurrent financial reporting issues -Consequences of the Greek financialcrisis’ considers the potentialconsequences of the Greek financial
crisis on financial reporting andrelevant guidance under IFRS.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 24
In this section:
Regulation 24
Capital and liquidity 24
Deposit guarantee schemes 25
Financial crime 27
Mortgages 27
Other regulatory 28
Payments 28
Recovery and resolution 29
Retail products 30
Supervision 31
Tax 31
Regulation
Capital and liquidityEBA assesses banking risk
On 3 July 2015 the EBA published its June
2015 Risk assessment of the European
Banking System, which assessed how banks
are strengthened following the financial
crisis and the remaining risks. In particular
it found that:
private and public debt overhang
remains high
the SREP process showed heightened
concern about operational risk e.g.
litigation and IT risks
deleveraging assets has stagnated
funding markets and deposit bases
reflected a stable to positive picture
banks have issued a significant volume
of subordinated debt instruments
financial markets remain fragile and
volatile
Liikanen and BRRD are likely to result
in profound banking business model
changes.
The report is based on December 2014 data,
so may not reflect exact current market
conditions, instead showing market trends.
Transparency and stress tests for EUbanks
The EBA published an update on its 2015
transparency and 2016 EU-wide stress test
exercises on 15 July 2015. The 2015
transparency exercise will capture over 100
EU banks, including the UK's big four
banking groups. The EBA will use this
information to publish detailed data on the
banks' balance sheets (capturing capital,
leverage ratio, RWAs by risk-type, sovereign
exposures and credit risk exposures). The
EBA will primarily rely on COREP and
FINREP data, although it will collect some
source data from individual institutions.
On stress testing, the EBA expects the 2016
stress tests to feature many aspects included
in the last stress tests in 2014, employing a
bottom-up approach which will include
static balance sheet assumption and wide
risk coverage. Draft methodology and
templates are likely to be released before the
end of 2015, with the exercise itself
commencing in Q1 2016.
The EBA then expects to publish the stress
test results in Q3 2016.
FPC outlines leverage ratio powers
On 1 July 2015, the BoE published The
Financial Policy Committee’s powers over
leverage ratio tools. The policy statement
sets out the rationale for introducing a
Banking and capital markets
James de VeulleDirector, Jersey office+44 (0) 1534 [email protected]
Nick VermeulenPartner, Guernsey office+44 (0) 14 81 [email protected]
Karl HaironPartner, Jersey office
+44 (0) 1534 838282
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 25
leverage ratio and describes its different
components, which include:
a minimum leverage ratio for G-SIBs
and other major domestic UK banks and
building societies. This will have
immediate effect. Subject to a review in
2017, the FPC expects to direct the PRA
to extend the requirement to all banks
building societies and PRA-regulated
investment firms in 2018.
a supplementary leverage ratio buffer
for UK G-SIBs and domestically
systemically important banks, building
societies and PRA regulated investment
firms subject to a systemic risk buffer.
This will be phased in from 2016 for G-
SIBs and apply from 2019 for other
firms.
a countercyclical leverage buffer (CCLB)
coming into effect with the minimum
leverage ratio. This will be reviewed
every quarter alongside the risk
weighted countercyclical capital buffer
(CCB).
The FPC intends to move the risk weighted
CCB and the CCLB together in response to
changes in systemic risk and will therefore
use the same information for both tools. It
expects the PRA to take timely and
appropriate action to ensure banks have
credible capital plans to remedy minimum
requirement breaches or failure to hold
buffers.
PRA consults on the leverage ratio
On 10 July the PRA published CP24/15
Implementing a UK leverage ratio
framework. The Consultation Paper
proposes rules for PRA-regulated banks and
building societies with consolidated retail
deposits equal to or greater than £50 billion
and has been issued in response to a
Direction from the FPC. Firms within scope
will be required to meet a minimum 3% Tier
1 leverage ratio requirement plus additional
leverage buffers to account for systemic and
countercyclical risks (pro rata to those
buffers applicable under the risk-weighted
capital framework). They will also be subject
to new reporting and disclosure
requirements.
The consultation closes on 12 October 2015.
Any final rules may change as a result of the
FPC’s planned 2017 review which is likely to
expand the scope of the framework. Please
see this month's feature article for more
information on these proposals and how
they are likely to impact on banks and
building societies.
PRA introduces LCR interim reporting
The PRA issued Supervisory Statement
CRDIV: Interim LCR reporting (SS29/15)
on 20 July 2015. A recent Delegated Act
amended the LCR requirements, which
apply from 1 October 2015. The EBA
subsequently published the final draft ITS
amending its LCR supervisory reporting
requirements in line with this Delegated Act
on 24 June 2015. The EBA proposed a first
reference date for the application of the
amending ITS to be the later of December
2015 and six months after the date of
publication of the amending ITS in the
Official Journal.
The PRA has decided that banks should
report their LCR positions on the revised
basis as defined under the Delegated Act
from October 2015 using templates to be
supplied by PRA based on the final draft
amending ITS. From then on, PRA will
carry out its liquidity supervision using this
data. In the interim, firms are still under an
obligation to report their LCR under the
current ITS on liquidity reporting as well.
PRA is unable to alter this obligation.
The interim reporting arrangements start
from 1 October 2015, the first reference date
is the last day of the month, submission is
30 calendar days later and monthly
reporting thereafter. These interim
arrangements will cease once the amending
ITS applies.
Deposit guarantee schemesCooperation agreements for DGSD
The EBA published Draft guidelines on
cooperation agreements between deposit
guarantee schemes under the DGSD on 29
July 2015. Written cooperation agreements
must be in place between either scheme
operators or designated authorities. The
EBA sets out the objectives and minimum
content of such agreements. It also suggests
a framework for multilateral cooperation
agreements each DGS can follow to avoid a
large number of individually negotiated
bilateral agreements.
The draft guidelines seek to establish
uniformity in three areas:
how host deposit guarantee schemes will
repay depositors of institutions
headquartered in other member states
transferring contributions from one
scheme to another where an institution
leaves the first scheme to join the second
the conditions of mutual lending
between schemes (where national rules
permit this).
The consultation closes on 29 October
2015.
Finalising DGSD implementation
The PRA issued its responses to
consultation CP21/15 in PS15/15 Depositor
and policyholder protection - technical
amendments and updated its statement of
policy for the FSCS, Statement of policy -
Deposit Guarantee Scheme Updated July
2015, on 3 July 2015 - the implementation
deadline for the recast DGSD.
PS15/15 confirmed:
amendments to the recovery rules to
reflect depositor preference under
Article 108 of BRRD
a new rule setting out which person the
FSCS may treat as being absolutely
entitled to an eligible deposit where the
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 26
account holder is not absolutely entitled
to it
provision for a firm to exclude from its
class A tariff base calculation the value
of any funds which it has confirmed are
not covered deposits
minor changes to clarify information to
be included in the SCV and exclusions
files
that between 3 July 2015 and 1 June
2016, small local authority depositors
are to have access their covered deposits
within 15 business days of receipt of a
request containing sufficient
information to enable the FSCS to make
a payment.
The PRA did not include a proposed change
in relation to the Landlord & Tenant Act
1987 category of accounts. It determined to
treat such accounts in the same way as other
complex trusts with multiple beneficiaries.
It updated the statement of policy addressed
to the FSCS to reflect the changes made in
PS15/15 relating to subrogation and
recoveries.
Deposit guarantee limit reduced
The PRA reduced the deposit guarantee
limit from £85,000 to £75,000 on 3 July
2015. The recast DGSD required the PRA to
convert the EUR 100,000 limit to sterling
on its implementation date. The reduction
generated a flurry of publications to deal
with the consequences.
A new policy statement, PS14/15 Depositor
and dormant account protection - the
protection limit, addresses the main
changes. Depositors who were protected
before 3 July 2015 will remain protected at
the higher level until 31 December 2015.
Large companies and small local authorities
which only became eligible for protection
from 3 July 2015 will be protected at the
new lower limit. The changes are necessary
to ensure that firms’ disclosure materials
and systems accurately reflect the new limit
and that this is clearly communicated to
depositors.
