Being better informed FS regulatory, accounting and audit bulletin

PwC FS Risk and Regulation Centre of Excellence

April 2015

In this month’s edition:

Basel Committee and IOSCO announce nine month delay on margin requirements for non-centrally cleared derivatives

IOSCO and FSB consult on systemically important non-bank non-insurance firms

PRA publishes number of Solvency II final rules

FCA releases Business Plan for 2015/16

Analysis of the new senior managers regime and EBA consultation on CRD IV remuneration guidelines

FS regulatory, accounting and audit bulletin – April 2015 PwC 1

Welcome to this edition of “Being better informed”, our monthly FS regulatory, accounting and audit bulletin, which aims to keep you up to speed with significant developments and their implications across all the financial services sectors.

Spring has finally sprung, and we saw the

regulators reinvigorating their efforts

during March. The ESAs had a particularly

busy month. ESMA finalised draft technical

standards on the assessment of acquisitions

and increases in qualifying holdings in

MiFID investment firms. The EBA

consulted on exposures to shadow banking.

EIOPA published its end 2014 risk

dashboard. But their ongoing work may be

subject to some delays because the ESAs

have more restricted budgets to work with

than they hoped for. So ESMA has extended

some of its deadlines and the EBA has

dropped the 2015 EU-wide banking stress

test.

But regulatory delays aren’t confined to

Europe. The Basel Committee and IOSCO

announced a nine-month delay (to

September 2016) in implementing margin

requirements for non-centrally cleared

derivative contracts, which will be welcome

news for some firms. The regulators stated

that they are working with the industry, in

particular ISDA, to agree new margin

calculation models that will comply with

their principles.

While the rest of the world was delaying

action and dealing with shrinking budgets,

the UK added a new regulator on 1 April -

the Payment Systems Regulator (PSR) - for

the £75 trillion payment systems industry.

The PSR got off to a quick start. The week

before its official launch, it detailed its plans

for the new regulatory framework for

payment systems, released its indicative

work policy programme, and launched two

market reviews, on the supply of indirect

access to payment systems and looking at

the ownership and competitiveness of

infrastructure provision.

The PRA helped insurers towards

implementing Solvency II for 1 January

2016 by issuing a number of final rules and

supervisory statements (17 at the last count)

along with three new supporting webpages.

Clearly the PRA is currently devoting a lot of

effort to Solvency II and will be expecting

the same from firms.

The FCA was also busy establishing itself for

a new financial year, publishing its business

plan and proposing its regulated fees and

levies for 2015/16. The business plan is an

important document to gauge where the

FCA will focus its supervisory efforts and

what sectors might be hardest hit. See our

blogs analysing the impact on asset

managers, insurers and pension providers

and consumer credit firms for more

information.

Another big focus for FCA, PRA, banks and

insurers over the next year will be

implementing the new senior managers

regime. Both regulators issued more

information on the new regime in March,

including a roadmap to implementation.

See our feature article for the latest

proposals, when it will hit and who is

caught.

Regulatory scrutiny of financial services

sector compensation and remuneration

remains a hot topic. The international and

regional rules that govern remuneration

have evolved rapidly over the past few years.

We explore the latest approach of the EU

regulators in this month’s second feature

article, looking at the EBA’s recent

consultation on new remuneration

guidelines and how this could change

existing pay practices. In particular, this

change could have a substantial impact on

smaller banks as well as asset managers of

all sizes.

Hope you are all enjoying the lovely spring

weather!

Laura Cox

FS Risk and Regulation Centre of Excellence

020 7212 1579

laura.cox@uk.pwc.com

@LauraCoxPwC

Executive summary

Executive summary Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 2

How to read this bulletin?

Review the Table of Contents the relevant Sector sections to identify the news of interest. We recommend you go directly to the topic/article of interest by clicking in the active links within the table of contents.

Contents

Executive summary 1

Individual accountability takes shape 3

More firms caught by bonus cap? 6

Cross sector announcements 8

Banking and capital markets 22

Asset management 28

Insurance 30

Monthly calendar 36

Glossary 43

Contacts 48

Executive summary Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 3

Since the FCA and PRA consulted on the

new Senior Managers and Certification

regimes (SM&CR) in July 2014, there has

been much speculation on the final

structure and implementation timetable.

During March the regulators jointly issued a

number of important stepping stones to the

final regime, namely a roadmap and

refinements to the final rules. This

information makes the scope of impending

changes far clearer for banks, building

societies, credit unions and PRA-designated

investment firms.

The FCA also underlined the significance it

places on individual accountability in its

business plan on 24 March 2015. The FCA

identified five priorities; this year giving

equal billing to ‘protecting consumers’

(which is a regulatory statutory objective)

the regulator also cited ‘individual

accountability’. This approach covers a

broad scope of individual accountability,

including not only the SM&CR but also

whistleblowing, remuneration and

incentives. But the presence of this key

pillar in its approach sets a new tone.

Key changes to the regimes

Both the FCA and PRA published near final

and final rules on parts of the regime. The

FCA published Strengthening

accountability in banking: a new

regulatory framework for individuals on 16

March 2015, and the PRA published

PS3/15: Strengthening individual

accountability in banking and insurance –

responses to CP14/14 and CP26/14 on 23

March 2015. These publications build on the

disapplication of the Senior Manager (SM)

regime to ‘standard NEDs’ which the FCA

and PRA consulted on in February.

Both the FCA and PRA have made a number

of changes to the scope and application of

the SM&CR in the final rules. Specific roles

now included as a SM Function (SMF)

include:

a wider financial crime SMF, for an

individual with overall responsibility for

the firm’s policies and procedures for

countering financial crime (in addition

to the MLRO)

an individual responsible for developing

and overseeing the firm’s remuneration

policies and practices and for the firm’s

CASS compliance (previously CF10a)

for large firms, the person responsible

for stress testing.

While these additional roles superficially

appear to tweak the regime, they may pose

new challenges. Currently a CF10a typically

sits in an operational role, but under the SM

regime the new CASS SMF may have to be

held by a more senior board or executive

board committee member.

The PRA has simplified the approach for

smaller firms. Previous proposals exempted

credit unions from the full weight of the

regime. The PRA now plan to apply a more

proportionate regime for firms with less

than £250 million in gross assets. Credit

unions will continue to be exempt, but other

small firms (such as challenger entities) will

now be partially exempt.

Joint and role-specific prescribed responsibilities

The PCBS called for the regulators to

achieve absolute clarity for individual

function ownership. But the PRA hasn’t

entirely followed that approach. It now

intends to allow two individuals to share a

prescribed responsibility (PR). The PRA

makes the distinction that where a firm

allocates a PR to more than one SM, each

individual will be deemed wholly

responsible for the entire PR. In the event of

a breach, each SM would then have an

opportunity to explain how the shared PR

was discharged in practice when trying to

demonstrate that he or she took reasonable

steps to avoid the breach.

Also, firms in scope of the retail ring-fence

will also be subject to a ring-fenced bank

(RFP) PR. Each and every SM in the ring-

fenced bank with responsibility for an area

covered by the ring-fencing requirements

would be allocated the RFB PR, in addition

Individual accountability takes shape

Executive summary Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 4

to their core SM PRs. The PRA wants to

‘underscore’ its expectations in this area.

The PRA also signposts the specific PRs that

must be allocated to NEDs, rather than

executive board members.

Certification regime and conduct rules

Both the FCA and PRA intend to apply the

certification regime (CR) and conduct rules

as previously consulted. But they are

considering how to apply the CR to

wholesale firms. The regulators have

identified that some traders are neither

caught by the ‘material risk taker’ (MTR)

definition nor the qualification

requirements even though those individuals

have scope to cause ‘significant harm’ to the

firm. The FCA and PRA are considering this

issue further and may consult to formally

increase the scope of the CR during spring

2015. Also, the final rules will allow

uncertified individuals to cover a certified

role in exceptional circumstances for four

weeks (increased from two weeks).

Application to branches

The FCA and PRA published Strengthening

accountability in banking: UK branches of

foreign banks on 16 March 2015. HMT

confirmed in a written statement on 3

March 2015 that new regime would apply to

both EEA and non-EEA branches.

EEA branches

The PRA is limited in its ability to apply

requirements to incoming EEA-branches

because they are subject to home country

requirements. But the FCA has more

flexibility (as branches are subject to host

state conduct rules). It is planning to

require EEA branches to appoint:

a senior manager to the MLRO function

a tailored ‘EEA Branch Senior Manager’

function to cover each individual

responsible for the management and

conduct of certain regulated activities of

the branch.

The FCA intends to apply the CR to MTRs

and to individuals whose roles require a

qualification (or where the UK equivalent of

that role would require a qualification). The

FCA is planning to limit the certification

functions so that they apply only in relation

to the branch activity, and only when the

individual is based in the UK. But the final

scope is still subject to the ongoing

consultation on wholesale traders and the

regulators are likely to align these

requirements.

The FCA will apply the conduct rules to the

extent that they comply with EU legislation.

Conduct rules for staff who are not SMs will

only apply to individuals based in the UK,

although this territorial limitation will not

apply to SMs.

Non-EEA branches

For incoming non-EEA branches, the

regime will be a hybrid between the scope of

the EEA branch regime and the full-UK

bank regime.

Non-EEA branches must have:

at least one SMF as the ‘Head of

Overseas Branch’ held by the individual

performing the function akin to branch

CEO

any other individuals with direct

management or decision making

responsibilities over the branch’s UK-

regulated activities will hold the SMF of

‘Group Entity Senior Manager’

an Overseas Branch Senior Manager

(OBSM) function which will capture

senior individuals (except the Head of

Overseas Branch) with responsibility for

a business area, activity or management

function of the branch, and who will

typically report to the Head of Overseas

Branch, but only in relation to their

responsibilities in the UK branch.

a MLRO

a SM responsible for Compliance

Oversight.

In larger complex branches, the PRA would

also expect the firm to have dedicated

individuals performing certain executive

SMFs such as a CFO, CRO and Head of

Internal Audit.

The PRA and FCA have created a bespoke

list of 13 PRs which must be allocated

amongst individuals in the firm who hold

SMFs. All SMs will need to be pre-approved,

will operate under a reverse burden of proof

although not with equivalent criminal

sanctions and will have a Statement of

Responsibility. The Statement of

Responsibility will formally set out an

individual’s role and responsibilities, the

division for those sharing a PR and will map

to the firm’s Responsibilities Map.

The scope of the CR for branches will be

aligned to the scope for UK firms, for

individuals who have are MRTs or who have

a qualification, but the scope may be

restricted to the branch activity. Individuals

with line management responsibility for

other individuals who fall in the CR may

also be caught, regardless of whether they

are based in the UK or abroad, in relation to

the firm’s activities for UK clients. The PRA

conduct rules will apply to all SM&CR

individuals, while the FCA will apply its

conduct rules to all branch staff, except

individuals with specific ancillary roles.

Timeline

Firms now have three dates to focus on. By

8 February 2016, each firm must identify

all of its SMs and CRs, and notify the

regulators of any individuals who are being

grandfathered into SMFs. We expect the

regulators to finalise their work on fitting

other wholesale traders into the CR soon.

The broad regime then comes into force on

7 March 2016. At that point firms will

have one year to transition their certified

individuals into the CR (through a one cycle

of an annual appraisal process) by 7 March

2017.

Executive summary Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 5

SMs’ responsibilities, including the reverse

burden of proof and criminal sanctions, take

effect from 7 March 2016, along with the

broad requirements of the regime such as

the Responsibility Map and individual

Statements of Responsibility.

Getting implementation right

Firms are still considering the full

implications of the regimes, with both

operational and more strategic issues to

address. The impact on the recruitment and

retention of talented individuals for the

senior roles, including NEDs remains a

concern for many firms, as does the

potential implications of a two-tier NED

structure. Firms are also concerned at the

potential for NEDs to stray into executive

functions and actions as they look for

information about and reassurance as to the

scope of their roles and responsibilities.

The potential for slower action as

individuals look for additional evidence to

ensure they are comfortable with decisions

being made is also a challenge, as is the

jurisdictional complexity of dealing with an

overseas parent and their influence over UK

governance and operations.

But with the broad scope of the regimes and

timeline now clear, firms are beginning the

first stages of their implementation plans.

Many firms have created first drafts of their

Responsibilities Maps, working across HR,

Legal and Compliance functions to tackle

questions of scope, or interaction with other

MRT remuneration obligations.

Firms must then consider testing their draft

plans. Testing the robustness of the map

against scenarios allows firms to consider

whether the allocation of responsibilities

stands up to non-standard events and is

truly fit for purpose.

Firms need also consider the wider CR and

conduct rules. The breadth of scope and

nuance of an individual firm makes a one-

size-fits-all solution difficult, with some

firms focusing on governance arrangements

for wholesale transactions, and others

considering the cultural impacts of the

conduct rules – and how best to make the

obligations ‘real’ for the large population of

staff caught by the conduct rules.

Whatever your approach, the effort required

to implement the regime should not be

underestimated. As firms analyse the

different elements of the regime, the

breadth of work – and limited timescales –

becomes clear. Firms cannot afford to miss

the February 2016 deadline to grandfather

SMs, and may need to amend existing roles

and structures in advance of that date.

Further, when firms give wider

consideration of the CR and conduct

regimes, the sheer size of the task at hand

becomes clear. Acting now will be critical to

a firm’s success.

Executive summary Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 6

The level of European remuneration has

been a hot topic for politicians and

regulators since the onset of the financial

crisis. The latest development to impact

banks and MiFID investment firms came

when CRD IV was implemented in January

2014. CRD IV requires firms to apply

remuneration requirements to staff whose

activities can have a material impact on its

risk profile (usually known as ‘material risk

takers’ staff).

Further, CRD IV introduced a cap on the

amount of bonus an individual could receive

(linked to their fixed salary). National

regulators have allowed smaller banks and

asset managers to continue applying

remuneration rules applicable under CRD

III, arguing proportionality These set out

rules on when and how bonuses are paid but

crucially don’t limit the amount.

But this is set to change. In March the EBA

released its consultation on the proposed

guidelines for ‘sound remuneration policies’

across the EU. If agreed (and the EBA has

said it plans to finalise the guidelines in the

second half of 2015), the guidelines will

replace those set out by the EBA’s

predecessor (CEBS) in December 2010.

What might change? Proportionality

The EBA’s draft guidelines focus most

attention on the idea of proportionality and

how it is applied. The EBA notes that in its

view (with which, it confirms, the EC has

already agreed) the concept of

proportionality for variable remuneration is

“neutralised” by CRD IV and that it is not

possible under CRD IV to waive the variable

remuneration requirements.

Instead the EBA argues that the rules could

only be applied proportionally to very small

and non-complex firms that do not

extensively rely on variable remuneration,

or where material risk takers receive a low

amount of variable remuneration. This

means more firms should be brought into

scope of the full CRD IV variable

remuneration rules relating to the bonus

cap, deferral requirements, payment in

instruments and the application of malus

and clawback.

Deferral

The guidelines suggest that it is appropriate

to retain variable remuneration paid in

instruments for a year. Typically (e.g. in the

UK) regulators have required only a 6

month holding period. The guidelines also

propose further requirements for

individuals on the management body or in a

firm’s senior management group through

either increasing the retention period of

upfront awards to that of the deferral period

or by increasing the percentage of deferred

pay that is paid in instruments. Further if

these individuals work in significant CRD IV

firms then the deferral period would also be

increased (5 years vesting no faster than pro

rata).

Instruments

The EBA does not propose a prescriptive list

on the use of alternative capital and debt

instruments. Instead the power remains

with firms which can use instruments where

they have already issued such instruments

in significant amounts to make awards

practical.

Allowances

The EBA has not changed its views on fixed

allowances, still viewing them as part of an

individual’s fixed rather than variable pay.

It has also expanded its definitions of fixed

pay and variable pay in the guidelines,

partly to align with its views on fixed

allowances. The EBA also confirms (as per

AIFMD) that carried-interest plans do not

form part of variable remuneration where

payments do not represent a pro rata return

on an investment.

