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

laura.cox@uk.pwc.com

@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 838375james.de.veulle@je.pwc.com

Nick VermeulenPartner, Guernsey office+44 (0) 14 81 752089nick.vermeulen@gg.pwc.com

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 752121john.luff@gg.pwc.com

Mike ByrnePartner, Jersey office+44 (0) 1534 838278michael.j.byrne@je.pwc.com

Adam GulleySenior Manager, Jersey+44 (0) 1534 8382390adam.gulley@je.pwc.com

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 752013evelyn.brady@gg.pwc.com

Adrian PeacegoodDirector, Guernsey office+44 (0) 1481 752013adrian.peacegood@gg.pwc.com

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 1579laura.cox@uk.pwc.com@LauraCoxPwC

Asset Management Banking & Capital Markets Insurance Local regulations & AML

John Luff

+44 (0) 1481 752121

john.luff@gg.pwc.com

Karl Hairon

+44 (0) 1534 838282

karl.hairon@je.pwc.com

Evelyn Brady

+44 (0) 1481 752013

evelyn.brady@gg.pwc.com

Mark James

+44 (0) 1534 838304

mark.james@je.pwc.com

Mike Byrne

+44 (0) 1534 838278

michael.j.bryne@je.pwc.com

Nick Vermeulen

+44 (0) 1481 752089

nick.vermeulen@gg.pwc.com

Adrian Peacegood

+44 (0) 1481 752084

adrian.peacegood@gg.pwc.com

Nick Vermeulen

+44 (0) 1481 752089

nick.vermeulen@gg.pwc.com

Adam Gulley

+44 (0) 1534 838390

adam.gulley@je.pwc.com

James de Veulle

+44 (0) 1534 838375

james.de.veulle@je.pwc.com

Neil Howlett

+44 (0) 1534 838349

neil.howlett@je.pwc.com

Chris van den Berg

+44 (0) 1534 838308

chris.van.den.berg@je.pwc.com

Contacts