Other events on 3 July 2015 included:
publishing Depositor Protection and
Dormant Account rules (as PRA 2015/57
and PRA 2015/59)
updating the supervisory statement (on
3 July 2015 - SS18/15 Depositor and
dormant account protection Update
July 2015 - and again on 20 July 2015 to
clarify that firms that wish to provide
the information sheet to depositors
before 1 January 2016 should discuss
options with their supervisor - SS18/15
Depositor and dormant account
protection Update 20 July 2015)
revising secondary legislation (The
Deposit Guarantee Scheme
(Amendment) Regulations 2015 No
1456 and Explanatory Memorandum
2015/1456)
sending letters to CEOs (CEO letter to
banks and building societies and CEO
letter to wholesale deposit takers)
Q&As developed by the FSCS for
depositors FSCS Q&As about limit
changes.
Temporary protection for highdeposits
On 3 July 2015 the FSCS announced that it
will protect consumers' temporary funds
held in a bank, building society of credit
union up to £1m. The extension, established
under DGSD, covers only certain types of
funds for up to six months. Eligible balances
include those received from a house sale or
redundancy payment; unlimited cover is
provided for funds received from a personal
injury claim.
Consequential amendments to DGSDimplementation
The PRA published PS18/15 - Depositor
and dormant account protection -
consequential amendments on 31 July 2015,
setting out final rules and feedback to its
previous consultation. It proposed new
rules to ensure that depositors may
withdraw funds up to the £10,000
difference between the old and new limits
during the transitional period until 31
December 2015 without incurring any
charge, penalty or loss of interest. It also
proposed further amendments to the
disclosure rules, information sheets,
dormant account scheme rules and SS
18/15.
Here the PRA sets out the following
changes:
a rule amendment so requests for
withdrawals received before 1 October
2015 are treated as received on 1
October (giving firm some breathing
space for requests received from 1
August 2015 to embed new processes
and procedures)
enabling firms to choose which accounts
withdrawn amounts may be taken from
where depositors have multiple accounts
(with the exception of transactional
accounts)
clarifying that Depositor Protection 57
means firms shouldn't impose early
closure charges where its processes do
not permit partial withdrawals and
account or product closure is required
(firms should offer customers a new
product with the same features for the
funds not withdrawn)
a rule amendment pertaining to the
calculation of how much can be
withdrawn (referring to the estimated
value at maturity, less the new £75,000
limit and subject to a maximum of
£10,000).
The PRA received 39 responses to the
consultation, leading to the above changes.
No responses were received in respect of the
amendments to SS 18/15.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 27
Financial crimeReporting on card fraud
The EBA issued its fourth report on card
fraud on 15 July 2015, covering
developments from 2013 in the Single Euro
Payments Area. It noted that:
card not present (CNP) fraud in 2013
was the largest category of card fraud
(66%) and the only category to display
an increase in total value from 2012's
figures (20.6% increase)
card fraud at ATMs saw the largest drop
(13.7% decrease), the first fall in four
years
fraud at point of sale (POS) terminals
fell (7.9%)
the UK's relatively high level of CNP
fraud (36%) skewed the euro area
average, with fraudsters elsewhere
focusing more on ATM and POS
transactions.
CNP transactions cover payments over the
phone, internet or post. The EBA considers
CNP fraud is likely to grow unless
mitigation measures are embedded. It
attributed the reductions in ATM and POS
fraud to a corresponding decrease in
counterfeit fraud and the take-up of chip
cards (referred to as 'EMV', the technical
standard, in the report).
MortgagesFCA MMR impact
On 9 July 2015 the FCA released
Embedding the Mortgage Market Review:
Advice and Distribution (TR15/9). It sets
out its findings from a thematic review into
how firms are advising their customers
under MMR requirements. The FCA found
that overall the quality and suitability of
advice was mixed, though it didn't find
evidence of systemic customer detriment -
59% of mystery shops resulted in suitable
mortgage recommendations but 3% was
demonstrably unsuitable. The FCA believed
that advice given was at times unclear and
unstructured and heavy reliance was placed
on point of sale application systems.
Alongside the thematic review findings the
FCA published Understanding consumer
expectations of the mortgage sales process,
a piece of FCA commissioned research that
looked at the behaviours of mortgage
customers. The research found that
customers:
are not always fully engaged in
understanding the financial implications
of the product
are short-termist and are driven by
finding the best initial deal rather than
planning long-term. The desire for the
best deal financially can be at odds with
the need for long term stability in their
mortgage and
enter the application process with a
product preference.
The review formed part of the FCA’s wider
programme of the assessment MMR. The
FCA plans to launch a market study in 2016
on aspects of the mortgage market that do
not benefit consumers.
PRA's approach to loan to incomelimits
On 10 July 2015 the PRA consulted on its
intended implementation approach to FPC
Directions on loan to value and debt to
income ratio limits. If the FPC use the
Direction powers, the PRA expects to base
its approach as far as possible on the
framework established to implement the
FPC’s 2014 Recommendation on loan to
income ratios in mortgage lending (on
which it consulted in June 2014).
The PRA acknowledges that the exact
details of each new requirement will need to
be tailored in light of the specific scope and
nature of any Direction. It highlights
excluded mortgages or firms and de
minimis thresholds as matters likely to be
particularly specific to a Direction.
Therefore, the PRA will normally consult
when implementing an FPC Direction. The
PRA will only explain the precise
implementation approach in more detail at
this stage.
The PRA welcomes comments or queries by
12 October 2015.
MCD changes to CONC
The FCA published PS15/20:
Implementation of the MCD: consequential
changes to the Consumer Credit
Sourcebook (CONC) on 31 July 2015. It
details the changes to be made to CONC
when the MCD is implemented in the UK.
Currently, second charge mortgage products
must comply with the rules set out in CONC
but on implementation of the MCD on 21
March 2016 they will be governed by
MCOBs and CONC will no longer apply.
The new rules are set out in Consumer
Credit (Mortgage Credit Directive)
Instrument 2015 (FCA 2015/42), which
with enters into force on 21 March 2016
(with the exception of some transitional
provisions).
MCD and shared equity schemes
The FCA published a factsheet and
flowchart on 20 July 2015 to help house
builders offering second charge schemes
understand the regulatory impact of the
MCD on their business.
Firms may:
stop offering regulated products
seek FCA authorisation
outsource regulated activities to a third
party
take a commercial decision to write off a
loan.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 28
The FCA advises firms which permissions
they may need and whether their products
may be subject to any exemptions. The
MCD comes into force on 21 March 2016.
MCD Order amended
The government published the MCD
(Amendment) Order 2015 (SI 2015/1557)
on 24 July 2015 with an explanatory
memorandum. The order amends the UK
implementation of the MCD and clarifies
aspects of the original order to ensure the
government’s policy aims are fully achieved.
The order:
sets out that initial contact with a
customer determines the availability of a
transitional arrangement for new second
or subsequent charge mortgage loans,
irrespective of whether that contact is
made by a mortgage lender or an
intermediary
clarifies that a small number of existing
buy-to-let mortgages will continue to be
regulated by the FCA as regulated credit
agreements rather than regulated
mortgage contracts.
These parts of the order come into force on
21 March 2016. A minor amendment to the
Consumer Credit (Agreements) Regulations
1983 comes into force on 20 September
2015.
MCD implementation continues
On 30 July 2015 the Government published
a draft amendment to FSMA with a draft
explanatory memorandum. The draft order
clarifies how FSMA relates to a small
number of first charge mortgages dating
from before 31 October 2004 and makes
supplementary changes to bring the
regulatory regime for mortgages in line with
the MCD.
Other regulatoryDealing with weak banks
The Basel Committee published Guidelines
for identifying and dealing with weak
banks on 16 July 2015. The guidelines are
intended to assist in areas such as problem
identification, corrective action, resolution
techniques and exit strategies. They make
clear that incentives for supervisors to take
early and decisive action in response to
problems are crucial.
The guidelines are non-binding and aimed
at global regulators to give them a toolkit to
use when dealing with local weak banks.
Revising account opening guidance
The Basel Committee published
Consultative Document - General guide to
account opening on 16 July 2015. It
proposes to create a new annex focussing on
new account opening in light of changes to
FATF standards, in particular the 2012
FATF Recommendations and two October
2014 guidance notes on a risk based
approach in banking and transparency
and beneficial ownership respectively.