Long-term incentive plans (LTIPs)

The new guidance here could be significant

for firms operating LTIPs since the EBA

suggests performance-based LTIPs will be

counted towards variable remuneration

(and so an individual’s bonus cap) in the

year the LTIP vests rather than the year it is

awarded. This may mean firms need to

change existing programmes for LTIPs

More firms caught by bonus cap?

Executive summary Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 7

which focus on share awards with forward-

looking performance conditions since these

will be difficult to value at vesting point.

What’s next?

As these are guidelines that the EBA is

consulting on, regulators will eventually

need to either comply with them or explain

why they are choosing not to comply. Given

the chance of regulatory arbitrage if some

countries choose not to comply and the

political focus on bonuses it seems unlikely

that any regulator will choose not to comply.

Certainly regulators have always complied

with similar remuneration guidelines

previously.

The EBA is holding a public hearing on the

consultation on 4 May 2015 and the

consultation closes on 4 June 2015.

What does this mean for firms?

The remuneration rules faced by CRD IV

firms are already very complicated with

different rules for how bonuses are paid,

how much is paid and when bonuses are

paid. These guidelines add another layer of

complexity in certain areas.

All firms caught by CRD IV should be

concerned by the direction of these new

proposals. Clearly the EBA’s interpretation

of how the proportionality principle can be

applied in the case of CRD IV will impact a

large number of European firms and may

force firms or individuals to move outside

the EU to escape the ongoing bonus focus.

For some firms (particularly MiFID

investment firms) it may mean

reconsidering what activities the firm

carries out and whether it needs existing

permissions. Narrowing activities could

affect the bottom line but also could allow a

firm to operate under CRD III rather than

CRD IV (as is allowed by the FCA in the

UK). Such a change would negate the

impact of the changes the EBA proposes

here. We have a number of clients that are

considering such business changes.

The formalisation of the earlier EBA

opinion on allowances may be no surprise,

but will impact many. The extension of the

guidance relating to the definition of fixed

and variable pay, and in particular the

specific criteria for mapping all

remuneration components into either fixed

or variable pay, could have an impact on all

firms; we think that many questions remain,

though, around some of the definitions

included in the proposals, for example

concerning the treatment of some types of

expatriate allowance.

The other notable changes in the proposed

guidance include clarification that the

appropriate period to meet requirements for

the retention of variable remuneration paid

in instruments should be one year, rather

than the six months currently applied in the

UK. And firms that run long-term incentive

schemes could be affected by proposals

which suggest that performance-based LTIP

awards will be counted towards the bonus

cap in the year of vesting rather than in the

year of award. This could mean that many

LTIP schemes will have to be looked at

carefully and may well have wider

implications for bank’s pay models.

Executive summary Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 8

In this section:

Regulation 8

Approved persons 8

Benchmark reform 9

Capital and liquidity 9

CMU 9

Conduct 9

CRAs 10

Financial stability 10

Market infrastructure 11

MiFID II 12

Other regulatory 13

Payments 17

Pensions 18

Remuneration 19

Securities and derivatives 19

Accounting 20

New UK GAAP 20

IFRS 20

Other updates 21

PwC publications 21

Regulation

Approved persons Roadmap to the Senior Managers regime

The FCA published Strengthening

accountability in banking: a new

regulatory framework for individuals on 16

March 2015. The FCA confirmed the

timetable for implementation of the Senior

Managers (SM) and Certification regimes

(CR), and minor amendments to the near-

final rules.

The FCA confirmed that they had

anticipated the CR would apply to all

traders. Previous consultations did not

capture all wholesale traders who could

create 'significant harm', through either the

Material Risk Taker (MRT) or qualifications

definitions, and the FCA states it may

consult in Spring 2015 to explicitly bring

other traders into scope of the CR.

The regimes come into force on 7 March

2016, at which point firms have one year to

transition their certified individuals into the

regime (through one cycle of an annual

appraisal process) by 7 March 2017. SM

responsibilities, including the reverse

burden of proof and criminal sanctions, take

effect from 7 March 2016.

Firms must identify the populations of the

SM and CR, with those being grandfathered

into SM Functions notified to the regulator

by 8 February 2016.

The guidance relating to the Presumption of

Responsibility closes for comments on

16 June 2015.

PRA confirms senior managers regime

The PRA published PS3/15: Strengthening

individual accountability in banking and

insurance responses to CP14/14 and

CP26/14 on 23 March 2015. The near-final

rules confirm the outline of the scope of the

Senior Managers (SM) and Certification

regimes.

The PRA has tweaked the list of prescribed

responsibilities for SMs, including the

person responsible for developing and

overseeing a firm's remuneration policies

and practices and the individual responsible

for a firm's compliance with CASS

(previously CF10a). For the largest firms,

the person responsible for stress testing is

now also a SM. For ring-fenced banks

(RFB), all SMs will be allocated the RFB

prescribed responsibility, in addition to

their core functions.

The PRA will now allow two individuals to

share a prescribed responsibility, although

each person will be deemed wholly

responsible for the entire responsibility. In

the event of a breach, each SM would have

an opportunity to explain how they

discharged their role in practice.

For smaller firms, the PRA has extended the

light-touch regime previously proposed for

credit unions to any firm with less than

£250 million in gross assets.

See this month's feature article for more

information, including details on the

roadmap to compliance that firms must

follow.

More senior managers in non-UK branches

The FCA and PRA published Strengthening

accountability in banking: UK branches of

foreign banks on 16 March 2015. HMT

confirmed on 3 March 2015 its intention to

proportionally apply the SM&CR to both

EEA and non-EEA incoming branches so

the FCA and PRA are now consulting on

what the new regime should look like.

For EEA firms, the home regulator remains

the competent prudential regulator so the

PRA is not designating any functions. The

FCA is applying limited roles, including the

MLRO function and a tailored EEA Branch

Senior Manager function (EBSM) to cover

those responsible for the management and

conduct of the business of the incoming

branch. The FCA will continue to apply the

certification regime to Material Risk Takers

(MRTs) and to those whose roles require a

qualification (or where the UK equivalent of

that role would require a qualification), but

is restricting this to apply only in relation to

the branch activity, and only when the

Cross sector announcements

Executive summary Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 9

individual is based in the UK. The conduct

rules will apply to staff that are not SMs and

are based in the UK.

For non-EEA branches, the scope is larger.

Firms will have to allocate 13 prescribed

responsibilities, including a group entity

senior manager and a head of overseas

branch, akin to a branch CEO role.

The consultation closes on 25 May 2015.

Please see this month's feature article for

more information on the individual

requirements for different non-UK branches

and how this might impact different firms.

Benchmark reform Additional benchmarks facing regulation

The FCA published PS 15/6: Bringing

additional benchmarks into the regulatory

and supervisory regime on 10 March 2015.

The FCA sets out the framework for

bringing seven additional benchmarks into

regulatory scope, amending the Handbook

that applies to regulated benchmark

administrators and submitters to

benchmarks.

The seven benchmarks being brought into

regulatory scope are:

Sterling Overnight Index Average

(SONIA)

Repurchase Overnight Index Average

(RONIA)

ISDAFIX (soon to be renamed the ICE

Swap Rate)

WM/Reuters (WMR) 4pm London Fix

London Gold Fixing (soon to be replaced

by the LBMA Gold Price)

LBMA Silver Price

ICE Brent Index

The FCA's existing benchmark regulatory

regime was designed for benchmarks that

were determined through a submission

process, such as LIBOR. Some benchmarks

brought into regulatory scope are calculated

without submitters so the FCA needed to

amend its existing regime.

Bringing additional benchmarks into the

scope of UK regulation is an interim

deliverable of the Fair and Effective Markets

Review, a joint HMT, BoE and FCA

initiative aimed at improving the fairness

and effectiveness of wholesale markets. The

Fair and Effective Markets Review is due to

deliver its final report in June 2015.

The Handbook provisions came into force

on 1 April 2015.

Capital and liquidity Redefining fixed overheads

On 24 March 2015, a new Delegated

Regulation amending an existing

Delegated Regulation as regards own

funds requirements for firms based on fixed

overheards was published in the Official

Journal.

For most asset managers and certain other

types of investment firms, capital

requirements are determined as the

equivalent of three months fixed

expenditure. This Delegated Regulation

introduces a new list of items of variable

expenditure that must be subtracted from

the total expenditure figure to arrive at the

fixed expenditure cost for CRD IV

investment firms (IFPRU firms in UK).

Some asset managers had expressed

concern that the list of variable expenditure

items in the new definition is more

restrictive than under the old rule which will

lead to a higher final figure for fixed

overheads (and therefore capital

requirements) than was previously the case.

The new definition came into effect on 13

April 2015. It is relevant for calculating

capital requirements, COREP reporting and

applications for authorisation as an IFPRU

firm from that date. BIPRU firms and firms

applying for authorisation as a BIPRU firm

are not affected by this change.

CMU CMU: a welcome start?

On 20 March 2015, the House of Lords EU

Committee published CMU: a welcome

start report which shows its support for the

proposed CMU.

The EU Committee generally agrees with

the EC’s short, medium and long-term

agenda items, both on substantive grounds

and as a strategy of incremental reform, and

with the wider CMU goal to generate

economic growth and advance single market

integration. But it argues that there is a

need for ‘realism’ as capital markets cannot

replace the banking sector although they

can complement it. Similarly, the EU

Committee argues that the EC should avoid

contentious debates around harmonisation

of national securities, tax and insolvency

law until it has already achieved some

substantial steps towards implementing

CMU.

Conduct FCA reveals year's priorities

The FCA published its Business Plan

2015/16 on 24 March 2015, setting out its

plans for the year ahead. This year the FCA

has integrated its business plan and risk

outlook, noting that the risk outlook

influences its priorities.

The FCA identifies seven medium and

longer-term risks that it believes may

impact the UK financial services market.

These are largely unchanged from 2014,

although the FCA has expanded the

pensions risks it foresees (given the ongoing

wholesale changes to the pension and

annuity market) and has included financial

crime for the first time, replacing rapid

house price growth.

It also finalises changes to the FCA's make-

up and supervisory approach, first proposed

in response to the Davis Report. The FCA

plans to focus much of its supervisory

efforts on sector and market-wide analysis.

The FCA intends to reduce the number of

thematic reviews it undertakes but those it

does conduct will be deeper than before. A

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number of new market studies and thematic

reviews were announced:

cross-sectoral culture review, looking at

remuneration, appraisal and promotion

decisions for middle management

a market study into non-advised

distribution models and a thematic

review of inducements and conflicts of

interest

a thematic review of the role of

appointed representatives in the

insurance market and a market study

into how insurers use big data in GI

review into retirement sales practices

post authorisation review of funds,

particularly focusing on whether asset

managers are delivering in line with

expectations

review of the mortgage market following

MMR implementation and

consideration of remuneration and

incentives in consumer credit firms.

Please see our blogs on the business plan

and how it may impact asset managers,

insurers and consumer credit firms.

FCA reviews structured products

The FCA published a Thematic Review of

Product Governance and Guidance on

structured products on 5 March 2015.

Following the FCA's 2012 guidance on

structured products, it launched this

thematic review to investigate how firms in

the retail and wholesale markets were

developing new structured products.

The FCA found six key issues:

retail consumers generally struggle to

understand the relative merits of

structured products and the factors

driving potential returns

senior management must do more to put

customers at the forefront of their

approach to product governance

structured products should have a

reasonable chance of delivering

economic value to customers in the

target market

firms need to provide customers with

clear and balanced information on each

product and any risks

manufacturers need to strengthen the

monitoring of their products

firms need to do more to ensure the fair

treatment of customers throughout the

lifecycle of a structured product.

The FCA urged firms to note the findings

from its review, and consider PRIIPs and

MiFID II, to ensure that they are able to

comply with additional requirements when

they come into force.

CRAs IOSCO amends CRA code of conduct

On 24 March 2015, IOSCO published

amendments to its CRA code of conduct.

IOSCO aims to:

ensure CRAs are independent and avoid

conflicts of interest

improve the transparency and timeliness

of credit ratings disclosures

improve communication with market

participants

strengthen treatment of confidential

information.

The amendments support the wider

international push to hold CRAs to a level of

accountability commensurate with their role

in the financial system. CRAs have widely

adopted previous versions of the code of

conduct and we expect them to adopt this

updated version in due course.

Keeping ESMA informed on CRAs

ESMA published its Final report -

guidelines on periodic information to be

submitted to ESMA by CRAs (dated 19

March 2015) on 23 March 2015. Registered

CRAs are already required to submit

information to ESMA in response to CESR

2010 guidance on the enforcement practices

and activities conducted under the CRA

Regulation. ESMA's new guidelines update

(and replace) the CESR guidance on the

nature and timing of information that CRAs

must submit.

In future CRAs must submit:

quarterly information on financial

revenues and costs, staff changes (such

as turnover or promotions) and details

on internal complaints submitted to

compliance

half-yearly information on board

minutes (which includes independent

NED opinions), and dispute or court

proceedings, any potential or actual

non-compliance with CRA Regulation

requirements and remedial steps to

comply and organisational charts.

The guidelines must now be translated into

the EU's official languages. CRAs will then

have two months to comply or explain why

they are not complying.

Financial stability Who's systemically important?

The FSB and IOSCO published a second

Consultative document on assessment

methodologies for identifying non-bank

non-insurer (NBNI) G-SIFIs on 4 March

2015. A similar methodology already exists

for banks (G-SIBs) and insurers (G-SIIs).

The FSB and IOSCO propose methodologies

to identify NBNIs (finance companies,

market intermediaries, asset managers and

investment funds) whose distress or

disorderly failure, because of their size,

complexity and market interconnectedness,

could lead to larger financial instability.

Because most NBNIs are primarily

regulated from a conduct perspective,

IOSCO and FSB propose a universal set of

methodological principles to address the

data and information gaps that currently

exist around systemic risk.

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NBNI G-SIFIs have different forms of legal

entities and come from various industries.

Their business models and risk dynamics

also vary, so the proposed methodology

combines cross-sector risk factors along

with sector-specific criteria. The basic

impact factors include:

size

interconnectedness

substitutability

complexity

cross-jurisdictional activities.

One notable difference between the initially

proposed methodology and the current

version is that leverage is now a bigger

consideration for determining whether

investment funds meet the size criteria

thresholds.

The consultation closes on 29 May 2015.

FSB and IOSCO aim to finalise the

assessment methodologies by the end of

2015. Then they will seek to identify the

consequences of being classified as a NBNI

G-SIFI, such as requiring additional capital

or other measures. Finally IOSCO and FSB

will identify which firms and investment

funds should be identified as NBNI G-SIFIs.

FPC concerned about liquidity

On 24 March 2015 the FPC reviewed its

assessment of risks to financial stability. It

found that credit growth in the UK remains

moderate and UK banks continue to build

their resilience. As a result it decided to

maintain the countercyclical capital buffer

(CCB) rate for UK exposures at 0%.

But the FPC also identified a number of

risks to financial stability, such as nominal

Eurozone growth, further slowdown in

China, liquidity risk and the risks faced by

Greece refinancing. To address liquidity risk

the FPC asked the BoE and FCA to work

together to:

encourage and contribute to

international work to address data gaps

build a common understanding of

vulnerabilities in capital market and

asset management activities

deepen understanding of the channels

through which UK financial stability

could be affected by any market

correction and reduction in market

liquidity including analysis of the

reliance of UK economic activity on

market-based sources of finance

understand the strategies of UK asset

managers for managing the liquidity of

their funds in normal and stressed

scenarios

assess how and why liquidity in relevant

markets might have become more fragile

drawing on evidence from recent

episodes of heightened market volatility.

The FPC asked the PRA and FCA to provide

a full report of their activities at its

September meeting, with an interim report

due in June.

Market infrastructure CCPs get stressed

On 11 March 2015, IOSCO and the

Committee on Payments and Market

Infrastructures announced that they will be

stress testing CCPs. Noting the important

role CCPs play in the global financial

system, IOSCO and the CPMI plan to check

that CCPs have the financial resources to

manage both credit and liquidity risk, which

entails incorporating a number of extreme

but plausible scenarios.

