FSB thematic peer review of resolution regimes
In November 2011, the Financial Stability Board (FSB) published the Key Attributes of Effective Resolution Regimes for Financial Institutions (the Key Attributes) as part of a package of policy measures intended to address the moral hazard risks posed by systemically important financial institutions. The Key Attributes set out the core elements of effective resolution regimes that apply to any financial institution that could be systemically significant or critical if it fails.
On 3 August 2012, the FSB published its first peer review to evaluate member jurisdictions’ existing resolution regimes and any planned changes to those regimes using the Key Attributes as a benchmark. In particular the objectives of the peer review are to:
- Take stock of national resolution regimes that apply to different types of financial institutions, and of any planned changes to those regimes.
- Highlight good practices in national resolution regimes as well as any material inconsistencies or gaps (compared to the Key Attributes) that would need to be addressed.
- Evaluate progress in implementing reforms to national resolution regimes using the Key Attributes as a benchmark, and identify challenges arising from their implementation.
- Inform and help to improve the assessment methodology by identifying needed clarifications or revisions to the essential criteria and/or explanatory notes.
The deadline for responding to the thematic peer review is 28 September 2012.
View FSB thematic peer review of resolution regimes, 3 August 2012
ESMA publishes response to the European Commission Green Paper on shadow banking
On 27 July 2012, the European Securities and Markets Authority (ESMA) published its response to the European Commission's Green Paper on shadow banking. In its response ESMA made a number of comments including:
- While it broadly agreed with the proposed definition of shadow banking in the Green Paper, it considered that the definition should be more focused on activities than on the entity performing the activity to ensure a consistent approach across sectors.
- It broadly agreed with the list of shadow banking entities and activities as a starting point. However, for monitoring purposes, it is crucial to have a flexible and evolving framework that would allow the inclusion of financial innovations as long as their features and the risks attached to them are consistent with the definition of the shadow banking system.
- It agreed with the need for stricter monitoring of the shadow banking system and considered that transparency and adequacy of information, together with smooth data exchanges between competent authorities, are key to achieving this objective.
- Due to the evolving nature of the shadow banking system, a flexible approach may be used for regulation, ensuring that the legal framework can be adapted and changed, or through the use of technical standards or "soft" regulation such as guidelines or other supervisory convergence tools.
View ESMA publishes response to the European Commission Green Paper on shadow banking, 27 July 2012
ECON draft report on shadow banking
On 14 August 2012, the European Parliament's Committee on Economic and Monetary Affairs (ECON) published a draft report on shadow banking. The draft report contained a draft motion for a European Parliament resolution on shadow banking together with an explanatory statement prepared by ECON rapporteur Saïd El Khadraoui.
The draft motion contained a number of points including:
- Agreed with the Financial Stability Board’s definition of shadow banking as "a system of intermediaries, instruments, entities or financial contracts generating a combination of bank-like functions but outside the regulatory perimeter or under a regulatory regime which is either light or addresses issues other than systemic risks and without access to central bank liquidity facility or public sector credit guarantees."
- Supported the creation by the European Central Bank of a central EU database on euro repo transactions, and invited the Commission to submit a legislative proposal for the creation of such a database by the end of 2013, after undertaking a feasibility study.
- Stressed the need to obtain a fuller overview of risk transfers by financial institutions in order to determine who has purchased what from whom and how the transferred risks are supported. The Commission is invited to undertake a study in early 2013 and submit a report by mid 2013 regarding the feasibility of setting up a public non-profit utility as a central registry for risk transfers, which should be able to capture and monitor risk transfer data in real time.
- That the proposed extension of CRD IV to non-deposit taking finance companies not covered by the definition in the proposed Capital Requirements Regulation (CRR) is necessary.
- Recognised the benefits Exchange Traded Funds (ETFs) provide by giving retail investors access to a wider range of assets but stresses the risks ETFs carry in terms of complexity, counterparty risk, liquidity of products and possible regulatory arbitrage. The Commission is invited to submit a legislative proposal at the beginning of 2013 to tackle these potential structural vulnerabilities.
View ECON draft report on shadow banking, 14 August 2012
Council publishes latest compromise proposals on MIFID review
On 31 August 2012, the Presidency of the Council of the European Union published compromise proposals on both the proposed Markets in Financial Instruments Directive (recast) and the proposed Regulation on Markets in Financial Instruments (MiFIR).
The compromise proposals have been produced following discussions in meetings of the working party on financial services in July 2012. Latest additions and changes are denoted by bold underlining and deletions by strikethroughs.
View Proposal for a Directive of the European Parliament and of the Council on markets in financial instruments repealing Directive 2004/39/EC of the European Parliament and of the Council - Presidency compromise, 31 August 2012
View Proposal for a Regulation of the European Parliament and of the Council on markets in financial instruments and amending Regulation [EMIR] on OTC derivatives, central counterparties and trade repositories - Presidency compromise, 31 August 2012
European Parliament to consider MiFID review
The European Parliament procedure files for both the draft Markets in Financial Instruments Directive (recast) and the draft Markets in Financial Instruments Regulation indicate that both will be considered in plenary session from 22 to 23 October 2012.
View European Parliament procedure file MiFID (recast), 30 August 2012
View European Parliament procedure file MiFIR, 30 August 2012
HM Treasury draft clauses to inform response to consultation on broadening the financial sector resolution regime
On 1 August 2012, HM Treasury published a Consultation Document entitled Financial sector resolution: Broadening the regime. In this consultation the Government set out proposals on enhancing the mechanisms available for dealing with the failure of systemically important non-banks. The consultation covers four broad groups:
- Investment firms and parent undertakings.
- Central counterparties (CCPs).
- Non-CCP financial market infrastructures.
- Insurers.