Accounts include demand deposits, savings
deposits, transaction or asset accounts,
credit account and other extension of credit.
The consultation closes on 22 October
2015.
Disclosing risks of non-ring fencedbodies
The FCA published a consultation paper -
CP15/23: Ring-fencing: Disclosures to
consumers by non-ring-fenced bodies
(NRFBs) on 13 July 2015. The consultation
sets out the disclosure requirements NRFBs
must provide to individuals with financial
assets of at least £250,000 who are account
holders or who have applied to open an
account (including joint accounts). The
rules apply to banking groups subject to the
ring fencing requirements, unless they are
exempt from the requirements (e.g. a bank
holding core deposits of less than £25
billion).
The FCA proposed that NRFBs should be
required to:
give relevant consumers descriptions of
the investment and commodities trading
activities that they carry out and details
of any ‘prohibited action’ taken - this
should be provided before they become
NRFBs or, after the regime is in force,
when customers apply to open an
account with an NRFB
provide additional explanatory
information to help consumers
understand the implications of banking
with a non-ring-fenced entity in the
group so they can make an informed
decision to place deposits with a NRFB
display the requisite information on
their websites and keep it up to date.
The FCA states the proposed rules do not go
significantly beyond what is required by the
ring-fencing legislation, except regarding
timing of the provision of the information.
The FCA intends to bring its rules into force
six to 12 months before full implementation
of the ring fencing rules on 1 January 2019.
The FCA clarifies that regardless of whether
deposits are held with an RFB or an NRFB,
they will remain eligible for the existing
level of FSCS coverage.
The consultation closes on 13 November
2015. The FCA will publish its rules
alongside a Policy Statement in Q1 2016.
PaymentsEC continues MasterCard anti-trustinvestigation
The EC sent a Statement of Objections to
MasterCard as part of its antitrust
investigation into MasterCard’s interchange
fee charges for inter-regional transactions
on 9 July 2015. The EC is concerned that
MasterCard’s fees restrict cross-border
competition by preventing retailers from
benefitting from lower fees offered in
another Member State. The Statement also
alleges that MasterCard fees for EU
transactions made using cards issued
outside the EU are excessive. MasterCard
has the opportunity to respond to the
Statement before the EC decides if
MasterCard has breached antitrust rules.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 29
PSR annual report
The PSR published its first Annual report
and accounts for 2014/2015 on 2 July 2015.
The economic regulator for UK payment
systems became fully operational on 1 April
2015, and much of its work to date has
focused on development and preparation.
Key milestones included:
launching two in depth market reviews
assessing the supply of indirect access
and the supply of and competition in
providing payment systems
infrastructure
publishing its Work Programme for its
first year of operation
creating a PSR Panel (and terms of
reference) that offers advice and early
input on the PSR's approach.
This year, the PSR will pursue its statutory
objectives to promote competition and
innovation. The PSR is currently funded by
the FCA but in the future it will levy fees on
regulated firms.
Payments Strategy Forum recruitsmembers
The PSR issued a call for participants to
join its new Payments Strategy Forum on 15
July 2015. The aim of the Forum is to
develop and agree the strategic priorities for
payment systems within the UK. Its work
will be limited to initiatives where it is
necessary for the industry to work
collaboratively for the benefit of service
users. The Forum will be comprised of 20
representatives from across the industry
and chaired by Ruth Evans. The first
meeting of the Forum is expected to be held
in the autumn. Applications closed on 12
August 2015.
Government consults on interchangefees
On 27 July 2015 the Government consulted
on the implementation of the EU
Interchange Fee Regulation (EU) 2015/751
(IFR), the first provisions of which come
into effect on 9 December 2015.
The Government is seeking views on:
the regulatory regime to supervise
compliance with the IFR (the
government intends to designate the
PSR as the overarching regulator to
supervise the IFR, but the FCA will also
be assigned a role in respect of its
supervisory remit under the Payment
Services Regulation 2009).
its approach to setting the caps on
interchange fee rates (retaining IFR's
0.3% cap for credit cards but using a
weighted average for debit card fees that
cannot exceed IFR's 0.2% cap).
the application of a time-limited
exemption for three-party card systems
that use issuers or acquirers (provided
such schemes have a market share below
3%).
Responses from stakeholders are welcomed
by 28 August 2015.
Payment systems’ closing hoursextended
The BoE announced on 23 July 2015 that
the closing time for the CHAPS and CREST
systems is to be extended in summer 2016.
CHAPS is the UK’s high-value payments
settlement system used to make house sale
and purchase transactions, while CREST
performs a similar service for UK securities.
In future, in an effort to better align the
close of the settlement day with typical
business hours and provide users with
better flexibility, both systems will close at
6pm.
Recovery and resolutionEBA finalises BBRD rules
The EBA published its final draft RTS on the
MREL and the contractual recognition of
bail-in on 3 July 2015. Both standards are
important components of the
implementation of BRRD. These standards
are part of the EBA's major work
programme to implement the BRRD and
address the problem of too-big-to-fail
banks.
The MREL RTS specify how much
additional capital a bank or investment firm
should hold over and above its CRR capital
requirements in order to comply with the
BRRD.
The bail-in RTS aims to safeguard cross-
border effectiveness of the bail-in power. It
requires agreements governed by the law of
a third country that concern liabilities
within the scope of the write-down and
conversion powers to include a certain
contractual term. This term obliges
creditors to acknowledge that their
receivable may be subject to the bail-in
powers and consequently may be reduced or
cancelled.
The technical standards have now been
submitted to the EC and, following a
consultation period, are expected to be
published as Regulations in the OJ.
The EBA published a further RTS on
implementation of the BRRD on 6 July
2015. This sets out general criteria to be
used to determine whether a valuer
complies with the legal requirement of
independence when performing valuation
tasks with respect to a bank under
resolution.
BRRD regulatory notifications
On 3 July 2015, the EBA published EBA
final draft RTS on procedures and contents
of notifications and the notice of suspension
under the BRRD. The draft RTS outline the
contents of three notifications:
management bodies notifying its
competent authority if they consider
their entity to be failing or likely to fail
the competent authority informing the
resolution authorities of any notification
received from an entity as well as of any
measures that the competent authority
requires the entity to take
other relevant authorities (e.g. the
central bank) when receiving
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 30
communication from the competent
authority or the resolution authority that
an institution meets the conditions for
resolution.
The draft RTS also sets out the procedures
and the content of the notice summarising
the effects of the resolution action,
including the decision to suspend or restrict
the exercise of certain rights. The contents
of the notice set out the impact of resolution
action(s) on different categories of
stakeholders and their contractual rights
(e.g. temporary suspension of termination
rights, contractual payment or delivery
obligations, secured creditors of the
institution, availability and access to
deposits and other client assets or funds
held at the institution).
The RTS is now passed to the EC which is
tasked with adopting it into EU
requirements.
Intragroup support under BRRD
On the 9 July 2015, the EBA published
Guidelines and Final Draft RTS on the
provision of group financial support. It sets
out the conditions which must be met for
one group entity to provide support to
another, when that entity meets the
conditions for early intervention. No
material changes were made as a result of
comments received.
The EBA also published Final Draft ITS on
Disclosure of Group Financial Support
Agreements. The disclosure must:
be made on a firm’s website
include the terms of the group financial
support agreement
include the names of the group entities
involved.
The draft RTS and ITS have been submitted
to the European Commission for adoption.
EEA bank resolution colleges
On 3 July the EBA finalised Draft RTS on
resolution colleges under the BRRD. Under
BRRD, EU regulators should establish cross
border resolution colleges for EEA banks
operating across the EU. The EBA sets out
the operational requirements of the
resolution colleges.
It provides requirements on:
operational organisation - particularly
who should be members and how to
involve third country regulators, if
necessary, as observers
resolution planning - including the joint
decisions on the group resolution plan
and resolvability assessment, on
measures to address substantive
impediments to resolvability, and to set
the minimum requirements for MREL
the process for cross-border group
resolution - outlining the procedural
steps to be taken by the resolution
college when it receives notification that
a firm is failing or likely to fail.
The EBA has passed the RTS to the EC for
adoption into formal requirements.