Results of the stress tests are expected later

in 2015.

FSB wants FX progress report

In his capacity as FSB Chair, Mark Carney

wrote to the Chairman of the London

Foreign Exchange Joint Standing

Committee on 20 March 2015.

Carney requested the Committee's support

in reporting on market participant's

progress in implementing the FSB's

recommendations on FX benchmarks,

published on 30 September 2014. The

Committee must report on the status of its

members as at 30 June 2015, and provide

this report to the FSB no later than 31 July

2015.

Supervising automated trading

ESMA published the findings of a Peer

Review on Automated Trading Guidelines

on 18 March 2015. It reviewed the

supervision of automated trading across 30

national competent authorities, though

focused on the 12 authorities supervising

platforms with the most significant

automated trading volumes.

ESMA assessed how regulators have

implemented its Guidelines on Automated

Trading, published in 2012. The majority of

authorities have implemented the

guidelines into their supervisory approaches

and therefore the level of supervision of

automated trading activity has increased.

ESMA also highlighted a number of

challenges in supervising automated

trading, particularly because the speed and

complexity of high frequency trading

increases the need for supervisors to

improve their IT expertise. It also suggested

that supervisors should have an appropriate

level of engagement with trading platforms,

and that on-site inspections should be used

to ensure trading platforms are sufficiently

challenged.

Supervising FMIs

On 11 March 2015, the BoE issued its

annual report on FMI supervision. Over the

last year the BoE has authorised CCPs and

reviewed progress against implementing

new regulatory developments. For 2015/16

the BoE proposes new supervisory

priorities:

assessing UK CCP stress-testing

practices and supporting international

efforts to provide additional regulatory

guidance and coordination around the

design of stress tests

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improving operational risk management

by prioritising resilience against cyber-

attacks, including requiring more FMIs

to participate in vulnerability testing

monitoring public disclosure of

quantitative risk management data by

UK CCPs

implementing the new CCP supervisory

framework established by EMIR

cooperating with other regulators per

MoUs as some payment systems will be

dual-regulated with the new Payment

PSR.

UK rules capture new FMIs

HMT's Recognised clearing houses: call for evidence, published on 12 March 2015,

investigates whether new market

infrastructure services should be captured

by FSMA’s FMI rules. The consultation also

considers whether CSDs should be captured

by the FSMA CCP rules.

EMIR will introduce central clearing and

non-centrally cleared risk management

requirements from the end of 2015. Many

firms are considering innovative business

models to assist market participants to meet

their clearing and counterparty credit risk

obligations, such as clearing systems

operating multilateral netting of transaction

exposures without a CCP. Given the

importance of such FMI activities to the

financial system, HMT is seeking to identify

entities which should be subject to FSMA

Regulated Bodies rules.

HMT is also reviewing how to implement

FSMA to meet CSDR requirements.

Currently, only CCPs and recognised

investment exchanges (RIEs) are Regulated

Bodies. HMT is considering whether CSDs

should become a third type of Recognised

Body. The new category would benefit from

general FSMA exemptions available to other

Regulated Bodies. Under current FSMA

rules, at a minimum some or all of the

FSMA CCP recognition requirements will be

need to be dis-applied to CSDs and replaced

by CSDR’s authorisation and operating

requirements. Euroclear UK & Ireland is the

only UK-authorised CSD.

All UK firms that operate netting or

counterparty risk management services and

any firms that operate or are considering

offering UK CSD services should consider

responding.

The call for evidence closes on 8 May 2015.

MiFID II The appropriateness of complexity

On 24 March 2015, ESMA published Draft

guidelines on complex debt instruments

and structured deposits. Firms may only

provide execution-only services to clients,

without performing a MiFID

appropriateness test, when dealing in non-

complex instruments. MiFID II has

significantly reduced the number of

instruments which can be defined as non-

complex. ESMA is required to provide

further clarity on which debt instruments

and structured deposits should be

considered complex.

Debt instruments are complex if they embed

a derivative or incorporate a structure which

makes it difficult for the client to

understand the risk of the product. Debt

instruments which fit this description

include asset backed securities, perpetual

bonds and subordinated debt instruments.

Structured deposits are now within the

scope of MiFID II investment products,

though deposits linked solely to interest

rates are excluded. ESMA identifies which

structured deposits:

incorporate a structure which makes it

difficult for the client to understand the

risk and return such as more than one

variable affecting the return received or

where a complex relationship exists

between the relevant variable and return

make it difficult for the client to

understand the cost of exiting before the

term has finished such as an exit penalty

which is not a fixed sum or percentage of

the original investment.

Structured products meeting these criteria

will be considered complex under MiFID II.

The consultation closes on 15 June 2015

and ESMA expects to publish the final

guidelines in Q4 2015.

Updated MiFID RTS to correct error

ESMA published its Final report - draft

RTS under MiFID on the assessment of

acquisitions and increases in qualifying

holdings in investment firms on 27 March

2015. These RTS were required as a result of

an amendment introduced to MiFID by the

Omnibus I Directive. However, a reference

error in that Directive required a

corrigendum to be adopted, and the RTS

submitted to the EC in December 2013 to be

amended, before they could be endorsed.

In the revised version, ESMA has also

introduced a new Article 6 to the RTS

looking at information on the persons that

will effectively direct the business of the

target entity. MiFID II contains identical

empowerments to the requirements

introduced by the Omnibus I Directive, so

these RTS once adopted, will apply both

under the MiFID and the MiFID II regimes.

FCA views on MiFID II

The FCA published DP15/3: developing our

approach to implementing MiFID II

conduct of business and organisational

requirements on 26 March 2015.

The FCA must implement final MiFID II

rules by July 2016 and has a number of

policy options. When the FSA implemented

MiFID in 2007 it extended many of the

conduct of business requirements to non-

MiFID instruments, such as insurance-

based investments and pensions, and to

non-MiFID firms through SYSC. The FCA

proposes to continue this approach, which

in part reflects its approach to the RDR, and

the EU's broad scope of PRIIPs and IMD2.

It also proposes:

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An outright ban on discretionary

investment managers (DIMs) receiving

commission. DIM services are exempt

from RDR so may still receive

commission. But MiFID II bans them

from receiving and keeping commission

(although commission can be passed

through to customers). The FCA

suggests it may go further than MiFID II

to ban the receipt of all commission.

The MiFID II definition of independent

advice differs from the RDR definition.

The FCA asks for feedback on how the

two approaches might differ in practice

and whether it should align the RDR

definition with MiFID II.

Introducing new MiFID II remuneration

principles that apply to all sales staff and

advisers to non-MiFID firms including

consumer credit firms.

Removing the current exemptions for

exempt-CAD firms and DIMs from the

phone taping rules.

Introducing new guidance or changing

existing requirements for retail clients

who opt-up to professional client status,

to protect local authorities who are retail

clients under MiFID II.

The FCA also proposes changes to cost

disclosure and structured deposits, which

will be in scope for the first time under

MiFID II. The FCA welcomes comments by

26 May 2015.

HMT looks at MiFID II

HMT consulted on the Transposition of MiFID II on 27 March 2015. HMT will

transpose MiFID II primarily through a

combination of secondary legislation and

FCA rules (like the original MiFID). But,

unlike MiFID, MiFID II introduces

obligations on market participants in the

UK which are not authorised persons nor

recognised investment exchanges. Since

FSMA does not allow the FCA to make rules

for such firms HMT is consulting on how to

transpose these obligations through

secondary legislation.

HMT explains that its general approach to

MiFID II transposition will follow three

principles:

continuity - implementing MiFID II

like MiFID (and other EU Directives)

through changes to FSMA, RAO and

introducing new statutory instruments

copy out - HMT will aim to follow

MiFID II wording as closely as possible

transparency - the UK is providing

draft secondary legislation as early as

possible in order to give stakeholders

sufficient opportunity to review and

comment.

HMT proposes to continue to allow third

country entities to access UK clients

through RAO exemptions but considers

whether the UK should implement the new

third country regime (which Member States

have an option to implement or not

implement). HMT also examines how to

implement new rules on data reporting

services, position limits, structured deposits

and binary options (which are currently

regulated by the Gambling Commission).

The consultation closes on 18 June 2015.

Member States must transpose MiFID II

into national law by 3 July 2016. HMT

expects any follow up to the consultation to

be issued towards the end of 2015 once the

EC has released final RTS and ITS.

Other regulatory Regulation out, growth in?

Lord Hill, Financial Services Commissioner,

spoke on 17 March 2015 about a number of

"reality checks" needed by politicians and

the financial services industry to move the

EU away from the financial crisis towards

growth. Hill believes we have now moved on

from needing to develop new regulation to

cope with yesterday's problems. So the EC

will consider what can be done to promote

jobs and growth. This will include

examining whether the regulation

implemented to respond to the financial

crisis achieves what it set out to do and

whether it does this through imposing the

minimum of burdens on firms.

But Hill recognises that there are some new

risks that have emerged more recently so he

called for a swift conclusion to the

outstanding proposals on MMFs,

benchmarks and bank structural reform. He

also confirmed plans to release a new

proposal by the autumn to develop a

resolution regime for non-bank financial

institutions - in particular CCPs, which now

take on much of the risk under EMIR.

Finally Hill moved on to his pet project, the

CMU. He believes this will drive growth and

create jobs by recreating a thriving

securitisation market in the EU and by

increasing funding from across financial

services into infrastructure and SMEs. As

part of this Hill noted that the review into

the success of CRR will focus on whether the

rules imposed on banks are appropriate to

meet the long-term financing requirements

that their clients need.

FOS outlines the year ahead

FOS published its plans and budget for

2016/15 on 25 March 2015 alongside a

summary of the responses to its January

2015 consultation. FOS expects to reduce its

overall cost to firms by 11% to £223.9m and

plans to rely on its reserves (built up in

recent years to tackle PPI) before passing on

operating costs to firms.

This means the case fee is frozen at £550.

FOS also retained its case fee exemption for

a firm's first 25 cases. With 63% of cases

from 2014/15 attributable to 4 banking

groups, this measure has little impact on

FOS' overall revenue.

On casework, FOS reports:

it still receives 4,000 PPI cases a week,

which is higher than expected but a fair

way off the previous caseload of 10,000

per week seen a few years ago

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it expects PPI to remain the bulk of its

work for 2015/16, amounting to 52% of

new cases

it expects to receive 30,000 complaints

about packaged bank accounts (PBAs)

instead of the 18,000 assumed in

consultation

although it's seen an uptick in

complaints around SIPPs and income

drawdown and annuities, these

represent a very small number of the

total complaints received.

Despite the expected increase in complaints,

FOS doesn't expect PBAs to become the next

PPI. It also dismisses the idea of a

forthcoming tidal wave of complaints about

pensions, sidestepping any debate over an

ageing population and government reforms.

Pensions, together with investments, are

expected to represent only 5% of FOS' total

case load for 2015/16.

FOS also committed to working with the

FCA to show it met the ADR provider

certification requirements under the

Alternative Dispute Resolution

Directive (ADR). It followed the

commitment by publishing a technical note

on 7 April 2015. FOS explains it already

meets many conditions in the ADR (e.g.

being free for consumers) and suggests the

most significant change is aiming to answer

complaints within 90 days of receiving a

complaint file, which is expected from 9

July 2015. A knock-on effect for firms is a

greater push for electronic file submissions

and a keener focus on timescales for

providing information. More changes might

come once the FCA publishes the responses

to its December 2014 consultation,

Improving complaints handling (CP14/30),

expected in June 2015.

PRA sets FSCS levy limit

The PRA published PS4/15 - FSCS:

management expenses levy limit 2015/16

on 31 March 2015. The FSCS management

expenses levy limit (MELL) is £74.4m for

2015/16. Management expenses are the

costs incurred in delivering the FSCS

functions, and comprises £69.1m of

budgeted expenses including staff and

building costs, operating expenses, IT,

outsourcing and claims handling. It also

includes a contingency of £5.3m. The FCA

also approved the MELL of £74.4 m.

While there is a downward trend in the

number of expected claims FSCS indicates

that their operating costs are set to increase

by 3.7%. However, compared to previous

year's claims FSCS has seen an increase in

more complex claims which cost more on

average to assess and process.

FX committee expectations

The London Foreign Exchange Joint

Standing Committee published an update to

the Global Preamble: Codes of best practice

on 30 March 2015. The update was agreed

by the eight FX committees in the major

global financial centres at the annual FX

committees meeting, held in Tokyo on 23

March 2015.

The global preamble sets out the

committees' expectations of FX market

participants in respect of:

personal conduct

confidentiality

market conduct

policies for execution practices.

FX market participants should incorporate

this updated guidance into their processes

and control frameworks in a timely manner.

FCA finalises Handbook changes

The FCA published Handbook Notice No.19

on 2 March 2015 setting out changes to five

sourcebooks (effective date in brackets):

Personal Pension Schemes

(Independent Governance Committees)

Instrument 2015 - requiring workplace

personal pension schemes to establish

and maintain an independent

governance committee (6 April 2015).

Personal Pension Scheme (Restrictions

on Charges) Instrument 2015 -

introducing a cap on fees for automatic

enrolment schemes (6 April 2015 and 6

April 2016).

Collective Investment Schemes

Sourcebook (Accounting Amendments)

(No 2) Instrument 2015 - implementing

the updated Statement of

Recommended Practice (SORP) for

authorised CIS (1 March 2015).

Building Societies Regulatory Guide

(Revocation) Instrument 2015 -

removing the Building Societies

Regulatory Guide from the FCA

Handbook (18 March 2015).

Conduct of Business (Retirement Risk

Warnings) Instrument 2015 - requiring

firms to give retirement risk warnings

when accessing pension savings (6 April

2015).

CASS, CONC and AIFMD changes proposed

The FCA published CP15/8: Quarterly

Consultation Paper No.8 on 6 March 2015.

The CP contained some minor amendments

relating to the submission of remuneration

reports by AIFMs and AIF depositaries, and

closes for comment on 5 May 2015.

The CP also contained more substantial

changes to the CASS and CONC

sourcebooks. We expect authorised fund

managers to welcome the proposed change

to the delivery versus payment (DvP)

exemption, which would allow them to

continue to transact through their house

account when settling subscriptions and

redemptions. The FCA intends this change

to come into force on 1 June 2015 - the same

time as the main provisions in the wider

review of the CASS regime under PS 14/9.

Other proposed amendments include:

a change to the CONC transitional

provisions which would bring loan-

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based crowdfunding firms into the scope

of the CF10A and CMAR rules

minor amendments to the distribution

rules which apply on the insolvency of

an investment firm which holds client

money

exempting regulated firms which

delegate the custody of assets from the

requirement to register assets in line

with the CASS rules.

The consultation period for the

amendments to CASS and CONC closed on

6 April 2015.

Marketing through social media

The FCA published FG15/4: social media

and customer communications - the FCA's

supervisory approach to financial

promotions in social media on 13 March

2015, in response to its August 2014

consultation. The FCA has confirmed that:

re-tweets, forwarding and sharing - all

communications must be clear, fair and

not misleading because they could be

viewed by unintended recipients

for a communication to be considered

‘in the course of business', it requires a

commercial interest on the part of the

communicator so social media

conversations involving groups and

individuals, not acting in the course of

business, are outside the scope of

regulation

hashtags are not an appropriate way to

identify promotional content (such as

using #Ad)

firms must have adequate systems in

place to sign off digital media

communications in the same way as

traditional media

a firm's tweets or posts should not

contain any trigger information on their

own, but instead link through to a

webpage where all the information is

shown together for proper context

firms should ensure relevant text is

sufficiently prominent and both text and

image must be independently compliant

when viewing a dynamic promotion

such as animated banners, risk

warnings/balancing statements must be

clear and included within the

promotion.

Firms should consider how the final

guidance applies to their business and

employees, in particular noting that

employees should be clear when tweeting

for the business and when tweeting as an

individual.

Clarifying the Transparency Directive

HMT and the FCA published CP15/11:

Implementation of the Transparency

Directive Amending Directive (TDAD) and

other Disclosure and Transparency Rule

(DTR) changes on 20 March 2015. TDAD

amends the existing Transparency Directive

and Prospectus Directive.

