EESC opinion on MiFID review proposals
The European Economic and Social Committee (EESC) has published its opinion on the European Commission’s legislative proposal revising the Markets in Financial Instruments Directive (MiFID).
The EESC welcomes the proposal to recast MiFID and sets out specific comments concerning the main new elements. In particular the EESC states that a key point of the proposed recast Directive is the introduction of independent advice and believes that the provisions have been well drafted. The EESC also notes that the proposed recast Directive introduces a new model for the payment of independent advisers. The EESC believes that the new payment scheme will enhance the quality of the service provided, increase protection and help to ensure that professionals behave honestly. In this connection, the EESC suggests making a distinction between "advice" and "sale".
View EESC opinion on MiFID review proposals, 25 April 2012
The Bilateral Complaint Handling Process
At the Cannes G20 Leaders Summit in November 2011, the Financial Stability Board (FSB) was called on, as part of its ongoing monitoring and public reporting on compensation practices, to "carry out an ongoing bilateral complaint handling process to address level playing field concerns of individual firms."
In response to this, the FSB has now published a document entitled The Bilateral Complaint Handling Process (BCHP). The BCHP is intended to:
- Address evidence-based complaints raised by financial institutions (FIs) to their home supervisors that document a competitive disadvantage as a result of the inconsistent implementation of the FSB’s Principles for Sound Compensation Practices.
- Produce and report information to the FSB on the nature and outcomes of such complaints so as to inform the scope and intensity of the ongoing monitoring.
The FSB also expects that the BCHP will encourage supervisory dialogue on compensation issues.
The BCHP contains a template which sets out the information that home state supervisors must collect in order to substantiate a complaint, as well as information on handling complaints, sharing confidential information and reporting to the FSB.
View The Bilateral Complaint Handling Process, 27 April 2012
FSB publishes interim report on securities lending and repos
The Financial Stability Board (FSB) has published an Interim Report entitled Securities Lending and Repos: Market Overview and Financial Stability Issues. The interim report was produced by the FSB's Workstream on Securities Lending and Repos, which is one of five workstreams, established following the Cannes G20 Leaders Summit in November 2011, to strengthen the regulation of the shadow banking system.
The report describes the segments, operations and practices of these securities financing markets, which may constitute an important element of the shadow banking system. The workstream has:
- Classified the markets into four main, inter-linked segments.
- Identified the five key drivers that have contributed to the growth of these markets.
- Identified the aspects of the market that are considered to be important elements of the shadow banking system.
- Identified seven issues arising from the securities financing markets that might pose risks to financial stability and/or need further investigation.
The deadline for comments on the FSB interim report is 25 May 2012.
View FSB publishes interim report on securities lending and repos, 27 April 2012
View Interim report - Securities Lending and Repos: Market Overview and Financial Stability Issues, 27 April 2012
Towards better regulation of the shadow banking system
The European Commission (the Commission) has published a speech given by Michel Barnier (European Commissioner for Internal Market and Services) entitled Towards better regulation of the shadow banking system.
In his speech, Barnier focuses on three areas:
- What is the goal of the Commission’s recent Green Paper on shadow banking? He states that the first aim is to establish a clear definition of shadow banking. The Green Paper has further aims which are to: review the numerous measures that the Commission has already adopted in relation to the shadow banking system, assess the risks presented by shadow banking and list the issues that need to be addressed.
- What does the Commission hope to achieve by regulating the shadow banking system? Barnier states that it is too early to go into detail and make specific proposals. However, he states that it is important to establish four general principles from the outset: (1) that regulators and supervisory authorities must have a complete overview; (2) not to repeat the mistakes made with the special securitisation vehicles; (3) not to call into question the alternative financing chains, which complement bank lending and are of direct benefit to the real economy; and (4) ensure consistent regulation across various financial sectors.
- Where do the discussions go from here? Barnier states that a Commission expert group is due to publish proposals on the structure of the banking sector in October 2012. The Commission will use this report, as well as the FSB's recommendations on shadow banking that are due to be published in the second half of 2012, and the output from the G20 meeting in Los Cabos in June 2012, as the basis for targeted sectoral consultation exercises. Barnier adds that the consultation exercises are likely to be followed by legislative proposals in the form of Regulations.
View Towards better regulation of the shadow banking system, 27 April 2012
Shadow banking – The ECB perspective
The European Central Bank (ECB) has published a speech given by Vitor Constâncio (Vice-President, the ECB) entitled Shadow banking - The ECB perspective.
At the beginning of his speech, Constâncio notes that the term "shadow banking" is widely used to cover activities related to credit intermediation, liquidity and maturity transformation taking place outside the regulated banking system. He also adds that the shadow banking system has significantly expanded and shifted regulated banking activities into institutions, transactions or markets which are not within the scope of regulation.