Simplified obligations under BRRD
The EBA issued Final Guidelines and Final
Draft ITS on simplified obligations under
BRRD on 7 July 2015. The EBA also issued
Final Draft ITS on the procedures, forms
and templates for submitting information
on resolution plans under the BRRD. The
guidelines set out mandatory and optional
indicators to be used when determining if a
firm is eligible to apply simplified
obligations. These have been revised to
include a mandatory indicator for
investment firms.
The EBA intends to monitor the application
of simplified obligations and will report to
the EP, Council and the EC by 31 December
2017.
Early intervention triggers
The EBA published guidelines on early
intervention triggers in the EU's official
languages on 29 July 2015. The guidelines
assist national authorities to identify when
to apply early intervention measures for
failing institutions under BRRD, specifically
referring to triggers within the SREP
framework.
National authorities must now notify the
EBA by 29 September 2015 whether they
will comply with the guidelines, or explain
why they are choosing not to comply. The
guidelines themselves apply to firms from 1
January 2016 (by which time guidelines on
SREP common procedures and
methodologies will also be implemented).
Retail productsOverseeing retail banking products
The EBA published its Final report -
guidelines on product oversight and
governance arrangements for retail
banking products on 15 July 2015. It follows
a November 2014 consultation looking at
how banks and firms in scope of PSD, MCD
and the E-Money Directive manufacture
and distribute retail banking products.
Whilst the guidelines only apply to
consumers the EBA suggests that local
regulators may want to consider applying
them, whether in full or in part, to SMEs
and micro-enterprises to increase the
protection these entities receive. This
reflects the current FCA view that wholesale
market participants can sometimes need as
much protection as retail clients.
The guidelines include different advice for
manufacturers and distributors, similar to
the recent ESMA MiFID II guidance on
product governance. For manufacturers the
focus is on identifying a target market,
internal controls needed, ongoing product
monitoring and information provided to
distributors. For distributors the guidelines
look at governance methods, knowledge of
the target market and the information they
supply back to the manufacturer (e.g. on
sales volumes).
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 31
The guidelines will now be translated into
the official languages of the EU and will
apply (unless a Member State confirms it is
not complying with the guidelines) from 3
January 2017 - aligned with the MiFID II
implementation date. The guidelines will
apply to all products brought to market after
3 January 2017 or to existing products that
are significantly changed after that date.
Market make-over: cash savings
The FCA released Cash savings remedies
(CP 15/24) on 23 July 2015 providing
feedback on the proposed remedies it
published in January 2015 and calling for
further information.
The FCA's remedies focus on disclosure,
account switching and improving details on
a firms' interest rates and number of
products available. The FCA is consulting on
the necessary changes to BCOBS to
implement the remedies. These include
introducing summary boxes, displaying
interest rate information more prominently,
changing notification practices and
simplifying the switching process.
In the further call for information the FCA
seeks input on:
elements of the switching box being
trialled with firms (through randomised
control testing)
its approach to collecting and publishing
information on the lowest interest rates
firms pay on open and closed accounts
the usefulness of the Code of Conduct
for the Advertising of Interest Bearing
Accounts (Annual Equivalent Rate Code
(the AER Code), any changes needed
and whether it should fall within the
FCA's remit.
The consultation closes on 12 October
2015.
SupervisionProgress on global' supervisorycolleges
The Basel Committee published a Progress
report on the implementation of principles
for effective supervisory colleges on 15 July
2015. It published its original principles for
supervisory colleges in 2010 and updated
them in 2014 to reflect regulators' feedback
on implementing the principles. The
principles apply to G-SIBs - all but two of
them now have established supervisory
colleges (the other two outliers operate
primarily in their domestic market with
international footprint).
Whilst the Basel Committee used
questionnaires to gauge the effectiveness of
the original principles it has taken a
different approach this time, using case
studies to identify how different supervisory
colleges implemented the new principles. Its
findings here are positive - it identifies only
small areas where colleges could better
implement the principles. In particular, it
finds that colleges are working to help home
and host state regulators get a better idea of
the risks and vulnerabilities that their banks
face.
The only area for caution is around crisis
preparedness, where the Basel Committee
notes colleges are still finding challenges in
identifying their role during a crisis. It
expects more work on this area over the
coming months. The information presented
in the progress report is useful for G-SIBs to
identify how they are supervised by
different international regulators, including
some of the internal processes regulators go
through.
TaxReducing the bank levy
HMRC published Bank Levy: rate
reduction as announced in the summer
budget 2015 on 8 July 2015. It intends to
reduce the rate at which the bank levy is
charged and introduce a surcharge on the
profits of banking companies. HMRC
estimates that the revenue raised by the
surcharge will offset bank levy reductions
over the forecast period.
HMRC sets out the rate at which the bank
levy will be charged for the next 6 years. The
rate will decrease from 0.21% to 0.18% from
1 January 2016 and will continue to
decrease each calendar year thereafter until
2021. The half rate will be proportionate
decreased to 0.09% with effect from 1
January 2016, with corresponding
reductions each following calendar year
until 2021.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 32
In this section:
Regulation 32
Alternative investments 32
Financial stability 33
Remuneration 34
Regulation
Alternative investmentsESMA consults on ELTIF Level 2standards
On 31 July 2015 ESMA published Draft RTS
under the ELTIF Regulation. It specifically
focuses on whether the Level 2
requirements should:
use previous definitions of hedging
contained in IFRS and elsewhere to
determine appropriate derivatives usage
by ELTIFs
require that the permissible length of an
ELTIF life be determined by the asset
with the longest life-cycle
require inclusion in the fund's
development of an itemised schedule for
the orderly disposal of assets
consideration of liquidity, regulatory
and economic risks when determining
the plausible market for those assets
use IFRS definitions around fair price
when determining ELTIF valuation
requirements
use the UCITS framework for cost
disclosure
determine that the requirements to
provide facilities to retail investors can
be satisfied by generally adopting the
UCITS framework.
The consultation closes on 14 October
2015.
Extending AIFMD passport outside EU
On 30 July 2015 ESMA published its advice
to the EP, Council and the EC on the
application of the AIFMD passport to non-
EU AIFMs and AIFs. Currently non-EU
AIFMs and AIFs can only be marketed in
the EU under national private placement
regimes (NPPRs). While this allows AIFMs
and AIFs access to EU investors, they must
adhere to differing local requirements to
access the market - in addition to the
AIFMD requirements relating to investor
disclosure, annual reporting and regulatory
reporting.
ESMA’s advice opens up the passport (on an
optional basis) to non-EU AIFMs and AIFs
located in Guernsey, Jersey and
Switzerland. ESMA did not recommend
access for fund managers and funds in
Hong Kong, Singapore and the US. ESMA
said it needs more time to analyse
information on each country’s local
regulatory regime. The exclusion also
Asset management
John LuffPartner, Guernsey office+44 (0) 1481 [email protected]
Mike ByrnePartner, Jersey office+44 (0) 1534 [email protected]
Adam GulleySenior Manager, Jersey+44 (0) 1534 [email protected]
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 33
reflects ESMA’s view that these countries do
not currently provide reciprocal access for
EU AIFMs and AIFs into their home market
and investors.
Countries not approved by ESMA should
not face immediate marketing difficulties as
NPPRs will continue until at least 2018. But
given the difficulties some firms have
experienced in marketing under NPPRs and
understanding the different local
requirements imposed by different EU
member states it would be beneficial to have
the option of using an AIFMD passport. We
are beginning to see more EU investors
questioning AIFMD compliance and opting
for funds that are within scope of AIFMD.
Non-EU AIFMs and AIFs may find they
need to start complying with AIFMD to
satisfy investors as much as making use of
the AIFMD passport.
Updated AIFMD Q&As
ESMA updated Q&As - application of the
AIFMD on 21 July 2015. The periodic
update adds Q&As on:
non-EU AIF reporting - ESMA confirms
only non-EU AIFs marketed in a
Member State should be reported to the
local regulator
converting AUM to Euros - ESMA
suggests AIFMs should use the spot
conversion rate for the last day of the
reporting period, with this exchange rate
included in the reporting.
The Q&As are aimed at local regulators but
also act as a useful guide for firms operating
under AIFMD.