HMT and the FCA set out a number of

proposed amendments to FSMA to

implement:

the TDAD sanctions requirements

changes to the rules on publication of

decision notices and final notices by the

FCA

other consequential changes.

The DTR will also be amended to

implement TDAD, requiring firms to

disclose voting rights arising from holdings

of financial instruments that have a similar

economic effect to holding shares and

extending the deadline to publish half-

yearly reports and the period of time for

which financial reports are publicly

available. The CP also proposes some other

changes to DTR to implement changes that

the FCA believes should improve its current

regime.

The CP closes on 20 May 2015. The FCA

and HMT will aim to provide feedback

towards the end of the year.

Intermediaries face £20m bill

The FSCS announced a £20m interim levy

on life and pension intermediaries on 19

March 2015. In August 2014, it identified

that an additional levy for this class might

be needed on top of the £33m already paid

in 2014/15.

The FSCS needs to fund the costs and

volume of claims relating to mis-selling and

to poor advice related to transferring

individuals from existing pension funds to

self-invested personal pensions (SIPPs).

Initially, FSCS started making interim

compensation payments to claimants where

advice resulted in lost pension growth and

charges. FSCS has now started to

compensate claimants for losses in the value

of investments held in SIPPs.

A new annual levy for 2015/15 should be

announced in April 2015.

Lessening disclosure to protect secrets

ESMA published its Call for evidence - the

extension of the disclosure requirements to

private and bilateral transactions for

Structured Finance Instruments (SFIs) on

20 March 2015. Issuers, originators and

sponsors of SFIs must publicly disclose

certain information under the CRA

Regulation, allowing investors to assess the

creditworthiness of the transaction.

But these requirements are not adapted for

different types of SFI transaction. ESMA

recognises that for private and bilateral

transactions in SFIs it might be prudent for

less information to be disclosed, e.g. to

protect the issuer's trade secrets. Adequate

disclosure needs to be achieved to meet the

CRA Regulation's objective of providing

investors with enough information. So

ESMA calls for input on how to:

define private and bilateral transactions

in SFIs and establish whether different

disclosure requirements should be

established for each type of transaction

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assess whether the disclosure

requirements should be copied across

identically for private and bilateral

transactions or whether they should be

amended.

The call for evidence closes on 20 May

2015.

Paying for regulation

On 26 March 2015 the FCA published

CP15/14: FCA Regulated fees and levies:

Rates proposals 2015/16, proposing

2015/16 regulatory fees and levies for the

FCA, FOS and Money Advice Service (MAS).

The annual funding requirement (AFR) for

the FCA has increased 7.9% to £481.6m.

The FCA has raised an additional £39m in

2015/16 to cover the cost of designated

guidance providers (DGPs) providing free

consumer guidance on pension options at

the point of retirement. The Pensions Act

also requires the FCA to raise a levy from

the DGPs to recover its costs of developing

guidance standards and monitoring DGPs'

compliance with these standards.

The FOS budget remains £23.3m. This

reflects its forecast that complaints

volumes, excluding PPI complaints, will

remain broadly stable. The FCA also

proposes a £79.1m levy for MAS, a 2.5%

reduction on last year's levy.

The consultation closes on 18 May 2015.

The FCA will publish final rules at the end

of June 2015.

FCA finalises Handbook changes

The FCA published Handbook Notice No.20

on 30 March 2015. The FCA makes ten

changes to the FCA Handbook (effective

dates in brackets):

Conduct of Business Sourcebook

(Retirement Guidance Guarantee)

Instrument 2015 - implementing

pension changes allowing individuals

reaching retirement access to free

guidance on their investment options (6

April 2015)

Benchmarks (Amendment) Instrument

2015 - bringing additional benchmarks

into scope of FCA regulation (1 April

2015)

Standards for Designated Guidance

Providers Instrument 2015 - setting out

the standards that firms providing the

guidance guarantee must continually

meet (6 April 2015)

Handbook Administration (No 37)

Instrument 2015 - correcting minor

administrative and typographical errors

to the FCA Handbook (1 and 6 April

2015 and 6 April 2016)

Fees (Miscellaneous Amendments) (No

8) Instrument 2015 - introducing new

fees to recover FCA's costs for regulating

second charge mortgages (1 April 2015)

Fees (Payment Systems Regulator)

Instrument 2015 - establishing the new

fee requirements for the PSR (1 April

2015)

Fees (Pensions Guidance) Instrument

2015 - introducing the new pension

guidance levy that firms must pay to

fund the guidance guarantee service (1

April 2015)

Financial Services Compensation

Scheme (Management Expenses Levy

Limit 2015/2016) (FCA) Instrument

2015 - setting the minimum amount the

FSCS will levy in 2015/16 at £69.1m (1

April 2015)

Listing Rules (Sponsors) (Amendment

No 6) Instrument 2015 - introducing

new guidance for joint sponsors and

amending existing rules so that a

sponsor only takes administrative

responsibility for FCA contact, so all

sponsors must now be aware of ongoing

FCA correspondence (1 April 2015)

Prospectus Rules (Amendment No 2)

Instrument 2015 - amending the

administrative requirements on final

terms in the Prospectus Directive (31

March 2015).

Improving UK SME access to finance

The Small Business, Enterprise and

Employment Act 2015 received Royal

Assent on 26 March 2015. Part of the Act

contains provisions aimed at improving

SME access t0 finance and enhancing

competition in the sector. It introduces the

legal basis to:

nullify restrictive terms and conditions -

though this doesn't at the moment

include contracts for financial services

oblige the production of and liberalise

access to SME credit data

help match declined SME lending

applications with alternative finance

providers (AFPs).

The Act provides that certain designated

banks are obliged to share data on SME

customers with other lenders via designated

credit reference agencies (DCRAs). DCRAs

are in turn required to ensure all lenders

have equal access to that data. The smallest

SMEs (micro enterprises with under €2m

turnover) can now refer disputes with

DCRAs to the FOS. The Act enables HMT to

designate private (online) platforms and

obliges designated banks to provide

information to the platforms on SMEs

rejected for finance, though the actual

matching exercise will be conducted by the

designated platforms.

HMT invited interested credit reference

agencies and online platforms to express

their wish to be designated in Banking for

the 21st century: driving competition and

choice, published on 18 March 2015 and the

British Business Bank reiterated this call on

24 March 2015.

PRA proposes fees and levies

The PRA published CP10/15: Regulated

fees and levies: rates proposals 2015/2016

on 19 March 2015. The paper proposes:

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£258m fees to cover the 2015/16 Annual

Funding Requirement (AFR)

£13m Special Project Fees (SPF) for the

PRA’s implementation costs of Solvency

II

a new hourly rate for SPF for company

restructuring projects

£4m refunds for unspent budget from

the 2014/15 AFR

£3m refund for 2014/15 Solvency II

SPF.

a small amendment to the allocation

method for retained penalties.

The PRA is proposing an overall AFR

increase of 4%. But the PRA is intending to

increase fees for ongoing regulatory

activities for general insures by 7.7% on

account of the greater proportion of the

PRA’s staff undertaking general insurance

supervision work in preparation for the

start of the Solvency II regime on 1 January

2016.

The consultation closes on 19 May 2015.

Consumers get more rights

The Consumer Rights Act 2015 received

Royal Assent on 26 March 2015. It

consolidates and clarifies existing consumer

law which was previously set out in over 100

pieces of legislation, in particular:

rights and remedies for the supply of

goods, services and digital content

(mainly a non-FS initiative)

unfair terms in consumer contracts - it

applies a fairness test to consumer

contracts unless language used is

"transparent", gives a list of terms

regarded as unfair (the Grey List) and

clarifies some existing requirements

from the Unfair Terms in Consumer

Contracts Directive (UTCCD).

consumer collective actions for anti-

competitive behaviour - this is similar to

US-style class action lawsuits, which

should make it easier for consumers to

make competition claims.

The FCA has removed its guidance

materials on unfair contracts terms from its

website and plans to update to reflect the

Consumer Rights Act requirements and

updated EU case law on the UTCCD. The

Act comes into effect on 1 October 2015.

Payments Regulators working together

The Government published an MoU on 26

March 2015, setting out how the BoE, FCA,

PSR and PRA will work together to

supervise UK payment systems.

According to the MoU:

the BoE is responsible for supervising

payment systems

FCA is the competent authority for

payment institutions

PRA is responsible for prudential

regulation and supervision

PSR regulates the UK's payment

systems.

The authorities are expected to coordinate

their activities, share information and

consult with each other on matters of

common interest. But the BoE, PRA and

FCA (of which the PSR is a subsidiary)

reserve the right to veto PSR actions where

proposals may interfere with their over-

riding objectives.

AML for digital currencies

Following a call for information on digital

currency regulation in November 2014,

HMT published the responses on 18 March

2015. Respondents identified potential

benefits of digital currencies including

cheaper and faster payments through a

more efficient infrastructure for the transfer

of money, opportunities for cross border

trade and payments at significantly lower

cost, a single decentralised method of

logging and verifying transaction reducing

risk of manipulation and the possibility of

the Blockchain technology being used in a

variety of other situations beyond payment

services (such as passports and driving

licences). Respondents also stated that

current design makes digital currencies

volatile and unsuitable for mainstream

usage as well as being at risk of enabling

criminal activity.

HMT proposes a number of steps to

promote safe and secure digital currency

use:

apply proportionate AML regulation to

digital currency exchanges in the UK

work with the BSI (British Standards

Institution) and the digital currency

industry to develop voluntary standards

for consumer protection

invest £10M to explore future uses of

Blockchain in conjunction with Research

Councils, Digital Catapult and the Alan

Turing institute.

HMT will also consider other areas of

regulation such as storage of currencies,

cybersecurity, prudential and conduct

requirements.

PSR sets out its plans

The PSR published PS15/1: a new

regulatory framework for payment

systems in the UK on 25 March 2o15. It sets

out how it will regulate payment systems

and confirmed it will:

establish a Payments Strategy Forum

require system operators to have

appropriate representation of service

users interests in their decision making

processes

require pan-GB operators to publicly

disclose Access Requirements to remove

barriers to direct access to payment

systems

require the four primary Sponsor Banks

to publish information about indirect

access criteria

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oversee development of a payment

systems Information Hub

develop a Sponsor Bank Code of

Conduct

begin a programme of work to consider

the proposed EU Interchange Fee

Regulation.

The PSR also published its indicative work

plan and annual plan and budget. The PSR

expects to operate on a budget of £15.9

million for 2015-16.

The PSR has concurrent powers with the

CMA to launch investigations into markets

where it suspects competition may be

adversely affected, in addition to a statutory

objective to promote effective competition.

In line with this the PSR published draft

terms of reference for two market reviews.

PSR MR15/1: Supply of Indirect Access to

payment systems considers the impact of

indirect access market structure on

competition and the factors that may affect

indirect access to payment systems. PSR

MR15/2: Ownership and competitiveness

of infrastructure provision will examine

whether the current infrastructure

ownership arrangements restrict

competition and innovation and serve the

interests of service users. Both reviews are

due to complete in May 2016.

The PSR became operational on 1 April

2015. The Treasury announced on 16

March that the PSR will regulate the Bacs,

CHAPS, Faster Payments, LINK, Cheque &

Credit, Northern Ireland Clearing, Visa and

MasterCard payment systems. The systems

were chosen on the basis that disruption to

their operation could result in significant

adverse consequences for service users.

Pensions Protecting pension transfers

As part of the new flexible pensions regime

Parliament amended the RAO through The

Financial Services and Markets Act 2000

(Regulated Activities) (Amendment) (No 2.)

Order' on 16 March 2015. Advising on

transfers of safeguarded benefits

(principally those arising from defined

benefit/final salary pension schemes)

became a regulated activity from 6 April

2015. The Order automatically allows

persons already permitted to advise on

pensions transfers and opt outs to also

advise on transfers of safeguarded benefits

from 6 April 2015.

In response to these changes, the FCA

issued CP 15/7 Proposed changes to our

pension transfer rules on 4 March 2015.

The FCA aims to give a degree of protection

to pension scheme members with

safeguarded benefits. The Government and

FCA anticipate that members of defined

benefit schemes who are aged over 55 may

seek to transfer their benefits to defined

contribution schemes so that they can have

immediate access to their pension savings.

The FCA proposes amending COBS so that

existing rules on pension transfers apply in

these situations, such as requiring that all

pensions transfers advice is provided or

checked by an exam-qualified Pension

Transfer Specialist.

The consultation closed on 15 April 2015.

Capping workplace pension charges

The FCA published PS15/5: final rules for

charges in workplace pension schemes and

feedback on CP14/24 on 2 March 2015. The

FCA's rules will apply to the operators of

workplace pension schemes such as GPPs

and stakeholder pensions. This measure will

align the approach and requirements for

workplace pension schemes with

occupational schemes.

Workplace pension scheme operators will

be unable to pay or levy certain charges as

follows:

annual charges on default funds cannot

exceed 0.75% of funds under

management

the ban on consultancy charges being

paid for by employees without their

express agreement will extend to

agreements entered into between the

end of 2012 and May 2013

firms will be unable to pay commission

or other charges for advice, unless the

charges are initiated by scheme

members

firms will not be able to levy differential

charges on members based on whether

or not the member is currently

contributing.

The charges cap and ban on consultancy

charges took effect from 6 April 2015. The

other changes will take effect from 6 April

2016.

Final standards for pensions guidance

The FCA published Standards for

Designated Guidance Providers Instrument

2015 on 10 March 2015. HMT designates

providers to give free guidance when an

individual receives their pension (initially

the Pensions Advisory Service and Citizens

Advice).

The FCA is responsible for monitoring

standards: the Instrument establishes

standards these providers must continually

meet, including:

how guidance is delivered

professional standards, skills and

knowledge of staff providing guidance

method of communication with

consumers

use of systems and controls

complaints management.

The FCA must inform HMT if any provider

fails to comply with any of the standards.

The Instrument came into force on 6 April

2015.

Changes to investment regulations

The DWP launched a Consultation on

changes to the Investment Regulations

following the Law Commissions report

'Fiduciary Duties of Investment

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Intermediaries' on 26 February 2015. It

wants to ensure that trustees of pension

schemes understand the extent of their

investment powers and duties, and that the

law supports them in meeting these. It is

consulting on the powers and duties

following the Law Commission's

recommendations relating to the law

governing investments in occupational

pension schemes. The Law Commission

made these recommendations in its report

Fiduciary Duties of Investment

Intermediaries in July 2014 to ensure

trustees were aware of the difference

between financial and non-financial factors

when taking decisions about investments.

Creating a secondary annuity market

HMT and the DWP jointly published a call

for evidence on creating a secondary

annuity market on 18 March 2015. Current

tax law deters annuity holders from selling

their annuities. The proposals would give

individual annuity holders greater ability

and incentive to sell the income stream that

they receive to a third party in return for a

cash lump sum. The purchaser would then

receive the annual income up until the

annuitant's death.

The original annuity providers would not be

able to buy back annuities. Retail investors

would also be prohibited from buying

annuity income on the secondary market.

HMT and DWP suggest they will work with

the FCA (as and when a secondary market is

introduced) to protect vulnerable

consumers and to ensure that individuals

who assign their annuities have sufficient

information to do so. The FCA will consult

on possible measures 'in due course'.

The call for evidence closes on 18 June

2015.

Remuneration FCA warns on performance management

The FCA published GC15/1 Risks to

customers from performance management

at firms - Thematic review and guidance

for firms on 16 March 2015. It considers

how processes such as appraisals and

underperformance procedures and

communications between sales staff and

managers about sales results can influence

behaviour and affect customer outcomes.

Acting on intelligence from whistleblowers

and the media, the FCA's investigations

identified poor practices that could create

undue pressure on staff. The guidance is

intended to help firms:

satisfy themselves that the risk of mis-

selling from performance management

can be, and is being managed

monitor performance management in

practice and look for indicators of undue

pressure to identify poor practices,

including encouraging staff to provide

feedback and taking appropriate action.