Constâncio then addresses the general problems created by unregulated shadow banking as well as the main guidelines for the necessary regulatory reform that is progressing internationally under the aegis of the Financial Stability Board. He then focuses on repo markets, given their importance for the functioning of money markets and consequently for central banks.
Near the end of his speech Constâncio discusses the possibility of a central database to monitor the euro repo market. He argues that a central database fed by infrastructures and custodian banks to the extent that they internalise repo settlement in their own books, would be in place for a much needed central view on the euro repo market and its participants.
Constâncio therefore proposes the creation of an EU central database on euro repos. Due to its role in macro-prudential financial stability and the closeness of repo to monetary policy, Constâncio argues that the ECB would be well placed to centralise the gathering of data for the euro repo market.
Constâncio acknowledges that the creation of a central database would require the European Commission to take forward legislative measures for the creation of a basic reporting framework at the EU level for market infrastructures. As a first step he calls for the preparation of a detailed feasibility study for the repo market database in cooperation with the Commission.
View Shadow banking – The ECB perspective, 27 April 2012
Shadow banking: Thoughts for a possible policy agenda
The Bank of England (BoE) has published a speech presented by Paul Tucker (Deputy Governor Financial Stability, the BoE) entitled Shadow banking: Thoughts for a possible policy agenda.
In his introduction Tucker acknowledges the European Commission's Green Paper on shadow banking and states that it is time to move onto a concrete policy agenda.
In the first part of his speech, Tucker sets out three broad points regarding the definition of shadow banking:
- It is very clear that shadow banking is not the same as the non-bank financial sector. He states that this is not a debate about the appropriate regulatory framework for the whole of finance.
- Non-bank intermediation of credit is not a bad thing in itself.
- Shadow banking comes in lots of shapes and colours. He states that there are degrees to which any particular instance of shadow banking replicates banking.
Tucker then sets out his current thinking on policy in the following areas:
- Shadow banks that are really part of banks.
- Banks' provision of committed lines of credit to independent shadow banks.
- Money funds.
- Securities dealers, finance companies.
- Securities dealers and the "rehypothecation" of client assets.
- Securities lending, repo and collateralised-financing markets.
- Conclusion: innovation, evolution and surveillance.
In his conclusion Tucker states that:
"But it would be foolhardy to imagine that we can frame policies today that will stand the test of time. The financial system will evolve, and we need to permit innovation. A policy framework on shadow banking therefore needs to be adaptive. And it mustn’t try to shut everything down. As I said at the outset, non-bank finance is not intrinsically a bad thing. We will need effective surveillance of what is going on and what concentrations of risk are emerging – through outfits like the FSB’s committee on vulnerabilities and, in the EU, through the European Systemic Risk Board. And we will have to make discerning policy judgments that are explained and consulted upon. That is exactly what the EU, alongside the FSB, is now embarked on."
View Shadow banking: Thoughts for a possible policy agenda, 27 April 2012
ESMA approves credit ratings from Brazil for use in the EU
The European Securities and Markets Authority (ESMA) has announced that it considers the regulatory framework for credit rating agencies (CRAs) in Brazil to be in line with EU rules. Therefore, European financial institutions can continue using credit ratings issued in Brazil for regulatory purposes after 30 April 2012.
In order to facilitate regulatory information exchange, ESMA has entered into a co-operation agreement for the supervision of CRAs with the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários – CVM).
View ESMA approves credit ratings from Brazil for use in the EU, 27 April 2012
Milestones for 2011/12 - Delivering regulatory reform
The FSA has published a table which sets out its progress towards delivering regulatory reform and achieving its milestones for 2011/12. The FSA’s milestones are set out each year in its business plan, which provides details of its key priorities.
The table categorises the milestones according to whether they have been delivered, changed and delivered, changed, or not yet due. The FSA has made changes to the following milestones:
- Mortgage Market Review (MMR). Consultation Paper 11/31: Mortgage Market Review: Proposed package of reforms was published in December 2011. However, the FSA has delayed the Policy Statement until Q3 2012.
- CRD IV proposals. The Consultation Paper is now expected in Q3 2012, this has changed in accordance with the European Commission’s current published timetable for CRD IV.
- Markets Risk Outlook (MRO). The FSA will not publish a MRO because the Financial Stability Report published in March 2011 captures the markets risks and the latest Business Plan provides more detail on the action the FSA is taking across its markets and wholesale conduct areas.
The FSA will publish the next update on its milestones in July 2012.
View Milestones for 2011/12 - Delivering regulatory reform, 2 May 2012
FCA statement of policy - making temporary intervention rules
The FSA has published a draft statement which sets out the proposed Financial Conduct Authority’s policy on the making of temporary product intervention rules.
The temporary product intervention rules will sit alongside other regulatory tools, such as general rules (including non-temporary product intervention rules), guidance, variations of permission and supervisory and enforcement action. The statement of policy states that the choice of which approach is used in any particular situation will be made based on the facts of the case.