Updating limited partnership rules
On 23 July 2015 HMT proposed using a
Legislative Reform Order to change
partnership legislation for private equity
investments. As part of the 2013 Budget, the
Government announced that it would
consult on changes to UK limited
partnership legislation to more effectively
accommodate the use of limited
partnerships for private equity and venture
capital investments.
HMT intends to amend the Limited
Partnerships Act 1907 to eliminate many of
the uncertainties and inconveniences
associated with limited partnership law to
ensure that the UK limited partnership
remains the market standard structure for
alternative fund vehicles. The proposed
amendments will apply to a UK limited
partnership that meets the FSMA definition
of a CIS (and is unregulated). Other changes
include:
a new process for designating private
fund limited partnerships
measures to amend the register to
remove inactive private fund limited
partnerships
clarification of the role, function and
rights of limited partners
obligations of, and restrictions on,
limited partners in respect of capital
winding up of a limited partnership
without a court order
registration of a limited partnership
publication of gazette notices
exemptions from existing statutory
duties under current legislation
interaction with authorised fund limited
partnerships.
The consultation closes to comments on
5 October 2015.
FCA helps with reporting
On 29 July 2015 the FCA published
important information for AIFMD Annex
IV transparency reporters - submitting
accurate, consistent and complete data.
AIFMs (both those established in UK and
those marketing in the UK) must submit
data on their funds to the FCA on at least an
annual basis (depending on the funds under
management). The FCA here provides a
Q&A to help firms in submitting this data,
based on its experience of previously
submitted reports.
In particular the FCA:
points to areas ESMA has provided
assistance with already
helps firms with funds denominated in
non-sterling currencies
suggests AIFMs should select an AIF
type/strategy where possible, and if not
provide more details of the AIF type in
the assumptions field
states that AIFMs should resubmit
reports where more accurate data
becomes available.
This Q&A should be a useful guide for UK
and non-UK AIFMs to work through some
practical solutions to common issues.
Financial stabilityNBNI G-SIFI assessments delayed
The FSB delayed its final assessment of
methodologies for NBNI G-SIFIs on 30 July
2015. The FSB wants to wait until its work
on financial stability risks from asset
management activities is finalised before it
issues further communications.
The FSB expects to report to the G20 on
these asset management activities before
the end of 2015, with further work in 2016.
It will then commence work on finalising
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 34
any methodology to designate asset
managers and investment funds as G-SIFIs.
RemunerationESMA eyes proportional pay rules
ESMA published a Consultation paper -
draft guidelines on sound remuneration
policies under the UCITS Directive and
AIFMD on 23 July 2015. The UCITS V
Directive required remuneration guidelines
that mirrored AIFMD, reflecting that many
asset managers operate both UCITS and
non-UCITS vehicles. ESMA follows this
approach while updating its existing regime.
Asset managers considering the changes to
the interpretation of "proportionality"
under CRD IV will be particularly
interested. ESMA proposes a different
approach to the EBA, allowing some UCITS
managers to dis-apply some remuneration
requirements depending on the nature,
scale and complexity of the manager. ESMA
takes an "alternative legal reading" of the
proportionality wording in UCITS V to the
EBA's take on CRD IV. This continues
ESMA's existing interpretation of equivalent
AIFMD wording.
ESMA offers guidance on how the UCITS
remuneration rules might apply to
individuals subject to multiple competing
remuneration requirements. UCITS
managers can choose to apply the
appropriate remuneration rules to different
portions of an individual's tasks (split
proportionately to their time). Alternatively,
a firm could apply one remuneration code
that it considers most effective for reducing
risk taking and best aligning the individual's
interests with the funds they manage.
ESMA also notes that delegated fund
managers will likely be caught by these
rules. Such individuals must be caught by
equivalent remuneration regimes, which
ESMA suggests could include CRD IV and
AIFMD remuneration rules. In the UK this
may cause some issues as many asset
managers are caught by CRD III
remuneration rules rather than CRD IV.
This is different to the current UK approach
to AIFMD remuneration where any firm
subject to MiFID is deemed to apply
equivalent remuneration rules (which fits,
since much of the AIFMD and proposed
UCITS regime mirrors the CRD III
remuneration rules).
The consultation closes to comments on
23 October 2015.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 35
In this section:
Regulation 35
Solvency II 35
EU Update 37
Global update 37
Retail products 37
Accounting 38
UK GAAP 38
IFRS 38
Regulation
Solvency IISet 2 ITS and Guidelines finalised
On 6 July 2015, EIOPA published a letter
submitting its second set of draft ITS to the
EC , the Outcome of the public consultation
on Set 2 of Solvency II ITS and guidelines
and Final Report on CP-15-002 on the ITS
on the procedures and templates for the
submission of information to the group
supervisor as well as the exchange of
information between supervisory
authorities. These publications include the
majority of the remaining Solvency II ITS
and guidelines. The ITS should apply from 1
January 2016, after the EC has adopted
them.
EIOPA plans to release the XBRL
Taxonomy based on these ITS soon and is
completing the remaining two ITS, which
cover mapping of External Credit
Assessment Institutions (ECAIs) and
application of the equity transitional.
The ITS and Guidelines contain
requirements and guidance for all three
pillars of Solvency II and most notably
contain the finalised requirements on
reporting and disclosure, including a full set
of quantitative reporting templates. For
more details see our Hot Topic publication
EIOPA finalises Solvency II reporting
package and publishes second set of ITS
and Guidelines.
PRA Solvency II developments
The PRA published a Solvency II:
Insurance Directors' update letter on 14
July 2015. It discusses recent regulatory
developments and includes a number of
issues for insurers to address. Insurers need
to:
address points raised at the general
insurance technical workshop including
issues relating to modelling for
periodical payment orders (PPOs),
catastrophe modelling and the volatility
adjustment
ensure that any motor business is fully
unbundled and allocated to the
appropriate Solvency II lines of business
consistently follow the PRA’s key
principals for recognising outwards
reinsurance cash-flows
assign Employers Liability insurance
policies to the correct line of business
and be able to explain and justify the
allocation
Insurance
Evelyn BradyPartner, Guernsey office+44 (0) 1481 [email protected]
Adrian PeacegoodDirector, Guernsey office+44 (0) 1481 [email protected]
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 36
improve the treatment of credit spread
risk in internal models for pension
scheme liabilities
prepare for the implementation of the
new SIMR.
As part of its general work, the PRA also
advises insurers to urgently identify what (if
any) Solvency II group requirements they
will have to meet, what they need to do to
meet them and what approvals and/or
waivers they might require.
Adapting to Solvency II
The BoE published Sam Woods’ speech to
the ABI, ‘Adapting to Solvency II’, on 9 July
2015. Woods describes the BoE’s planned
approach to capital under Solvency II,
emphasising that it intends to fully embrace
the new regime but is not planning to use it
to increase capital requirements across the
insurance sector. Woods also stresses that
firms will be given plenty of time to adjust
to the new regime, and be able to use
transitional measures.
Deferred tax
Following discussions on whether or not the
risk margin could create a deferred tax asset
in the Solvency II balance sheet, the PRA
announced on 30 July 2015 that its policy
for the recognition of deferred tax assets
(SS2/14 Solvency II: recognition of
deferred tax April 2014 (Last updated on
20 February 2015)) remains unchanged. So
a deferred tax asset might be recognised if
the insurer can demonstrate its likely
utilisation, as required by IAIS12 and the
provisions of the Solvency II regulations.
PRA supervisors plan to discuss the
treatment of deferred tax with all insurers
for which it is a sufficiently material
component of the insurer’s regulatory
balance sheet.
Matching adjustment approval
On 24 July 2015, the PRA announced that it
intends to make final decisions on all formal
matching adjustment (MA) applications
received prior to 1 July 2015 in late October
2015. It plans to notify firms of its decisions
shortly thereafter.
Treatment of sovereign debt
The PRA published SS30/15 - Solvency II:
treatment of sovereign debt in internal
models on 23 July 2015. In particular, it
reminds insurers to assess the risks arising
from their use of sovereign debt in their
internal models.