The FCA expects all firms which deal with

retail customers to read GC15/1, and where

appropriate, take action to ensure that they

are managing the risk. The guidance

consultation closes to comments on

15 March 2015.

Adjusting variable remuneration

The FCA published GC15/2: General

guidance on the application of ex-post risk

adjustment to variable remuneration on 26

March 2015. This concerns the adjustment

of variable remuneration to take account of

a specific crystallised risk or adverse

performance outcome including those

relating to misconduct. Adjustments include

reducing current year awards, the

application of malus (reducing or cancelling

deferred incentives awards that have not yet

vested) and clawback (recouping already

vested awards). The FCA proposes that this

guidance would replace guidance it

consulted on in July 2014 in CP14/14.

The FCA expects firms to implement the

requirements of ex-post adjustment and

also shares good practice observed in the

2014 remuneration round. This guidance

will only apply to dual-regulated firms,

which is a change in scope since the original

guidance in CP14/14 would have applied to

all firms in scope of CRD IV. The EBA is

also currently consulting on guidelines on

sound remuneration policies. Once

finalised, these EBA guidelines may lead to

consequential changes in FCA's approach

reflected in this revised guidance. For more

information on the EBA consultation see

this month's feature article.

The consultation closes on 7 May 2015.

The FCA expects to publish final guidance

as part of the policy statement to CP14/14

and intends that it should take effect in

summer 2015.

Securities and derivatives Bilateral margin delayed until 2016

BCBS and IOSCO announced a nine month

delay to the globally agreed implementation

date for non-centrally cleared margin when

they published the amended Margin

Requirements for Non-centrally Cleared

Derivatives on 18 March 2015. The new

schedule delays implementation of both

initial margin (IM) and variation margin

(VM) requirements from 1 December 2015

to 1 September 2016. The full phase-in

schedule for IM has been adjusted

accordingly in the BCBS/IOSCO margin

standards.

BCBS and IOSCO state that they are

working with the industry to agree new IM

calculation models that will comply with the

BCBS/IOSCO principles. EU rule makers

are expected to amend the draft EMIR rules

for non-centrally cleared margin to align

them to the international schedule.

Updated EMIR Q&A

ESMA published the 12th update to its Q&A

on EMIR on 31 March 2015. The update

includes new questions on:

the status of sovereign wealth funds

under EMIR

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outsourced assets under the Article 89

pension scheme exemption

frontloading and the intragroup

exemption to the clearing obligation

third country contracts

CCP authorisation

variation margin.

The questions and answers provide

guidance for regulators and firms to help

interpret various technical aspects of EMIR.

Responding on securitisations

The BoE and ECB published their joint

response to EC consultation 'An EU

framework for simple, transparent and

standardised securitisation' on 27 March

2015. They support the framework and

consider that a uniform set of criteria for

simple, transparent and standardised

securitisations could play an essential role

in attracting a broader investor base and de-

stigmatising European securitisations.

The response acknowledges that the

creation of the framework is also closely

aligned with EC's priority to improve

financing of the EU economy through CMU.

Both comment on key aspects of the

consultation (such as criteria, prudential

treatment, risk retention, transparency,

SMEs and implementation) as well on the

specific questions posed in the consultation.

UK sponsor regime updated

On 26 March 2015 the FCA published

PS15/7: feedback and policy statement on

CP14/21 in relation to joint sponsor

proposal, outlining its final rules on joint

sponsorship of premium listed securities.

Joint sponsorship allows issuers to get a

wider range of sector sponsorship expertise.

The FCA's responses included:

it is inappropriate to introduce a formal

concept of 'lead' and 'junior' sponsors

because both sponsors are still

responsible under the Listing Rules

that it declined to adopt suggestions to

send comment sheets and material

correspondence to each sponsor at the

same time, arguing that it is not unduly

burdensome for the sponsor responsible

for administrative matters to forward

communications received from the FCA

to the other joint sponsors

that joint sponsors other than those

responsible for administrative matters

can initiate contact with the FCA in

relation to non-administrative matters.

The FCA's policy statement clarifies certain

elements of the listing rules for firms

considering a premium listing of their

securities, and those who advise issuers or

invest in such securities. The new rules were

effective from 1 April 2015.

Accounting

New UK GAAP FRS 104 'Interim financial reporting' issued

The FRC issued FRS 104 ‘Interim financial

reporting’ on 19 March 2015. FRS 104 is

relevant for entities that apply UK and Irish

GAAP and prepare interim financial reports.

These revised interim reporting

requirements are based on IAS 34 amended

to reflect UK company law and certain

exemptions and amendments in FRS 102.

The FRC has withdrawn the reporting

statement ‘Preliminary announcements’ and

will evaluate whether it should develop new

guidance on certain aspects of preliminary

announcements.

FRS 104 is effective for interim periods

beginning on or after 1 January 2015 with

early application permitted. For further

details see our In brief guide ‘UK GAAP –

new standard on interim financial

reporting’.

IFRS New revenue standard discussions continue

The IASB has published notes from its

meeting with the FASB on 18 March 2015,

to discuss the following implementation

issues related to the new revenue standard:

practical expedients upon transition—

contract modifications and completed

contracts

sales tax presentation: gross versus net

non-cash consideration

collectability considerations

principal versus agent considerations.

Both boards agreed to propose a new

practical expedient to provide relief from

evaluating contract modifications prior to

the date of initial application of the

standard. The boards also agreed to propose

other practical expedients and clarifications

to the standard, although they were not fully

aligned on their approach. The IASB plans

to include the agreed-upon changes in a

package of proposed amendments it expects

to issue later this year.

See In Transition ‘FASB and IASB decide on

additional changes to revenue standard’ for

our overview of the implementation issues

discussed and the tentative decisions

reached.

Proposed amendments to statement of cash flows

The IASB issued Investor perspective:

Helping Investors Better Understand Cash

Flow on 23 March 2015. This paper looks at

the merits of proposed amendments to IAS

7,'Statement of cash flows', to provide more

information about changes in debt.

New leases standard project update

The IASB published a project update

‘Leases: Practical implications of the new

Leases Standard’ on 16 March 2015. It

outlines the likely practical effects of the

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new leases standard, which will require

companies to bring leases onto the balance

sheet, as well as providing details on the

similarities and differences between the

IASB’s requirements and those of the US

FASB.

Other updates FRC priorities for 2015/2016

The FRC published its Plan & Budget and

Levies 2015/16 on 25 March 2015. In

2015/2016, the FRC plans to focus on:

Corporate governance – company

culture and how to promote good

practice and company succession

planning.

Investor stewardship - better

engagement between boards and

shareholders and ensuring Stewardship

Code signatories deliver on their

commitments.

Corporate reporting - promoting reports

that are fair, balanced and

understandable, as well as clear and

concise. Continuing to help smaller

listed and AIM companies with the

quality of their reporting.

Actuarial standards and regulation -

finalising the project to identify and

respond to public interest actuarial risks

and work on technical actuarial

standards.

Audit - supporting the BIS to implement

the amended EU Audit Directive and

Regulation, and promoting audits that

are of a consistently high standard and

meets investor needs.

Conduct - the overall effectiveness of its

work to review the quality of corporate

reporting and auditing and improving

the pace and effectiveness of

independent disciplinary arrangements.

PwC publications IFRS News - March 2015

The March edition of IFRS News considers:

New revenue standard: Convergence

under pressure

Investor view: Accounting policies

Cannon Street Press: ED on IAS 1 amendment

Leasing project

Rate regulated activities

Questions and answers: ‘X’ for

exiting a business

New IFRSs for 2015

Our In depth guide ‘New IFRSs for

2015’outlines the new IFRS standards and

interpretations that come into effect for

2015 year ends. The IASB has issued three

new standards: IFRS 9 ‘Financial

instruments’, IFRS 14 ‘Regulatory deferral

accounts’, IFRS 15 ‘Revenue from contracts

with customers’.

The IASB has also made a few narrow scope

amendments to existing standards effective

for 1 July 2014, that have been endorsed by

the EU as effective on or after 1 January

2015, and various other amendments that

are still subject to endorsement.

Reminder of Listing Rule disclosures

The FCA’s Listing Rules (Listing Regime

Enhancements) Instrument 2014 require

premium listed companies to make certain

disclosures ranging from related party

transactions to certain long-term incentive

schemes (as well as new disclosures for

companies with controlling shareholders) in

one place in the annual report, or to provide

a cross-reference table.

Our In brief guide ‘Profit forecasts and

unaudited financial information –

reminder of Listing Rule disclosure

requirements’ considers how firms have

implemented these requirements and issues

encountered re disclosures relating to profit

forecasts and unaudited financial

information.

Impairment of financial assets – Q & A

The IASB published the complete version of

IFRS 9 ‘Financial instruments’ in July 2014.

This replaces most of the guidance in IAS 39

and contains a new impairment model

which will result in earlier recognition of

impairment losses.

Our In depth guide ‘A look at current

financial reporting issues IFRS 9:

Impairment of financial assets – Questions

and answers’ includes our views on some of

the most common issues that have been

raised by preparers and reviewers of

financial statements as part of

implementation of the new standard in

relation to impairment.

Impairment of non-financial assets

Following our In brief guide ‘Top 5 tips for

impairment reviews of non-financial

assets’ published in January 2015, we have

published an In depth guide: ‘A look at

current financial reporting issues:

Impairment of non-financial assets –

Expanding on the top 5 tips for impairment

testing. This considers in more detail the

five key areas of focus when completing

impairment review for non-financial assets.

Capitalisation of borrowing costs

Our In depth guide ‘A look at current

financial reporting issues: IAS 23 -

Capitalisation of borrowing costs considers

the practical implementation of IAS 23 in

areas of uncertainty including specific

versus general borrowings, when to start

capitalisation, total borrowing costs eligible

for capitalisation, and whether foreign

exchange differences should be capitalised.

IFRS 8 ‘Operating segments’

Our In depth guide ‘A look at current

financial reporting issues: A fresh look at

IFRS 8, ‘Operating segments’ explains why

segment reporting is important, the key

requirements of IFRS 8, ‘Operating

segments’, and discusses practical issues

that have evolved over time including

disclosure requirements that are often

overlooked or misunderstood.

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In this section:

Regulation 22

Capital and liquidity 22 Competition 24 Consumer credit 24 Consumer protection 24 Data 25 Mortgages 25 Other regulatory 25 Recovery and resolution 26 Reporting 26 Structural reform 27

Regulation

Capital and liquidity No EBA stress tests in 2015

The EBA confirmed that it will not perform

bank stress tests in 2015 in a letter to the

EP, EC and Council on 2 March 2015.

Instead it plans to run a transparency

exercise in line with its 2013 exercise to

provide detailed data on EU banks' balance

sheets and portfolios, and to prepare for the

next stress test in 2016.

The EBA decided not to run 2015 stress

tests because it feels comfortable with

banks' capital raising following on from the

2014 comprehensive review. It also

acknowledged the burden that the

comprehensive review imposed on banks

last year.

But UK banks will get stressed

On 16 March 2015 the BoE announced its

timetable for stress testing in 2015 with the

key focus areas and accompanying guidance

subsequently announced on 30 March 2015.

The 2015 stress test will look at how

resilient the UK banking system is to

deteriorating global economic conditions.

This reflects the downturn (e.g. in oil prices)

which affected the global economy in the

second half of 2014.

The key elements of the stress test will be:

disappointing global growth relative to

market expectations

build-up of disinflationary pressures

severe downturn in the Chinese property

market

further recession and deflation in the

Eurozone leading to negative GDP

growth in the UK, a fall in consumption,

investment and property prices which

prompts policy makers to pursue

additional monetary stimulus.

The test will include two key capital

adequacy thresholds in the stress. One will

be set at 4.5% of RWAs, to be met with CET1

capital. The other is to be set at 3% of the

Leverage Exposure Measure met from

CET1. Additional Tier 1 instruments may

also be permitted to comprise up to 25% of

the leverage requirement. In addition to the

stress scenario, the 2015 test will assess

projections of banks' profitability and

capital ratios under a baseline

macroeconomic scenario. Under the

baseline scenario, the PRA expects banks to

meet a 7% CET1 risk-weighted capital ratio

and a 3% Tier 1 leverage ratio.

The results of the tests should be published

in Q4 2015. In addition, the BoE intends to

publish an update of its medium-term

vision for stress testing during 2015.

Banking and capital markets

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Basel III FAQs

On 11 March 2015, the Basel Committee

published an updated list of FAQs for banks

participating in the Basel III monitoring

exercise.

A sample of banks complete a questionnaire

on the impact of Basel III and submit it to

the Basel Committee twice a year. The FAQ

document lists those questions that banks

most frequently raise when completing the

questionnaire. The questions cover the full

range of Basel III initiatives but there is a

particularly high volume of questions and

answers on liquidity and the NSFR.

Approving market risk model changes

The EC published a new Delegated

Regulation amending an existing

Delegated Regulation as regards RTS for

assessing the materiality of extensions and

changes of internal approaches when

calculating own funds requirements for

market risks on 4 March 2015.

The Delegated Regulation sets out certain

qualitative tests for determining whether or

not a change or extension to a market risk

model is 'material' and therefore requires

prior regulatory approval. Any amendment

that would cause a significant change in

capital requirements is likely to require

regulatory approval.

An annex to the Delegated Regulation sets

out quantitative thresholds to help firms

determine whether or not a change or

extension is material. Firms won't need

approval for non-material model changes.

But they will still have to notify national

regulators in a prescribed format set out in

the delegated act, and provide supporting

documentation.

The Delegated Regulation should be

published in the Official Journal shortly. It

will then form part of the single rulebook on

prudential regulation.

Limiting exposure to the shadows

The EBA launched a consultation on draft

guidelines on limits on exposures to

shadow banking activities which carry out

banking activities outside a regulated

framework under the CRR on 19 March

2015. The EBA seeks comments on its

definition of shadow banking entities which

focuses on those firms carrying out credit

intermediation activities outside the scope

of prudential requirements. In this

definition, the EBA incorporates the four

features of credit intermediation identified

by the FSB:

maturity transformation - borrowing

short and lending/investing on longer

timescales

liquidity transformation - using cash-

like liabilities to buy less liquid assets

leverage

credit risk transfer.

The EBA proposes that all investment funds

would fall into the scope of the definition of

shadow banking entities, except non-MMF

UCITS. Despite the security of the UCITS

brand, the EBA believes that the systemic

risks posed by MMFs have not been

adequately addressed through existing

regulation.

Most banks would be subject to the

principal approach, requiring them to set

tailored exposure limits for both individual

shadow banking entities and aggregated

exposures. Under the principal approach,

individual exposure limits would

incorporate an understanding of the

regulatory status, financial situation,

portfolio composition and credit

assessments of the shadow banking

institution.

The consultation closes for comments on

19 June 2015.

Building societies can float charges

HMT published The Financial Services

(Banking Reform) Act 2013

(Commencement (No. 8) Consequential

Provisions) Order 2015 on 4 March 2015. A

floating charge is a security interest over the

non-fixed assets of a company which

enables the company to continue to use and

dispose and exchange those assets in the

course of its business. Building societies

have been forbidden from creating floating

charges before now other than in

connection with:

financial assistance received from HMT,

the BoE, the ECB or another EEA

central bank and

participation in a payment or securities

settlement system.

The ban aimed to protect societies from

excessive control by charge holders who

would be able to appoint an administrative

receiver on exercising a floating charge. But

this threat has now been minimised by

changes to insolvency law under the

Enterprise Act 2002. The constraint on

creating floating charges was identified by

HMT in 2012 as one of the barriers

preventing building societies from

competing and growing.

HMT has removed the existing ban. The

Secretary of State has now to make an order

applying the registration of charges scheme

for companies to those created by building

societies.

PRA stalls IRB model changes

The PRA announced on 10 March 2015 that

it is not currently proceeding with changes

to its policy on the use of credit risk internal

ratings-based (IRB) models.

The PRA had proposed changes to its

supervisory expectations on IRB models'

assessment of sovereign and financial sector

entity exposures in CP12/14 in June 2014.