In the statement of policy the FSA provides a summary of the process that the FCA will use to develop temporary product intervention rules, and provides some examples of the factors the FCA will consider when making these rules.
The FSA has also published a draft of a paper which sets out examples of previous market issues where product intervention rules might have been considered.
The FSA has published these draft documents to assist members of the public and parliamentarians to consider these aspects of the Financial Services Bill during its passage through Parliament.
View FCA statement of policy - making temporary product intervention rules, 2 May 2012
View Examples of previous market issues where product intervention rules might have been considered, 2 May 2012
FCA draft guidance - super-complaints
The FSA has published draft guidance on how the proposed Financial Conduct Authority (FCA) might implement the super-complaints process in section 234B of the Financial Services Bill.
The guidance does not address everything that may be relevant to a specific complaint but it is intended to assist designated consumer bodies in making comprehensive and robust complaints so that the FCA may respond in a manner that addresses the complainant’s concerns most appropriately with regard to its objectives.
The FSA has published the draft guidance to assist members of the public and parliamentarians to consider these aspects of the Financial Services Bill during its passage through Parliament.
The FSA also states that while the super-complaints process is well established under the Enterprise Act 2002, it will be new for the FCA. The guidance may be amended in the light of the FCA’s developing experience in handling super-complaints.
View FCA draft guidance - super-complaints, 2 May 2012
MPs announce terms of reference for corporate governance and remuneration inquiry
The House of Commons Treasury Select Committee has published the terms of reference for a new inquiry into corporate governance in systemically important financial institutions.
Andrew Tyrie MP (Committee Chairman) commented:
“The Committee will seek to address, among other things, why it was that so many experienced and technically competent non-executives - the cream of British corporate life - appeared to be asleep in some of the boardrooms of our major financial firms.
"In systemically risky institutions, it is particularly important to find a way to encourage more constructively engagement with shareholders on crucial governance issues, including risk and remuneration.
“We will look at whether, and if so how, they can and should do more. Rightly, shareholders have shared the blame and the losses.
“When it came to the destruction of major banks, the taxpayer also lost out, making corporate governance a crucial issue of public and Parliamentary concern."
View MPs announce terms of reference for corporate governance and remuneration inquiry, 28 April 2012
FSA secures four and a half year jail sentence for man convicted of laundering boiler room funds
Michael McInerney of Richmond, North Yorkshire, has been convicted of three counts of money laundering and sentenced to four and half years in jail, to be served concurrently, following a joint investigation by the FSA and the City of London Police. McInerney has also been disqualified from being a company director for seven years.
McInerney acted as banker for fraudulent share sales conducted by Tomas Wilmot, Kevin Wilmot and Christopher Wilmot. The Wilmots controlled a syndicate of boiler rooms that defrauded an estimated 1,700 investors out of £27.5 million. They were jailed in August 2011 for a total of 19 years.
View FSA secures four and a half year jail sentence for man convicted of laundering boiler room funds, 30 April 2012
An investment firm has been fined £26,600 for breach of Principles 3 and 10 and associated rules in the Client Assets sourcebook. Its compliance officer has also been fined £11,550 for failing to comply with Statements of Principle 5 and 7 and prohibited from performing compliance oversight functions. During the period between 1 November 2007 and 2 March 2011 (the Relevant Period), Mr. David Thornberry was the compliance officer with specific responsibility for client money at Christchurch Investment Management Limited (Christchurch). The FSA found that Mr. Thornberry failed to take reasonable steps to ensure that Christchurch complied with the relevant regulatory requirements, and failed to take reasonable steps to organise Christchurch so that it could be controlled effectively. The FSA concluded that Christchurch failed to arrange adequate protection for client money and assets for which it was responsible, and failed to take reasonable care to organise and control its affairs responsibly and effectively.
View FSA Final Notice - David Thornberry, 29 March 2012
View FSA Final Notice - Christchurch Investment Management Limited, 29 March 2012
The sole director of IFA firm Scott Briscoe (Sidney Cordle) has had his approval application refused by the FSA due to the non-disclosure of an investigation and termination by a network of which Scott Briscoe was an appointed representative. The firm's application for authorisation was also refused as a result. The FSA considered that Mr. Cordle's admission made in the course of his oral representations that he lied during the network's investigation into the allegation of misconduct or malpractice made against him and the fact that he has recently conducted industry training were both positive steps towards his rehabilitation. Both decisions have been referred to the Tribunal.
View FSA Decision Notice- Sidney Cordle 20 January 2012
Domestic reform: Lessons from recent FSA enforcement cases
On 2 May 2012, the Financial Services team held its latest 40-minute briefing. This briefing looked at:
- The lessons to be learned from recent cases.
- The FSA’s 2012/13 enforcement priorities.
- The FSA’s proposed enforcement approach under the new FCA/PRA regime.
- Proposed enforcement changes under the Financial Services Bill.
To watch the recording of this briefing, please click here.