Supervisory statement updated forLloyd’s
The PRA amended SS22/15 - Solvency II:
applying EIOPA's set 1 guidelines to PRA-
authorised firms on 23 July 2015. It
clarifies that SS22/15 applies to Lloyd's
participants generally, including Lloyd's
managing agents, rather than just the
Society of Lloyd's.
This update does not change the PRA’s
expectation of firms set out in the original
statement, published on 22 April 2015.
The role of external audit
EIOPA published the Need for high quality
public disclosure: Solvency II's report on
solvency and financial condition and the
potential role of external audit on 10 July
2015. It stresses that information on the
solvency and financial condition of insurers
that is publicly reported under Solvency II
must be of a high quality so that it is
consistent and comparable. It believes that
external audit can be a powerful tool in
achieving quality reporting.
EIOPA plans to monitor public disclosures
under Solvency II and may take further
regulatory actions if it is not satisfied with
the quality of the information.
Risk free interest rate coding
EIOPA published a document seeking input
to its Solvency II risk free interest rate
(RFR) coding on 15 July 2015. It describes a
project to revise the RFR coding and
methodology, specifically the ‘Matlab
coding’, by 1 January 2016.
EIOPA believes that this highly complex
product will benefit from the input of
interested parties and that the exercise will
help users understand the RFR calculations.
EIOPA consults on infrastructureinvestment risk categories
EIOPA published CP15/004 on the Call for
Advice from the EC on the identification
and calibration of infrastructure
investment risk categories on 3 July 2015.
It considers:
definitions and criteria to identify
qualifying infrastructure debt and equity
investments which may warrant a
different standard formula treatment
calibration for qualifying infrastructure
investments
additional risk management
requirements
possible obstacles to infrastructure
investments that are not justified by
prudential considerations.
The consultation closed to comments on 9
August 2015.
EIOPA Q&A updated
In July 2015, EIOPA updated answers to
questions on:
Submission of information to NCAs –
preparatory phase (part 2)
Submission of information to NCAs –
preparatory phase (part 1)
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 37
Guidelines on the loss-absorbing
capacity of technical provisions and
deferred taxes
Risk-free interest rate – General
Risk-free interest rate – Volatility
adjustment.
Where to go for moreinformation
Read more about Solvency II UK on our
webpages at www.pwc.co.uk/solvencyII.
EU UpdateProgress on IDD
Following a trilogue meeting on 30 June
2015, the ECON Committee and the Council
agreed the Final compromise text on
insurance distribution on 22 July 2015. The
text of the proposed IDD recasts and repeals
the existing Insurance Mediation Directive.
It seeks to improve retail insurance
regulation and strengthen policyholder
protection, in particular with regard to life
insurance products with an investment
element.
The proposed IDD will now be submitted to
the EP for a vote at first reading and to the
Council for final adoption. Once the final
text is published in the Official Journal
member states will then have two years to
transpose the directive into national laws
and regulations.
Global updateManaging conduct risk
The IAIS published an Issues Paper on
Conduct of Business Risk and its
Management on 1 July 2015. It discusses
issues supervisors may wish to consider
when looking at conduct of business risks
and looks at the sources and impact of
conduct risk and its place within risk
management frameworks. The IAIS also
considers how to mitigate conduct risk, in
terms of both how firms manage conduct
risk and the role that regulators play.
The consultation closed on 14 August 2015.
Regulating captive insurers
The IAIS published an Application paper on
regulation & supervision of captive
insurers for consultation on 1 July 2015. It
defines a captive insurer as “an insurance or
reinsurance entity created and owned,
directly or indirectly, by one or more
industrial, commercial or financial entities,
the purpose of which is to provide insurance
or reinsurance cover for risks of the entity
or entities to which it belongs, or for entities
connected to those entities and only a small
part of any of its risk exposure is related to
providing insurance or reinsurance to other
parties.”
The IAIS considers how its Insurance Core
Principles and Standards apply to captives
and provides additional information to help
insurance supervisors develop an
appropriate supervisory approach to
captives. It also considers issues relating to
cell company structures and insurance
managers.
The consultation closed on 3 August 2015.
Retail productsIntervening in insurance products
EIOPA published its Final report on
product intervention under the PRIIPs
Regulation on 3 July 2015 (dated 29 June
2015). PRIIPs grants EIOPA its first specific
product intervention powers, allowing it to
temporarily intervene where it feels
necessary. MiFID II gives similar product
intervention powers to ESMA.
EIOPA originally consulted on how it might
use its product intervention powers in
November 2014. Respondents commented
on several areas:
Criteria - many respondents suggested
EIOPA should not focus on a product's
complexity because it is not harmful per
se. EIOPA decided to maintain the
concept of complexity being a reason to
intervene because complexity can lead
investors to making uninformed
decisions.
Application - respondents thought that
generally local regulators should
intervene rather than EIOPA, which is a
step removed from ongoing supervision.
EIOPA acknowledged this view but
confirms it will use its powers if it sees
need to intervene.
Insurance-specific language - whilst the
EIOPA advice uses the type of language
more consistent with banking and
investment products (e.g. referring to
investors rather than policyholders)
EIOPA will keep this language to mirror
that used in PRIIPs.
Scope - EIOPA has amended its advice
to reflect which pension products are in
scope of its product intervention powers
(e.g. PRIIPs specifically excludes
pension products recognised under
national law).
Price regime and product pre-approval -
EIOPA confirms that the product
intervention powers should not be seen
as a pre-cursor to product approval and
price regulation. It also states that the
existence of these powers doesn't relieve
product manufacturers of their
requirements to comply with PRIIPs in
the first place.
EIOPA's technical advice now passes to the
EC which can use it to form delegated acts
under PRIIPs.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 38
Accounting
UK GAAPSimplified accounting for small entities
The FRC announced a number ofchanges to UK and Ireland accountingstandards on 16 July 2015. The changesinclude new requirements for micro-entities and small entities, and thewithdrawal of the Financial ReportingStandard for Smaller Entities (FRSSE).The main changes are effective foraccounting periods beginning on orafter 1 January 2016, with earlyapplication permitted for accountingperiods beginning on or after 1 January2015.
See our In brief publication ‘New andamended new UK GAAP standards’ formore details.
IFRSInsurance contracts debate continues
On 20 July 2015, the IASB discussedthe accounting consequences ofapplying IFRS 9 Financial Instrumentsbefore the application of the newinsurance contracts standard, inparticular, potential accountingmismatches and temporary volatility inprofit or loss. It decided to amend IFRS4 Insurance Contracts to mitigate
accounting mismatches from theadoption of IFRS 9 FinancialInstruments before the new insurancecontracts standard is issued. The IASBplans to consider the potentialamendment to IFRS 4 and thealternative of deferring IFRS 9 furtherat its meeting in September.
See our Insurance alert - IASB meetingon 20 July 2015 for details.