The PRA planned to reflect these changes in

its supervisory statement on IRB models

(SS11/13). But in light of the Basel

Committee's announced intention to

develop specific policy proposals on IRB

model practices, the PRA has decided not to

pursue these amendments at this time. After

the Basel Committee clarifies its proposals

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at the international level the PRA will

consider its policy options.

Competition Switching rules a success?

In Making current account switching

easier published on 12 March 2015, the FCA

shared the findings of its investigation into

the current account switch service which

launched in 2013. The FCA found that

switching is working well for consumers

who have chosen to use the service but a

lack of awareness and confidence in the new

process prevents greater use.

Banks could increase the regime's success

by more targeted marketing campaigns and

use of positive customer feedback. The FCA

also commissioned independent reports

into the feasibility of current account

number portability and its influence on

customers' decisions to switch. The report

indicated that customers may be more likely

to switch if they could retain their account

details.

The FCA has passed its findings to the new

PSR which will now be responsible for

examining the costs and benefits of

introducing account number portability.

Consumer credit Poor payday lending practice identified

The FCA published the results of TR15/3:

arrears and forbearance in high-cost short-

term credit (HCSTC) on 10 March 2015.

This is the FCA's first thematic review of

HCSTC, also known as payday lending,

since it started to supervise the consumer

credit market. The FCA examined whether

HCSTC firms treat their customers who are

in arrears fairly, finding:

evidence of serious non-compliance and

use of misleading practices to obtain

payments

a number of firms not meeting the

standards set by the FCA and failings

with regard to management control,

culture and systems and controls

firms failed to identify vulnerable

customers or those experiencing

financial difficulties

customer communications were unclear

and misleading

repayment plans were inflexible and

unsustainable.

The FCA provided feedback to all firms in

the sample and investigated cases of unfair

practices. It expects all firms to note the

findings and act on any poor practices

identified in their business.

Scope of credit broking changed

On 24 March 2015 the Government

introduced legislation that may allow some

firms carrying on credit broking activities to

apply for limited rather than full permission

under the FCA regime. The change limits

the definition of a domestic premises

supplier to someone that offers or concludes

a contract to provide goods and/or services

while present at the customer's premises.

Suppliers that fall outside of the definition

may be able to benefit from limited

permission credit broking provided that

they do no engage in other regulated

activities. The Government also extended

the scope of the limited permission regime

to include all broking of consumer hire and

hire-purchase agreements. These changes

were effective from 24 March 2015.

Consumer protection Card fees capped

On 10 March 2015, MEPs voted to cap the

fees that banks charge retailers when

customers use their credit and debit cards in

transactions. The cap applies to cross-

border and domestic card-based payments.

The new rules are intended to enhance fee

transparency and stimulate competition.

Retailers will have the right to accept only

cards that are subject to the fee-capping

rules.

The caps do not apply to ATM cash

withdrawals or transactions with American

Express or Diners cards. The caps come as

the result of an EC commissioned report

which found that given the current level of

the fees, on average, merchants would be

better off if the transactions currently

carried out by card were cash transactions.

The cap is expected to result in lower costs

for retailers.

The rules will need to be officially endorsed

by the European Council in due course and

will take effect six months after the

legislation is published in the Official

Journal.

TSC reviews SME lending

The TSC reported on its SME lending

market investigation on 10 March 2015. It

examined current market conditions for

SMEs and the availability of finance.

The TSC found that the overall availability

of credit for SMEs has improved since the

financial crisis. But SMEs retain a negative

perception about banks' willingness to lend,

resulting in a reluctance to apply for credit.

The TSC suggests that price comparison

websites may be useful for small businesses

and that more needs to be done to improve

competition. The TSC called on the CMA to

consider the issue of bank restructuring.

The report criticises the FCA's interest-rate

hedging product (IRHP) redress process

and calls for a review of the programme

scope. In response to the investigation,

Martin Wheatley wrote to Andrew Tyrie

about the FCA's approach to IRHP redress.

Wheatley refuted the claim that

Independent Reviewers were not

considering fully customers' evidence and

defended the consistency of outcomes,

stating that a one-size fits all approach to

redress was not to be expected due to

differences in firms redress packages. He

also confirmed that businesses excluded

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from the review may still complain to their

banks.

Following publication of the report Andrea

Leadsom, Economic Secretary to the

Treasury wrote to FCA Chairman John

Griffith-Jones requesting that the FCA

commission a full independent review of the

fairness and effectiveness of the IRHP

redress process.

Data Opening up bank data

Following a Call for Evidence on Data

Sharing and Open Data in Banking on 25

January 2015, the Government has

published the responses and committed to

delivering an open application

programming interface (API) standard in

UK banking. It plans to set out a detailed

framework by the end of 2015.

The vast majority of respondents to the call

for evidence supported the development of

an open API standard given the benefits

they believe it will give UK banking, such as:

increased competition and innovation

greater consumer choice

new services that will improve the

overall efficiency of banking.

The Government noted there are some

concerns around customer data privacy and

the need for appropriate security and

vetting systems, but stated that APIs can be

designed to meet data protection and

security requirements, mostly through

existing regulation. It now intends to work

closely with banks and financial technology

firms to take the design work forward.

Mortgages Regulator sets mortgage rules

The FCA published Implementation of the

Mortgage Credit Directive and the new

regime for second charge mortgages on 23

March 2015. The FCA sets out how it will

implement the MCD and how it will align its

regulation of first and second charge

mortgages.

Firms must undertake an affordability

assessment where a customer is switching

lenders or is seeking to borrow against the

property. Second charge lenders must also

take into account the impact of expected

interest rate increases when lending. The

FCA has delayed some reporting

requirements until 1 April 2017 to help

firms implement MCD changes on top of

recent changes brought about by the MMR.

All firms must comply with other

requirements by 21 March 2016 although

any firm wishing to do so may implement

the rules from 21 September 2015.

Customers lacking on mortgage strategies

The FCA published TR15/4: governance

over mortgage lending strategies on 19

March 2015. It encourages mortgage

lenders to consider their customers at all

stages when setting or implementing

mortgage lending strategies and wants firms

to take preventative action against customer

harm and damage to the market.

The FCA reviewed practices at 10 firms and

found:

customer focus was present during

development and approval but lacking

in implementation and assurance

governance structures and processes are

more effective when there is a clear

customer focus

conduct champions could pose a key

man risk

valuable insights and improved

outcomes can be gained during the

development and assurance stages by

customer research and engagement on

the customer journey and potential risks

the best interests of customers should be

considered when making decisions that

establish or change lending strategies.

The FCA recommends that firms have an

audit trail of key decisions and encourages

firms to implement a wider ownership and

understanding of conduct risk at all

business and operational levels. Firms are

also asked to continually challenge

themselves about the possible impact on

customer outcomes during each strategy

phase.

Other regulatory Risk dashboard showing higher capital

On 16 March 2015 the EBA published its

Risk Dashboard Q4 2014 which

summarises the main risks and

vulnerabilities in the EU banking sector,

based on the evolution of key risk indicators

from 55 banks. The dashboard confirms the

positive trend of EU banks' capital

positions, with the CET1 ratio reaching

12.1% per cent in Q3 2014 compared to

11.8% in Q2. This is the highest level since

2009 and was driven by an increase in

retained earnings and capital issuances that

outpaced a more modest growth of RWAs. It

also reveals the levels of non-performing

loans to be stable, but still generally very

high, despite divergences across banks. As a

result the EBA stresses the need for

continuous monitoring of credit quality,

accompanied by consistent transparency of

banks' exposures.

Profitability levels remain volatile and

predominantly at low levels throughout the

sector. Returns continue to be subdued.

Profitability dispersion across banks and

jurisdictions is material, but continues to

narrow. The dashboard also shows that

balance sheets' structures continue to shift

towards less indebtedness with the loan-to-

deposit ratio at an all-time low of 109.3 per

cent. Similarly, the share of customer

deposit to total liabilities is at 49.2 per cent,

a record high for the available data.

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Recovery and resolution EBA consults on financial contracts records

On 6 March 2015, the EBA published a

consultation paper on draft RTS for a

minimum set of the information on

financial contracts that should be

contained in the detailed records of a bank

or other relevant entity and the

circumstances in which the requirement to

maintain records should be imposed.

Resolution authorities can temporarily

suspend a party's termination rights to a

contract with an institution which is under

resolution under the BRRD. To support this

power, resolution authorities may require a

bank or other relevant entity to maintain

detailed records of its financial contracts.

The EBA proposes that banks and other

relevant entities which are likely to be

subject to resolution actions (as determined

by their resolution plans) collect the

information in advance. They will then need

to make this information available to the

resolution authorities upon request.

Conversely, banks and other relevant

entities that are likely to be placed into an

insolvency procedure (rather than

resolution) are not automatically subject to

the requirement to maintain detailed

records of financial contracts. This is

intended to ensure proportionality. The

EBA specifies a minimum list of

information that should be contained in the

records of financial contracts to strike a

balance between the need to achieve an

appropriate level of convergence in record-

keeping, while allowing competent

authorities and resolution authorities to

impose additional requirements.

Where possible, the EBA uses the same

language and structure as that in the EMIR

RTS for reporting data to trade repositories

to ensure consistency between different

regulatory requirements and reduce the

reporting burden.

The consultation closes on 6 June 2015.

EBA finalises technical advice

On 6 March 2015 the EBA published three

technical advice papers under BRRD on:

critical functions and core business

lines

deferral of extraordinary ex-post

contributions

the circumstances when exclusions

from the bail-in tool are necessary.

The technical advice on critical functions

and core business lines reflects the FSB’s

“Guidance on Identification of Critical

Functions and Critical Shared Services”. It

also reflects its own benchmarking exercise

reviewing the recovery plans of 27 European

cross-border banking groups (published in

conjunction with the technical advice as

“Comparative report on the approach to

determining critical functions and core

business lines in recovery plans”).

The comparative report illustrates the

preferred assessment criteria used by banks

to determine critical functions and core

business lines and the most common set of

indicators to support this assessment. The

EBA suggests that banks should review the

report to identify best practice and their

positioning in relation to peers so as to

ensure that their recovery plans correctly

assess critical functions and core business

lines.

Under BRRD all EU banks shall contribute

towards resolution funds in their member

states by annual ex-ante contributions and,

if such ex-ante contributions are

insufficient, by extraordinary ex-post

contributions. A resolution authority may

defer the payment of an ex-post

contribution by an individual bank for so

long as such payment would jeopardise the

bank’s liquidity or solvency. The second

technical advice aims to specify the meaning

of the likelihood that a payment would

“jeopardise” a bank’s financial condition

and the circumstances in which this could

lead to a deferral. The EBA recommends

that resolution authorities analyse the

impact on solvency and liquidity of a bank

before allowing deferral of ex-post

contributions and that this should only be

permitted in exceptional cases.

Finally the third piece of technical advice

looks at when the bail-in tool might not be

applied. The EBA suggests that use of the

exclusion should be limited to the minimum

necessary to achieve the objective which

justifies the exclusion.

The technical advice is now with the EC to

approve and adopt into BRRD delegated

acts.

Reporting More regulatory reporting in Eurozone

The ECB published Feedback statement:

Responses to the public consultation on the

draft ECB Regulation on reporting of

supervisory financial information on 26

March 2015. The Governing Council of the

ECB adopted the ECB Regulation on 17

March 2015 and it was published in the

Official Journal on 31 March 2015 (entering

into force on 1 April 2015).

CRD IV introduced FINREP, the European

regulatory reporting of financial

information. Current FINREP reporting is

restricted to consolidated reporting by

groups that prepare their financial

statements under IFRS. The ECB is

extending FINREP reporting to include

consolidated reporting by non-IFRS

reporting banking groups, to solo reporting

by subsidiaries incorporated in the

Eurozone of both non-IFRS and IFRS

reporting banking groups and Eurozone

branches of non-Eurozone banking groups.

This includes Eurozone subsidiaries and

branches of the non-Eurozone banking

groups, such as Eurozone subsidiaries and

branches of UK and US banking groups.

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The extent of reporting is tiered ranging

from, 'Full FINREP' reporting for

consolidated reporting by banking groups

supervised directly by ECB termed as

'significant' to 'Supervisory financial

reporting data points' for subsidiaries and

branches deemed 'less significant' and with

total assets less than €3bn.

The first reporting date for significant

groups is 31 December 2015 and for less

significant groups is 30 June 2017.

Structural reform Ring-fencing pensions

HMT published The Financial Services and

Markets Act 2000 (Banking Reform)

(Pensions) Regulations 2015 on 6 March

2015. As banks must ring-fence their retail

and investment banking operations from 1

January 2019, HMT has confirmed the

position for employee pensions which move

into a different entity. The requirements

include:

the ring-fenced body must make

arrangements to ensure that it does not

participate in multi-employer pension

schemes, or have shared pension

liabilities, with parties other than certain

members of its group

the trustees or managers of a multi-

employer pension scheme used by a

ring-fenced body may modify the

scheme, with the consent of the other

employers of that scheme, in order for

the ring-fenced body to meet their

requirements

where a ring-fenced body is party to a

proposed corporate restructuring or

other arrangement, for the purposes of

meeting its obligations as a ring-fenced

body, it must apply to the Pensions

Regulator for a clearance statement in

relation to its pension arrangements

where the proposal is likely to be

materially detrimental

a breach of these Regulations will be

treated as a breach of a requirement

imposed on the ring-fenced body by its

regulator under FSMA.

The PRA is charged with monitoring ring-

fenced firms' compliance with the

Regulations and must take suitable action

against any breaches.

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In this section:

Regulation 28

Alternative investments 28 Retail products 29

Regulation

Alternative investments Updated AIFMD Q&As

ESMA updated Q&As - application of the

AIFMD on 26 March 2015, setting out new

and updated Q&As on:

non-EU AIF reporting - frequency is

determined by AIFMs aggregating all

AIFs marketed in the EU, rather than in

each Member State

currency hedging - should be reported in

the AIF's base currency

stress tests - non-EU AIFMs should

report stress tests results only where

local national private placement regimes

require stress tests to be conducted

launching new AIFs - new notifications

are not required to regulators when

launching an additional AIF in a

Member State

leverage calculations - cash held in an

AIF's base currency should be excluded

from gross method calculations

own fund requirements - investments in

other AIFs under the same AIFM when

calculating additional own fund initial

capital requirements should be excluded

but not when calculating professional

indemnity insurance requirements.

AIFMs and associated service providers

should review the updated Q&As.

Regulators sharing AIFMD information

On 27 March 2015 the Commission

Delegated Regulation on the information to

be provided by competent authorities to

ESMA under AIFMD was published in the

Official Journal. Member State regulators

must provide information to ESMA on:

the use of the EU marketing passport by

AIFs

non-EU AIFs and non-EU AIFMs

making use of any local private

placement rules.

The Delegated Regulation sets out the exact

data requirements on national regulators

and comes into force on 16 April 2015.

Widening CIS exemptions

On 19 March 2015, Parliament published

The Financial Services and Markets Act

2000 (Collective Investment Schemes)

(Amendment) Order 2015. The Order

corrects a mistake in the original FSMA

(CIS) Order by replacing "refusing" with

Asset management

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"reducing" in relation to EIS. Social

investment schemes are exempted from

being considered as a CIS under section 235

of FSMA. To qualify as exempt a social

investment scheme must:

invest only in shares or debentures that

comply with the social investment

scheme requirements set out in the

Income Tax Act 2007

allow each participant in the scheme to

be entitled to a part of the scheme

property but ensure they only able to

withdraw from the scheme after seven

years

participants must invest at least

£2,000.

The Order came into force on 13 April 2015.

Retail products Updated KIID Q&As

ESMA published updated Q&As - key

investor information documents (KIIDs)

for UCITS on 26 March 2015. ESMA

confirmed that where two UCITS merge and

the receiving UCITS is newly established,

the KIID can use the past performance

information of the other UCITS - if the

receiving UCITS' regulator believes the

merger does not impact the past

performance information.

If the investment strategy of the continuing

UCITS is different from the merging UCITS

then the UCITS' regulator may not believe it

is appropriate to show past performance

information for the merging UCITS as the

continuing fund will be investing

differently.

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In this section:

Regulation 30

Solvency II 30 Approved persons 34 Conduct 34 EU update 35

Accounting 35

Regulation

Solvency II New Solvency II approved persons regime

On 27 March 2015 the FCA and PRA jointly

consulted on FCA and PRA: Changes to the

Approved Persons Regime for Solvency II

firms: forms, consequential changes and

transitional arrangements & FCA only:

governance proposals and feedback to

CP14/25. The regulators set out the

consequential changes, transitional

arrangements and forms following the

FCA's and PRA's November consultations

on the Senior Insurance Managers Regime

(SIMR), and the FCA also sets out its

proposed Solvency II governance

arrangements for Solvency II firms.

The FCA will have powers over governance

maps. It will ensure that the maps cover all

individuals who are persons of interest to

the FCA and that specifications for the maps

mirror the PRA's. The FCA believes that this

will enable it to take enforcement action

where firms do not clearly or accurately

allocate responsibilities that are of key

interest to the conduct regulator. It

confirms that firms are expected to keep

their governance maps up to date.

The requirement to submit information on

scope of responsibilities will not apply to

incumbent SIFs at the outset of the SIMR,

but the FCA will consider whether it will be

appropriate for firms to do this at a later

date. The FCA is also considering amending

the SYSC handbook to take into account the

PRA's Solvency II rules, disapplying parts of

SYSC and adding guidance to the Handbook

where Solvency II provisions may be

relevant.

The consultation closes on 15 May 2015.

The FCA and PRA plan to publish final rules

and forms in summer 2015.

FCA publishes final rules

The FCA published PS15/08: Solvency II on

27 March 2015. This sets out the FCA’s final

conduct rules in preparation for the

implementation of Solvency II from 1

January 2016 and feedback from CP11/23,

Solvency II and linked long-term insurance

business, CP11/25, Distribution of retail

investments, RDR Adviser Charging and

Solvency II, CP11/27, Quarterly consultation

paper No.31 and CP12/13, Transposition of

Solvency II Part 2.

Insurance

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‘Set 1’ of implementing regulations published

Three Solvency II implementing regulations

were published in the Official Journal on 20

March 2015, and came into force on 21

March 2015:

Approval of an internal model

The process to reach a joint decision on

the application to use a group internal

model

The procedures for supervisory

approval to establish special purpose

vehicles (SPVs), for the cooperation and

exchange of information between

supervisory authorities regarding SPVs

as well as to set out formats and

templates for information to be

reported by SPVs

A further three Solvency II implementing

regulations were published in the Official

Journal on 25 March 2015, coming into

force on 26 March 2015:

The supervisory approval procedure to

use undertaking-specific parameters

The procedures to be used for granting

supervisory approval for the use of

ancillary own-fund items

The procedures to be followed for the

supervisory approval of the application

of a matching adjustment

These implementing regulations are based

on drafts EIOPA submitted to the EC in

October 2014.

Supervisors exchanging information

EIOPA published a Proposal for 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 on 27 March 2015. This draft

ITS deals with how supervisors in a

supervisory college exchange information

between themselves. Firms may be

impacted if supervisors need to share new

information they do not currently collect.

The consultation closes on 22 May 2015.

EIOPA plans to send this ITS to the EC by

30 June 2015 for final endorsement.

Further to this, members of EIOPA’s Board

of Supervisors and EIOPA’s Chair, Gabriel

Bernardino, signed coordination

arrangements for all colleges of supervisors

of insurance groups with internal models on

27 March 2015. These arrangements lay the

basis for future cooperation within colleges

including their decision making procedures.

Progress on internal model pre-applications

EIOPA published its Progress Report on the

Follow-up to the Peer Reviews on Pre-

application for Internal Models on 20

March 2015. It concludes that the vast

majority of recommendations for assessing

internal models in the Solvency II pre-

application process have already been

followed-up and the remainder should be

implemented by mid-2015.

EIOPA reviews Solvency II equivalence

EIOPA published its Final Report on full

equivalence assessment of Bermuda, Final

Report on full equivalence assessment of

Japan and Final Report on full equivalence

assessment of Switzerland on 11 March

2015. Under Solvency II the EC may

determine whether the solvency regime of a

third country is equivalent to Solvency II in

three areas – reinsurance activities where

the insurer is based in a third country, third

country insurers part of an EEA group and

EEA insurers with non-EEA parents.

EIOPA concludes that:

Bermuda meets the criteria for

equivalence in respect of commercial

insurer in all three areas with a number

of caveats. EIOPA’s assessment relates

specifically to the supervision of

commercial insurers in Bermuda, and

not to captives.

Japan meets the criteria for equivalence

for reinsurance activities with a number

of caveats.

Switzerland meets the criteria for

equivalence in all three areas with a

number of caveats. These caveats would

be mainly addressed by a pending

revision of the Insurance Supervisory

Ordinance (ISO) assuming the current

draft is implemented and enters into

force in 2015.

The final reports are largely unchanged

from those consulted on in December 2014.

The equivalence assessment of Bermuda has

been updated for future developments and

limited changes have been made to the

assessment of the Japanese supervisory

system. The equivalence assessment of the

Swiss supervisory system has remained

unchanged.

Deteriorating financial conditions

EIOPA published its Final Report on the

advice to the EC in response to the call for

advice on recovery plan, finance scheme

and supervisory powers in deteriorating

financial conditions on 28 March 2015.

Under Solvency II, if a firm fails to comply

with their SCR they have to submit a

realistic recovery plan to their supervisor

within two months. Similarly, if they fail to

comply with their Minimum Capital

Requirement (MCR) they have a month in

which to submit a short term realistic

finance scheme to their supervisor and they

are allowed a maximum of three months to

comply with the MCR.

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EIOPA’s advice to the EC:

describes the information companies

must submit when they do not comply

with the SCR or MCR

suggests companies should submit a

combined recovery plan and finance

scheme when companies fail to comply

with both the SCR and MCR at once

highlights the criteria for the

supervisory approval of the submitted

recovery plan or finance scheme

provides a list of some measures

supervisors can take if a company’s

solvency position deteriorates further

describes the circumstances to be taken

into account by supervisors when

deciding on the measures to be adopted.

The draft RTS should now be reviewed and

adopted by the EC in due course.

Infrastructure investments by insurers

Following the EC’s request for technical

advice in February 2015, EIOPA published a

discussion paper on infrastructure

investments by insurers on 27 March 2015.

EIOPA is exploring both the possibility of

introducing a specific standard formula

treatment for infrastructure investments

and also how partial internal models could

be used in the context of investing in

infrastructure projects. The discussion

paper sets out initial ideas on the following

topics:

defining infrastructure investments that

offer predictable long-term cash-flows

and whose risks can be properly

identified, managed and monitored by

insurers

possible criteria for this new class of

long-term lower risk infrastructure

assets covering issues such as

standardisation and transparency

prudentially sound treatment of the

identified investments within a risk

based supervisory system, focusing on

their specific risk profile

effectiveness of the current Solvency II

risk management requirements in

ensuring that the risks of this complex

and, for insurers, relatively new asset

class, are properly managed.

The discussion paper closes to comments on

26 April 2015.

Credit quality under Solvency II

The Joint Committee of the ESAs published

a Joint Consultation Paper on Draft ITS on

the allocation of credit assessments of

External Credit Assessment Institutions

(ECAIs) to an objective scale of credit

quality steps under Solvency II on 6 March

2015. The draft ITS contains a mapping of

ECAI’s credit ratings to Solvency II’s Credit

Quality Steps. This mapping is useful for

calculating Solvency II capital requirements

under the Standard Formula and aids risk

management of EU insurers.

The consultation closed on 10 April 2015.

The Joint Committee plans to submit the

draft ITS for EC endorsement on 30 June

2015.

The Solvency II Regulations 2015

HMT made the Solvency 2 Regulations

2015 on 6 March 2015 and laid them before

Parliament on 9 March 2015 along with an

explanatory memorandum, final impact

assessment and transposition table. The

final Regulations confirm that the use of the

volatility adjustment by UK insurers will be

subject to prior PRA approval.

PRA finalises Solvency II rules

The PRA published PS2/15 - Solvency II: A

new regime for insurers on 20 March 2015.

This is a significant step in completing the

UK’s Solvency II framework and will

provide welcome certainty to insurers. The

PRA has used an ‘intelligent copy-out’

approach to incorporate Solvency II in its

rulebook, meaning there are comparatively

few differences between the PRA’s rules and

the Directive wording. But the PRA has

included more detail in supervisory

statements covering the following areas

some useful information on its

interpretation of the rules:

insurance general application

own funds

quality of capital instruments

solvency and minimum capital

requirements

treatment of pension scheme risk

internal model treatment of

participations

supervision of firms in difficulty or run-

off

composites

group supervision

third-country branches

regulatory reporting and exemptions

Lloyd’s

surplus funds

with-profits

approvals

conditions governing business

transitional measures on risk-free

interest rates and technical provisions.

The policy statement summarises the PRA’s

response to feedback from the consultation.

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In general, the PRA has not substantially

changed the final rules and supervisory

statements from the consultation drafts. It

received strong feedback on the need for

insurers to be able to cancel dividends on

ordinary shares at any time prior to

payment and the definition of surplus

funds, but it has not made any major

changes in these areas. The PRA has made

some changes from its proposals in respect

of the transitional measures on technical

provisions.

See our Hot Topic for further information.

Getting approved under Solvency II

Since 1 April 2015, firms are able to start

making formal applications for approvals in

anticipation of the implementation of

Solvency II on 1 January 2016. Whilst final

information on the application process is

detailed in PS2/15 Solvency II: A new

regime for insurers (see above for more

information) the PRA has also updated its

website with additional details of approvals

and waivers under the Solvency II

Directive. This includes information firms

should use to make a formal application and

additional information on the transitional

measure on technical provisions for firms

applying for approval to use this

application.

In addition, the PRA published a letter on

Solvency II: internal model and matching

adjustment update on 9 March 2015. This

letter clarifies how internal models should

allow for matching adjustment portfolios;

provides information on the quantitative

framework that the PRA will use as part of

its review of internal model applications;

and gives initial feedback from the matching

adjustment pre-application process. The

PRA also published observations of internal

model validation on 18 March 2015, to

assist insurers applying to use internal

models.

The PRA published a further letter on

Solvency II: feedback on firms’ matching

adjustment pre-application submissions on

28 March 2015. This letter gives general

feedback from the PRA’s review of firms’

matching adjustment pre-application

submissions and is expected to be helpful to

firms wishing to make a formal application

from 1 April 2015.

The PRA published CP11/15 - Solvency II:

supervisory approval for the volatility

adjustment on 20 March 2015. In the UK,

insurers will need PRA approval to use the

VA. This draft statement clarifies what

should be included in an application to use

the VA, how the PRA will use applications to

assess whether the statutory conditions for

approval to use the VA have been satisfied

and how the VA approval process will work,

and its interaction with other Solvency II

approval processes. The consultation closes

on 20 April 2015. In the meantime firms

may use the draft supervisory statement in

preparing their applications for approval to

apply the volatility adjustment.

Treatment of sovereign debt

The PRA published CP 14/15: Solvency II:

treatment of sovereign debt in internal

models on 31 March 2015. It is consulting

on a draft supervisory statement on the

treatment of sovereign debt in internal

models. Insurers are required by the SCR to

take account of their exposure to

quantifiable risks in their internal models.

So the PRA is expecting firms to evaluate

the market risk and credit risk arising from

their use of sovereign bonds and where

material include them in their internal

model. It believes this is particularly

important when sovereign bonds are used to

back Solvency II liabilities.

The PRA considers there is a specific risk of

a mismatch between assets and liabilities

when liabilities are discounted with a ‘risk-

free rate’ derived from interest rate swaps

that may give rise to a risk that the spread

between sovereign bond yields and the risk-

free rate fluctuates (‘gilt-swap spread risk’).

The consultation closes on 1 May 2015.

ICAEW guidance on balance sheet reviews

The ICAEW published Solvency II –PRA

balance sheet review exercise on 12 March

2015. As well as containing an illustrative

report that auditors may use when reporting

on Solvency II balance sheets, this

publication details further considerations

relevant to UK insurers within the scope of

the PRA’s balance sheet review exercise.

The ICAEW indicates that the ‘basis of

preparation’ that will accompany the

balance sheet submission needs to be

sufficiently detailed so that it is clear how

the rules have been applied in respect of the

insurer’s particular transactions and state of

affairs. Therefore the ICAEW anticipates

that the basis of preparation will need to be

at a greater depth than typical accounting

policy notes in the financial statements. The

ICAEW further clarified that the PRA’s

intention is that insurers should have regard

to the narrative information on valuation

described in EIOPA’s preparatory guidelines

when determining the depth of detail to

include in basis of preparation documents.

What NEDs and Chairmen need to know

The PRA and the ABI published ‘In

conversation with the PRA – An ABI

webcast with Paul Fisher’ on 25 March

2015, covering what NEDs and Chairmen

need to know about implementing Solvency

II and the support available to them.

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FCA publishes final rules

The FCA published PS15/08: Solvency II on

27 March 2015. This sets out the FCA’s final

conduct rules in preparation for

implementing Solvency II from 1 January

2016 and feedback from CP11/23, Solvency

II and linked long-term insurance business,

CP11/25, Distribution of retail investments

– RDR Adviser Charging and Solvency II,

CP11/27, Quarterly consultation paper

No.31 and CP12/13, Transposition of

Solvency II – Part 2.

Approved persons Non-Solvency II firms' approved persons

On 27 March 2015 the FCA published

CP15/15 Changes to the Approved Persons

Regime for insurers not subject to Solvency

II. It sets out the proposed approved

persons regime for non-Solvency II firms -

small insurers with less than £25m assets -

which the FCA calls non-directive firms. The

FCA is seeking to take a proportionate

approach to applying the approved persons

regime to the non-Solvency II firms.

The FCA will approve all executive

governing functions not subject to PRA

approval. These individuals will become

FCA significant influence function holders

and subject only to the FCA's approval

process.

Standard NEDs will not be subject to

regulatory pre-approval. But chairmen,

senior independent directors and the chairs

of the Audit, Remuneration, Risk and

Nominations Committees will continue to

be subject to pre-approval. The PRA is

seeking respondents' views on whether it

would be appropriate to also include other

designated Chairs of Board Committees

within the FCA SIF regime.

There will be no requirement for non-

Solvency II firms to carry out criminal

records checks on individuals that only

perform FCA controlled functions before

submitting an application, and the new FCA

conduct rules which apply to all banks and

Solvency II firms will apply to non-Solvency

II firms.

The consultation closes to comments on

15 May 2015.

PRA approved persons regime for non-Solvency II firms

On 27 March 2015 the PRA published

CP12/15 Senior Insurance Managers

Regime: A streamlined approach for non-

Solvency II firms, setting out the PRA's

approach to approved persons regime for

non-Solvency II insurance firms (firms that

have less than £25m of assets).

The PRA proposes to amend its existing

controlled functions for non-Solvency II

firms by creating a new small insurer senior

manager function (SISMF) which must be

performed by at least one individual who

has overall responsibility for the conduct of

the regulated activities of the firm.

The SISMF would cover individuals

responsible for the conduct of all or part of

the regulated activities of the firm and

chairing a board of directors or

management committee. This change is

significant and should mean that non-

Solvency II firms will have less PRA

approved persons. The SISMF(s) will have

four responsibilities that must be allocated

to them:

business plan and management plan

financial resources

legal and regulatory obligations

oversight of proportionate systems and

controls, and risk management.

The PRA is proposing to apply the same

fitness and propriety measures and conduct

standards for Solvency II firms to non-

Solvency II firms. Any individual seeking to

hold the controlled function would need to

provide information on the scope of

responsibilities and that the PRA be notified

of any significant change to them.

The CP proposes to implement the new

rules in two stages. First the proposed list of

PRA controlled functions together with the

rules on fitness and propriety and conduct

standards would be introduced on 7 March

2016. Then the new requirement where

specific responsibilities need to be allocated

to a SISMF would commence 12 months

later.