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 39
Open consultations
Closing datefor responses
Paper Institution
17/08/15 Technical discussion paper – risk, performance scenarios and cost disclosures in key information documents for PRIIPs EIOPA
22/08/15 Consultation paper – The Bank of England’s power to direct institutions to address impediments to resolvability BoE
26/08/15 CP 19/15: Contractual stays in financial contracts governed by third-country law PRA
28/08/15 Consultation paper -audit firm governance code - a review of its implementation and operation FRC
29/08/15 Interchange fee regulation – a consultation HMT
07/09/15 CP15/22 – strengthening accountability in banking: final rules (including feedback on CP14/31 and CP15/5) and consultation onextending the Certification Regime to wholesale market activities
FCA
07/09/15 Call for input: regulatory barriers to innovation in digital and mobile solutions FCA
07/09/15 Consultation paper - capital resources requirements for Personal Investment Firms (PIFs) FCA
11/09/15 Consultative document – interest rate risk in the banking book BCBS
11/09/15 Bank of England Bill: technical consultation HMT
14/09/15 Consultation paper – corporate governance: board responsibilities PRA
20/09/15 Consultation – ISA qualifying investments: consultation on whether to include investment-based crowdfunding HMT
Monthly calendar
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 40
Closing datefor responses
Paper Institution
23/09/15 Consultation report on elements of international regulatory standards on fees and expenses of investment funds IOSCO
24/09/15 DP15/4: general insurance add-ons market study – remedies: value measures FCA
25/09/15 Discussion paper – smarter consumer communications FCA
30/09/15 CP22/15: reform of the legacy Credit Unions sourcebook PRA
01/10/15 Consultative document: review of the credit valuation adjustment risk framework BaselCommittee
01/10/15 Discussion paper and call for evidence on SMEs and the SME supporting factor EBA
01/10/15 Consultation – a new sterling money market data collection and the reform of SONIA BoE
02/10/15 Joint consultation paper – draft guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in thefinancial sector
ESAs
05/10/15 Consultation paper on the creation of a standardised Pan-European Personal Pension (PEPP) product EIOPA
05/10/15 Proposal on using Legislative Reform Order to change partnership legislation for private equity investments – consultation ondraft legislation
HMT
06/10/15 Consultation paper – draft RTS on the conditions that competent authorities shall take into account when determining higher risk-weights, in particular the term of “financial stability considerations under the CRR and the conditions that competent authoritiesshall take into account when determining higher minimum LGD values under the CRR
EBA
07/10/15 Consultation paper on the possible impact of the CRR and CRD IV on bank financing of the economy EC
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 41
Closing datefor responses
Paper Institution
12/10/15 CP24/15 – implementing a UK leverage ratio framework PRA
12/10/15 CP15/24 – cash savings remedies FCA
14/10/15 Consultation paper – draft RTS under the ELTIF Regulation ESMA
21/10/15 Pension transfers and early exit charges: consultation HMT
22/10/15 Consultative document – general guide to account opening BaselCommittee
23/10/15 Consultation paper – draft guidelines on sound remuneration policies under the UCITS Directive and the AIFMD ESMA
29/10/15 Consultation paper – draft guidelines on cooperation agreements between deposit guarantee schemes under DGSD EBA
13/11/15 CP15/23 – ring-fencing: disclosures to consumers by non-ring-fenced bodies FCA
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 42
Forthcoming publications in 2015
Date Topic Type Institution
Client Money
Q2 2015 Review of the client money rules for insurance intermediaries Policy statement FCA
Conduct
TBD 2015 Strengthening accountability in banking: a new regulatory frameworkfor individuals – PSs to CP 14/13 and CP 15/9
Policy statement FCA
TBD 2015 Strengthening accountability in banking: UK branches of foreign banks– PS to CP 15/10
Policy statement FCA
TBD 2015 Strengthening accountability in banking: UK branches of foreign banks– PS to CP 15/10
Policy statement FCA
TBD 2015 Strengthening accountability in banking: forms, consequential andtransitional aspects – PS to CP 14/31
Policy statement FCA
TBD 2015 Changes to the approved persons regime for insurers not subject toSolvency II – PS to CP 15/15
Policy statement FCA
TBD 2015 Changes to the approved persons regime for Solvency II firms – PS to
CP 15/16
Policy statement FCA
TBD 2015 Strengthening the Alignment of Risk and Reward: New RemunerationRules – PS to CP14/14
Policy statement FCA
Q2 2015 Improving complaints handling – PS to CP 14/30 Policy statement FCA
Q3 2015 General insurance add-ons market study – proposed remedies: banningopt-out selling and supporting informed decision making for add-onbuyers – PS to CP 15/13
Policy statement FCA
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 43
Date Topic Type Institution
Consumer protection
Q2 2015 National Depositor Preference and UK depositors Policy statement PRA
Q3 2015 Calculation of contributions to DGSs Guidelines EBA
Financial crime, security and market abuse
Q2 2015 Draft MAR technical standards Technical standards ESMA
TBD 2015 Advice to Commission on Benchmark legislation Advice ESMA
Prudential
Q2 2015 Update on ITS on reporting of the leverage ratio Technical standards EBA
Q2 2015 LGD floors for mortgage lending Consultation EBA
Q2 2015 RTS on PD estimation Technical standards EBA
Q4 2015 Report on NSFR methodologies Report EBA
Securities and markets
Q2 2015 Implementing acts on third country equivalence decisions on exposuresto third country investment firms, clearing houses and exchanges treatedas exposures to an institution
Advice EBA
Q2 2015 Consultation Paper on MAR guidelines Consultation paper ESMA
Q2 2015 Feedback and Policy Statement on CP14/02, consultation on jointsponsors and call for views on sponsor conflicts – PS to CP14/21
Policy statement FCA
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 44
Date Topic Type Institution
Q2 2015 Technical advice to the Commission on the review of EMIR Technical advice ESMA
Q2 2015 MiFID/MiFIR Draft Regulatory Technical Standards Technical standards ESMA
Q2 2015 Draft technical standards on CSDR Technical standards ESMA
Q4 2015 MiFID/MiFIR Draft Implementing Technical Standards Technical standards ESMA
Q4 2015 Securities Financing Transactions Regulation Discussion or ConsultationPaper on technical standards
Consultation or technical standards ESMA
Q4 2015 Implementation of the Transparency Directive Amending Directive andother disclosure rule and transparency rule changes – PS to CP 15/11
Policy statement FCA
Products and investments
Q3 2015 Advice on the application of the passport to third-country AIFMs andAIFs
Advice ESMA
TBD 2015 UCITS V Technical advice ESMA
Q3 2015 Implementation of UCITS V Consultation paper FCA
TBD 2015 RTS on format and content of disclosures in KID for PRIPs Technical standards ESMA
Recovery and resolution
Q2 2015 Advice on the criteria for determining the number of years by which theinitial period for the build-up of the SRF may be extended
Advice EBA
Q2 2015 Partial transfer safeguards Advice EBA
Q3 2015 Notification requirements Technical standards EBA
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 45
Date Topic Type Institution
Q3 2015 RTS on Contractual Bail in Technical standards EBA
TBD 2015 Recovery and Resolution Directive – PS to CP14/15 Policy statement FCA
Solvency II
TBD 2015 Solvency II Level 3 measures Level 3 text EIOPA
Supervision, governance and reporting
Q2 2015 Regulatory fees and levies: rates proposals for 2015/16 – PS to CP 14/15 Policy statement FCA
Q4 2015 Assessment of national SREP approaches Report EBA
TBD 2015 Competition concurrency guidance and Handbook amendments – PS toCP 15/1
Policy statement FCA
Q2 2015 Reform of credit union sourcebook Consultation paper FCA & PRA
Q2 2015 Consumer credit: proposed changes to the FCA’s rules and guidance –PS to CP 15/6
Policy statement FCA
Q3 2015 Review of pension and retirement rules and future work plan Consultation paper FCA
Main sources: ESMA 2015 work programme; EIOPA 2015 work programme; EBA 2015 work programme; EC 2015 work programme; FCA policy development updates
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 46
2EMD The Second E-money Directive 2009/110/EC
ABC Anti-Bribery and Corruption
ABI Association of British Insurers
ABS Asset Backed Security
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Managers Directive 2011/61/EU
AIMA Alternative Investment Management Association
AML Anti-Money Laundering
AML3 3rd Anti-Money Laundering Directive 2005/60/EC
AQR Asset Quality Review
ASB UK Accounting Standards Board
Banking ReformAct (2013)
Financial Services (Banking Reform) Act 2013
Basel Committee Basel Committee of Banking Supervision (of the BIS)
Basel II Basel II: International Convergence of Capital Measurement andCapital Standards: a Revised Framework
Basel III Basel III: International Regulatory Framework for Banks
BBA British Bankers’ Association
BCR Basic capital requirement (for insurers)
BIBA British Insurance Brokers Association
BIS Bank for International Settlements
BoE Bank of England
BRRD Bank Recovery and Resolution Directive
CASS Client Assets sourcebook
CCB Countercyclical buffer
CCD Consumer Credit Directive 2008/48/EC
CCPs Central Counterparties
CDS Credit Default Swaps
CEBS Committee of European Banking Supervisors (predecessor of EBA)
CET1 Common Equity Tier 1
CESR Committee of European Securities Regulators (predecessor ofESMA)
Co-legislators Ordinary procedure for adopting EU law requires agreementbetween the Council and the European Parliament (who are the ‘co-legislators’)
CFT Counter Financing of Terrorism
CFTC Commodities Futures Trading Commission (US)
CGFS Committee on the Global Financial System (of the BIS)
Glossary
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 47
CIS Collective Investment Schemes
CMA Competition and Markets Authority
CMU Capital markets union
CoCos Contingent convertible securities
Council Generic term representing all ten configurations of the Council of theEuropean Union
CRA1 Regulation on Credit Rating Agencies (EC) No 1060/2009
CRA2 Regulation amending the Credit Rating Agencies Regulation (EU)No 513/2011
CRA3 proposal to amend the Credit Rating Agencies Regulation anddirectives related to credit rating agencies COM(2011) 746 final
CRAs Credit Rating Agencies
CRD ‘Capital Requirements Directive’: collectively refers to Directive2006/48/EC and Directive 2006/49/EC
CRD II Amending Directive 2009/111/EC
CRD III Amending Directive 2010/76/EU
CRD IV Capital Requirements Directive 2013/36/EU
CRR Regulation (EU) No 575/2013 on prudential requirements for creditinstitutions and investment firms
CTF Counter Terrorist Financing
DFBIS Department for Business, Innovation and Skills
DG MARKT Internal Market and Services Directorate General of the EuropeanCommission
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act (US)
D-SIBs Domestic Systemically Important Banks
EBA European Banking Authority
EC European Commission
ECB European Central Bank
ECJ European Court of Justice
ECOFIN Economic and Financial Affairs Council (configuration of theCouncil of the European Union dealing with financial and fiscal andcompetition issues)
ECON Economic and Monetary Affairs Committee of the EuropeanParliament
EEA European Economic Area
EEC European Economic Community
EIOPA European Insurance and Occupations Pension Authority
EMIR Regulation on OTC Derivatives, Central Counterparties and TradeRepositories (EC) No 648/2012
EP European Parliament
EPC European Payments Council
ESA European Supervisory Authority (i.e. generic term for EBA, EIOPAand ESMA)
ESCB European System of Central Banks
ESMA European Securities and Markets Authority
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 48
ESRB European Systemic Risk Board
EU European Union
EURIBOR Euro Interbank Offered Rate
Eurosystem System of central banks in the euro area, including the ECB
EuVECA European Venture Capital Funds Regulation
FASB Financial Accounting Standards Board (US)
FATCA Foreign Account Tax Compliance Act (US)
FATF Financial Action Task Force
FC Financial counterparty under EMIR
FCA Financial Conduct Authority
FDIC Federal Deposit Insurance Corporation (US)
FiCOD Financial Conglomerates Directive 2002/87/EC
FiCOD1 Amending Directive 2011/89/EU of 16 November 2011
FiCOD2 Proposal to overhaul the financial conglomerates regime (expected2013)
FMI Financial Market Infrastructure
FMLC Financial Markets Law Committee
FOS Financial Ombudsman Service
FPC Financial Policy Committee
FRC Financial Reporting Council
FSA Financial Services Authority
FSB Financial Stability Board
FS Act 2012 Financial Services Act 2012
FSCS Financial Services Compensation Scheme
FSI Financial Stability Institute (of the BIS)
FSMA Financial Services and Markets Act 2000
FSOC Financial Stability Oversight Council
FTT Financial Transaction Tax
G30 Group of 30
GAAP Generally Accepted Accounting Principles
G-SIBs Global Systemically Important Banks
G-SIFIs Global Systemically Important Financial Institutions
G-SIIs Global Systemically Important Institutions
HMRC Her Majesty’s Revenue & Customs
HMT Her Majesty’s Treasury
IAIS International Association of Insurance Supervisors
IASB International Accounting Standards Board
ICAS Individual Capital Adequacy Standards
ICB Independent Commission on Banking
ICOBS Insurance: Conduct of Business Sourcebook
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 49
IFRS International Financial Reporting Standards
IMA Investment Management Association
IMAP Internal Model Approval Process
IMD Insurance Mediation Directive 2002/92/EC
IMD2 Proposal for a Directive on insurance mediation (recast) COM(2012)360/2
IMF International Monetary Fund
IORP Institutions for Occupational Retirement Provision Directive2003/43/EC
IOSCO International Organisations of Securities Commissions
ISDA International Swaps and Derivatives Association
ITS Implementing Technical Standards
JCESA Joint Committee of the European Supervisory Authorities
JMLSG Joint Money Laundering Steering Committee
JURI Legal Affairs Committee of the European Parliament
LCR Liquidity coverage ratio
LEI Legal Entity Identifier
LIBOR London Interbank Offered Rate
MA Matching Adjustment
MAD Market Abuse Directive 2003/6/EC
MAD II Proposed Directive on Criminal Sanctions for Insider Dealing and
Market Manipulation (COM(2011)654 final)
MAR Proposed Regulation on Market Abuse (EC) (recast) (COM(2011) 651final)
MCD Mortgage Credit Directive
Member States countries which are members of the European Union
MiFID Markets in Financial Instruments Directive 2004/39/EC
MiFID II Proposed Markets in Financial Instruments Directive (recast)(COM(2011) 656 final)
MiFIR Proposed Markets in Financial Instruments Regulation (EC)(COM(2011) 652 final)
MMF Money Market Fund
MMR Mortgage Market Review
MREL Minimum requirements for own funds and eligible liabilities
MTF Multilateral Trading Facility
MoJ Ministry of Justice
MoU Memorandum of Understanding
NBNI G-SIFI Non-bank non-insurer global systemically important financialinstitution
NFC Non-financial counterparty under EMIR
NFC+ Non-financial counterparty over the EMIR clearing threshold
NFC- Non-financial counterparty below the EMIR clearing threshold
NSFR Net stable funding ratio
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – August 2015 PwC 50
OECD Organisation for Economic Cooperation and Development
Official Journal Official Journal of the European Union
OFT Office of Fair Trading
Omnibus II Second Directive amending existing legislation to reflect LisbonTreaty and new supervisory infrastructure (COM(2011) 0008 final)– amends the Prospectus Directive (Directive 2003/71/EC) andSolvency II (Directive 2009/138/EC)
ORSA Own Risk Solvency Assessment
OTC Over-The-Counter
PPI Payment Protection Insurance
p2p Peer to Peer
PERG Perimeter Guidance Manual
PRA Prudential Regulation Authority
Presidency Member State which takes the leadership for negotiations in theCouncil: rotates on 6 monthly basis
PRIIPsRegulation
Proposal for a Regulation on key information documents forinvestment and insurance-based products COM(2012) 352/3
PSR Payment Systems Regulator
QIS Quantitative Impact Study
RDR Retail Distribution Review
RFB Ring Fenced Bank
RRPs Recovery and Resolution Plans
RTS Regulatory Technical Standards
RWA Risk-weighted assets
SCR Solvency Capital Requirement (under Solvency II)
SEC Securities and Exchange Commission (US)
SFT Securities financing transactions
SFD Settlement Finality Directive 98/26/EC
SFO Serious Fraud Office
SIPP Self-invested personal pension scheme
SM&CR Senior managers and certification regime
SOCA Serious Organised Crime Agency
Solvency II Directive 2009/138/EC
SREP Supervisory review and evaluation process
SSM Single Supervisory Mechanism
SSR Short Selling Regulation EU 236/2012
T2S TARGET2-Securities
TLAC Total Loss Absorbing Capacity
TR Trade Repository
TSC Treasury Select Committee
UCITS Undertakings for Collective Investments in Transferable Securities
XBRL eXtensible Business Reporting Language
Executive summary Macro-prudential
approach revisited
Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives andpractical advice. See www.pwc.com for more information.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation orwarranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability,responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
150807-172110-SJ-OS
Laura Cox020 7212 [email protected]@LauraCoxPwC
Asset Management Banking & Capital Markets Insurance Local regulations & AML
John Luff
+44 (0) 1481 752121
Karl Hairon
+44 (0) 1534 838282
Evelyn Brady
+44 (0) 1481 752013
Mark James
+44 (0) 1534 838304
Mike Byrne
+44 (0) 1534 838278
Nick Vermeulen
+44 (0) 1481 752089
Adrian Peacegood
+44 (0) 1481 752084
Nick Vermeulen
+44 (0) 1481 752089
Adam Gulley
+44 (0) 1534 838390
James de Veulle
+44 (0) 1534 838375
Neil Howlett
+44 (0) 1534 838349
Chris van den Berg
+44 (0) 1534 838308
Contacts