The consultation closes to comments on

15 May 2015 and the PRA aims to provide

feedback towards the end of the year.

Conduct Opting-out of add-ons

The FCA published CP15/13: general

insurance add-ons market study - proposed

remedies: banning opt-out selling across

financial services and supporting informed

decision-making for add-on buyers on 25

March 2015.

The FSA commenced the competition and

market study of general insurance add-ons

in December 2012 and found four areas

where competition and the customer

outcomes need improvement.

The FCA consulted in December 2014 on

changes to its rules on guaranteed asset

protection (GAP) insurance and plans to

consult in future on introducing a new value

for money measure to set out for customers

whether it is a good decision for them to

purchase specific add-ons or not.

The FCA proposes two other remedies:

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banning opt-out selling (where boxes are

pre-ticked, meaning customers have to

opt-out of purchasing an add-on rather

than opting to buy it)

guidance to make it clearer that firms

should provide information in a timely

manner to customers to help them in

their purchasing decisions for add-ons

(particularly aimed at price comparison

websites).

The FCA applies these provisions to

customers - not just "consumers". Therefore

commercial and institutional clients will

receive the same protection as an individual

retail customer. The consultation closes for

comments on 25 June 2015.

Regulating insurance conduct

On 12 March Katja Wurtz, EIOPA's head of

Cross-Sectoral and Consumer Protection

Unit, spoke about The future of European

market conduct regulation. She described

three issues which she believes will have an

important impact on the next period of

conduct regulation:

Regulators will use 'smart regulation' in

the future by taking more account of real

consumer behaviour, reflective of the

FCA's use of behavioural economics to

shape its thinking in the UK.

The importance of effective product

oversight and governance, with firms

taking a holistic approach, looking at the

entire life cycle of products, covering

product design and testing, the

identification of target markets and

suitability assessments, the choice of

distributors, the setting up of

remuneration, commissions and other

incentives so as to ensure customer

interests are put foremost.

The effect of digitalisation and how it

will change how products are developed

and distributed to the public.

EU update Deteriorating financial conditions

EIOPA published its Final Report on CP-14-

062 on the advice to the EC in response to

the call for advice on recovery plan, finance

scheme and supervisory powers in

deteriorating financial conditions on 28

March 2015. This report includes feedback

from the consultation process, which ended

on 18 February 2015, and EIOPA's advice on

regulatory technical standards for EC

adoption.

Under Solvency II, if a firm fails to comply

with their Solvency Capital Requirement

(SCR) they have to submit a realistic

recovery plan to their supervisor within two

months. Similarly, if they fail to comply with

their Minimum Capital Requirement (MCR)

they have a month in which to submit a

short term realistic finance scheme to their

supervisor and they are allowed a maximum

of three months to comply with the MCR.

EIOPA's advice to the EC:

describes the information required from

companies when they do not comply

with the SCR or MCR

advocates the submission of a combined

recovery plan and finance scheme when

companies fail to comply with both the

SCR and MCR at once

highlights the criteria for the

supervisory approval of the submitted

recovery plan or finance scheme

provides a list of some measures

supervisors can take if a company's

solvency position deteriorates further

describes the circumstances to be taken

into account by supervisors when

deciding on the measures to be adopted.

March risk assessment

EIOPA published its Risk Dashboard for

March 2015 based on Q4 2014 data on 20

March 2015. EIOPA concludes that the risk

environment facing the insurance sector

remains challenging. The risk of

interlinkages and imbalances has increased

since the previous quarter - EIOPA believes

that increased derivative holdings are likely

due to increased exchange rate movements.

Accounting

Insurance Contracts project update

The IASB published Investor Perspectives -

February 2015 on 3 March 2015 to update

investors on the progress of its insurance

contracts project and proposals to address

the only remaining issue to be resolved, the

pattern of profit recognition for

participating contracts. The IASB met on 19

March 2015 to continue discussions on

participating contracts and specifically

discussed whether the contractual service

margin (‘CSM’) should be adjusted for the

insurer’s share of investment returns, scope,

how interest expense should be recognised

and how the CSM should be allocated in

profit or loss. The Board did not make any

decisions. See our Insurance alert ‘IASB

education session on 19 March 2015’ for

details.

The IASB published a Project update:

Insurance Contracts without Participation

Features on 16 March 2015. This paper

gives an overview of the IASB’s tentative

decisions on the general model that would

apply to insurance contracts without

participation features, and its reasons for

reaching those decisions.

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Open consultations

Closing date for responses

Paper Institution

24/04/15 Consultation on changes to the investment regulations following the Law Commission’s report “Fiduciary Duties of Investment Intermediaries”

DWP

26/04/15 Discussion paper on infrastructure investments by insurers EIOPA

27/04/15 Consultation paper – draft RTS on prudential requirements for central securities depositories under the CSDR EBA

27/04/15 CP15/5 (FCA)/CP7/15 (PRA) – approach to non-executive directors in banking and Solvency II firms and application of the presumption of responsibility to Senior Managers in banking firms

FCA/PRA

30/04/15 Consultative document – guidance on accounting for expected credit losses Basel Committee

01/05/15 CP14/15 –Solvency II: treatment of sovereign debt in internal models PRA

01/05/15 CP15/15: depositor and dormant account protection – further amendments PRA

04/05/15 Transaction costs disclosure – improving transparency in workplace pensions DWP/FCA

05/05/15 Discussion paper – future of the IRB approach EBA

06/05/15 CP15/6: Consumer credit – proposed changes to our rules and guidance FCA

07/05/15 GC15/2 – general guidance on the application of ex-post risk adjustment to variable remuneration FCA

Monthly calendar

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Closing date for responses

Paper Institution

08/05/15 Recognised clearing houses: call for evidence HMT

08/05/15 CP15/12: Pension wise – recommendation policy FCA

11/05/15 GC15/3 Primary Market Bulletin No.11 FCA

13/05/15 Green paper – building a CMU EC

13/05/15 Consultation document – review of the Prospectus Directive EC

13/05/15 Consultation document – an EU framework for simple, transparent and standardised securitisation EC

15/05/15 CP15/16 / CP13/15 – changes to the approved persons regime for Solvency II firms: forms, consequential changes and transitional arrangements

FCA and PRA

15/05/15 CP12/15 – Senior Insurance Managers Regime: a streamlined approach for non-Solvency II firms PRA

15/05/15 CP15/15: changes to the approved persons regime for insurers not subject to Solvency II FCA

15/05/15 GC15/1: risks to customers from performance management at firms FCA

18/05/15 CP15/14 – FCA regulated fees and levies: rates proposals 2015/16 FCA

19/05/15 CP10/15 – regulated fees and levies: rates proposals 2015/16 PRA

20/05/15 Call for evidence: the extension of the disclosure requirements to private and bilateral transactions for structured finance instruments

ESMA

20/05/15 CP15/11 – implementation of the Transparency Directive Amending Directive and other Disclosure Rule and Transparency Rule FCA

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Asset management Insurance Monthly calendar Glossary

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Closing date for responses

Paper Institution

changes

22/05/15 Consultation paper on the draft 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

EIOPA

25/05/15 CP15/10 and CP9/15 – strengthening accountability in banking: UK branches of foreign banks FCA and PRA

26/05/15 DP15/3: developing our approach to implementing MiFID II conduct of business and organisational requirements FCA

27/05/15 CP8/15: engagement between external auditors and supervisors and commencing the PRA’s disciplinary powers over external auditors and actuaries

PRA

29/05/15 Assessment methodologies for identifying non-bank non-insurer global systemically important financial institutions FSB and IOSCO

04/06/15 Consultation paper – draft guidelines on sound remuneration policies under CRD IV and the CRR EBA

06/06/15 Consultation report – market intermediary business continuity and recovery planning IOSCO

06/06/15 Consultation report – mechanisms for trading venues to effectively manage electronic trading risks and plans for business continuity

IOSCO

06/06/15 Consultation paper – draft RTS on a minimum set of the information on financial contracts that should be contained in the detailed records and the circumstances in which the requirement should be imposed under the BRRD

EBA

09/06/15 Consultation paper – draft RTS and guidelines on business reorganisation plans under BRRD EBA

15/06/15 Consultation paper – draft guidelines on complex debt instruments and structured deposits ESMA

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announcements

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Closing date for responses

Paper Institution

16/06/15 CP15/9 – strengthening accountability in banking: a new regulatory framework for individuals – feedback on CP14/13 (FCA) and CP 14/14 (PRA) and consultation on additional guidance

FCA

18/06/15 Consultation paper – transposition of the MiFID II HMT

18/06/15 Creating a secondary annuity market: call for evidence HMT and DWP

19/06/15 Consultation paper – draft guidelines on limits on exposures to shadow banking entities which may carry out banking activities outside a regulated framework under the CRR

EBA

25/06/15 CP15/13: general insurance add-ons market study – proposed remedies: banning opt-out selling across financial services and supporting informed decision-making for add-on buyers

FCA

10/07/15 CP16/15 – Solvency II: consistency of UK generally accepted accounting principles with the Solvency II Directive PRA

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Forthcoming publications in 2015

Date Topic Type Institution

Client Money

Q1 2015 Review of the client money rules for insurance intermediaries Policy statement FCA

Consumer protection

Q1 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

Q1 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

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Date Topic Type Institution

Securities and markets

Q1 2015 Implementing acts on third country equivalence decisions on exposures to third country investment firms, clearing houses and exchanges treated as 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 joint sponsors and call for views on sponsor conflicts – PS to CP14/21

Policy statement FCA

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 Consultation Paper on technical standards

Consultation or technical standards ESMA

Products and investments

Q2 2015 Restrictions on the retail distribution of regulatory capital instruments – PS to CP14/23

Policy statement FCA

Q3 2015 Advice on the application of the passport to third-country AIFMs and AIFs

Advice ESMA

TBD 2015 Undertakings For The Collective Investment of Transferable Securities V Technical advice ESMA

TBD 2015 RTS on format and content of disclosures in KID for PRIPs Technical standards ESMA

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Cross sector

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Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 42

Date Topic Type Institution

Recovery and resolution

Q2 2015 Advice on the criteria for determining the number of years by which the initial 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

Q3 2015 RTS on Contractual Bail in Technical standards EBA

TBD 2015 Recovery and Resolution Directive – PS to CP14/15 Policy statement FCA

TBD 2015 Strengthening the Alignment of Risk and Reward: New Remuneration Rules – PS to CP14/14

Policy statement FCA

TBD 2015 Strengthening accountability in banking: a new regulatory framework for individuals – PS to CP14/13

Policy statement FCA

Solvency II

Q1 2015 Solvency II

changes – PS Policy statement FCA

TBD 2015 Solvency II Level 3 measures Level 3 text EIOPA

Supervision, governance and reporting

Q4 2015 Assessment of national SREP approaches Report EBA

Main sources: ESMA 2015 work programme; EIOPA 2015 work programme; EBA 2015 work programme; EC 2015 work programme; FCA policy development updates

Executive summary Individual accountability

takes

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 43

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 Reform Act (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 and Capital 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

CCD Consumer Credit Directive 2008/48/EC

CCPs Central Counterparties

CDS Credit Default Swaps

CEBS Committee of European Banking Supervisors (predecessor of EBA)

CET1 Core Equity Tier 1

CESR Committee of European Securities Regulators (predecessor of ESMA)

Co-legislators Ordinary procedure for adopting EU law requires agreement between 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)

CIS Collective Investment Schemes

Glossary

Executive summary Individual accountability

takes

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 44

CMA Competition and Markets Authority

CMU Capital markets union

CoCos Contingent convertible securities

Council Generic term representing all ten configurations of the Council of the European 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 and directives related to credit rating agencies COM(2011) 746 final

CRAs Credit Rating Agencies

CRD ‘Capital Requirements Directive’: collectively refers to Directive 2006/48/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 credit institutions and investment firms

CTF Counter Terrorist Financing

DFBIS Department for Business, Innovation and Skills

DG MARKT Internal Market and Services Directorate General of the European Commission

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 the Council of the European Union dealing with financial and fiscal and competition issues)

ECON Economic and Monetary Affairs Committee of the European Parliament

EEA European Economic Area

EEC European Economic Community

EIOPA European Insurance and Occupations Pension Authority

EMIR Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (EC) No 648/2012

EP European Parliament

ESA European Supervisory Authority (i.e. generic term for EBA, EIOPA and ESMA)

ESCB European System of Central Banks

ESMA European Securities and Markets Authority

ESRB European Systemic Risk Board

Executive summary Individual accountability

takes

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 45

EU European Union

EURIBOR Euro Interbank Offered Rate

Eurosystem System of central banks in the euro area, including the ECB

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 (expected 2013)

FMI Financial Market Infrastructure

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

IFRS International Financial Reporting Standards

IMA Investment Management Association

IMAP Internal Model Approval Process

Executive summary Individual accountability

takes

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 46

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 Directive 2003/43/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) 651 final)

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

NAV Net Asset Value

NBNI G-SIFI Non-bank non-insurer global systemically important financial institution

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

OECD Organisation for Economic Cooperation and Development

Official Journal Official Journal of the European Union

Executive summary Individual accountability

takes

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – April 2015 PwC 47

OFT Office of Fair Trading

Omnibus II Second Directive amending existing legislation to reflect Lisbon Treaty and new supervisory infrastructure (COM(2011) 0008 final) – amends the Prospectus Directive (Directive 2003/71/EC) and Solvency II (Directive 2009/138/EC)

ORSA Own Risk Solvency Assessment

OTC Over-The-Counter

p2p Peer to Peer

PERG Perimeter Guidance Manual

PRA Prudential Regulation Authority

Presidency Member State which takes the leadership for negotiations in the Council: rotates on 6 monthly basis

PRIIPs Regulation

Proposal for a Regulation on key information documents for investment 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

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 Individual

accountability takes

More firms caught by

bonus cap?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

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150409-123124-JN-OS

Laura Cox

020 7212 1579 laura.cox@uk.pwc.com

@LauraCoxPwC

Andrew Strange

020 7804 6669

andrew.p.strange@uk.pwc.com

Retail distribution, asset management and reg reform

Andrew Hawkins

020 7212 5270

andrew.d.hawkins@uk.pwc.com

Banking, prudential regulation and shadow banking

Mike Vickery

011 7923 4222

mike.p.vickery@uk.pwc.com

Insurance, Solvency II

Betsy Dorudi 020 7213 5270

betsy.dorudi@uk.pwc.com

EMIR, MiFID II and OTC rules

Liz Gordon 020 7212 6493

liz.gordon@uk.pwc.com

Asset management, accounting issues

Sharon-Marie Fernando 020 7804 3062

sharon-marie.fernando

@uk.pwc.com Investment funds and insurance

Kareline Daguer 020 7804 5390

kareline.daguer@uk.pwc.com

Insurance, Solvency II

Hortense Huez

020 7213 3869

hortense.huez@uk.pwc.com

Prudential regulation, Basel III, Liquidity and funding

Ian Kelly 020 7804 1929

ian.kelly@uk.pwc.com

Prudential regulation and reporting

David Brewin 020 7212 5274

david.r.brewin@uk.pwc.com

Client assets and prudential regulation

Tania Lee 079 7668 7547

tania.a.lee@uk.pwc.com

Insurance, Solvency II

Megan P Charles 020 7804 0904

megan.p.charles@uk.pwc.com

Consumer credit

John Newsome 020 7804 1168

john.newsome@uk.pwc.com

Asset management regulatory and conduct issues

Babar Hayat 020 7212 6914

babar.hayat@uk.pwc.com

FS Technology transformation, development and client delivery

Isabella Rodgers

020 7804 5240

isabella.z.rodgers@uk.pwc.com

MiFID II, structural reform

Luke Nelson

020 7213 4631

luke.a.nelson@uk.pwc.com Securities and derivatives, financial crime and shadow banking

Dominic Muller 020 7213 2905

dominic.b.muller@uk.pwc.com

Asset management, US and cross-border regulation

Contacts