The deadline for comments on the Consultation Document is 24 September 2012.
On 23 August 2012, HM Treasury published draft legislative clauses together with explanatory notes to inform responses to the Consultation Document. The draft clauses have been prepared on the basis that the Financial Services Bill, as introduced to the House of Lords on 23 May 2012, has been enacted and that it is in force.
View Draft clauses to inform responses to HM Treasury’s consultation document “Financial sector resolution: broadening the regime”, 23 August 2012
View Explanatory notes to draft clauses to inform responses to consultation on broadening the financial sector resolution regime, 23 August 2012
Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules
On 25 July 2012, the FSA published Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules (CP12/15). In CP12/15 the FSA consults on two areas of client assets policy, CASS oversight and reporting and the mandate rules.
In CP12/15 the FSA confirmed that it is not consulting on introducing the Client Money and Asset Return (CMAR) requirements for CASS small firms, but that it intends to keep this under review.
The FSA also proposed:
- To clarify that the regulated activity of arranging safeguarding and administration of assets does not fall within the scope of CASS 1A (CASS firm classification and operational oversight).
- To clarify the date when a firm becomes a CASS firm for the first time or when a CASS firm changes category.
- That a CASS medium or a CASS large firm must take the necessary steps to allocate the CASS operational oversight function (CF10a) to a director or a senior manager as soon as practicable. This includes submitting a CF10a application within a specified time period of 30 business days and, in the meantime, allocating a director or a senior manager performing a significant influence function (SIF) responsibility for: (i) oversight of the firm’s operational compliance with CASS; (ii) reporting to the firm’s governing body about that oversight; and (iii) completing and submitting a CMAR to the FSA.
- Guidance concerning the CMAR in that a firm using the standard method of internal reconciliation should (unless otherwise stated) report client money balances on the basis of its client money resource as at the last business day of the reporting period.
In relation to the mandate rules the FSA proposes to clarify their scope. The FSA does not propose to change the internal controls required by the mandate rules (other than by clarifying what is required for discretionary investment managers when acting as such), and it is not proposing to change the purpose of the rules. In fact the FSA takes the opportunity in CP12/15 to confirm that the sole requirement of the mandate rules is that a firm that has mandates must establish and maintain adequate records and internal controls in respect of its use of those mandates.
The deadline for comments on CP12/15 is 30 September 2012. The FSA plans to issue a Policy Statement in November 2012, with the final rules coming into force on 1 January 2013.
View Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules, 25 July 2012
Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules
On 25 July 2012, the FSA published Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules (CP12/15). In CP12/15 the FSA consults on two areas of client assets policy, CASS oversight and reporting and the mandate rules.
In CP12/15 the FSA confirmed that it is not consulting on introducing the Client Money and Asset Return (CMAR) requirements for CASS small firms, but that it intends to keep this under review.
The FSA also proposes:
- To clarify that the regulated activity of arranging safeguarding and administration of assets does not fall within the scope of CASS 1A (CASS firm classification and operational oversight).
- To clarify the date when a firm becomes a CASS firm for the first time or when a CASS firm changes category.
- That a CASS medium or a CASS large firm must take the necessary steps to allocate the CASS operational oversight function (CF10a) to a director or a senior manager as soon as practicable. This includes submitting a CF10a application within a specified time period of 30 business days and, in the meantime, allocating a director or a senior manager performing a significant influence function (SIF) responsibility for: (i) oversight of the firm’s operational compliance with CASS; (ii) reporting to the firm’s governing body about that oversight; and (iii) completing and submitting a CMAR to the FSA.
- Guidance concerning the CMAR in that a firm using the standard method of internal reconciliation should (unless otherwise stated) report client money balances on the basis of its client money resource as at the last business day of the reporting period.
In relation to the mandate rules the FSA proposes to clarify their scope. The FSA does not propose to change the internal controls required by the mandate rules (other than by clarifying what is required for discretionary investment managers when acting as such), and it is not proposing to change the purpose of the rules. In fact the FSA takes the opportunity in CP12/15 to confirm that the sole requirement of the mandate rules is that a firm that has mandates must establish and maintain adequate records and internal controls in respect of its use of those mandates.
The deadline for comments on CP12/15 is 30 September 2012. The FSA plans to issue a Policy Statement in November 2012, with the final rules coming into force on 1 January 2013.
View Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules, 25 July 2012
Update on measures adopted by competent authorities on short selling
On 24 July 2012, the European Securities and Markets Authority (ESMA) updated its paper which briefly summarises the measures that its members have taken on short selling.
The paper was updated to reflect the restrictive measures that the Italian Companies and Stock Exchange Commission (CONSOB) introduced on short sales of shares in the financial sector. These measures lasted from 23 July 2012 to 27 July 2012. The paper also summarises the measures that the Spanish regulator, the CNMV, has introduced which bans the short-selling of all stocks trading on local exchanges. The ban will apply initially until 23 October 2012, although CNMV may choose to extend it at that point.
View Update on measures adopted by competent authorities on short selling, 24 July 2012
Market Watch 42: Special short selling edition
On 15 August 2012, the FSA published issue 42 of its newsletter, Market Watch. This issue of Market Watch was a special short selling edition which discussed the FSA's approach to transposing the EU Short Selling Regulation. The Regulation comes into effect on 1 November 2012.
The Market Watch covered the following topics:
- Removal of domestic short position disclosure regime.
- Penalties policy.
- Approach to using temporary suspension powers.
- Public disclosures of significant short positions.
- Notifications to the FSA of short positions in shares and sovereign debt.
- Market maker and authorised primary dealer exemption process.
As the Regulation is directly applicable in Member States the European Securities and Markets Authority will be producing FAQs. Whilst the FSA is not producing its own FAQs it will respond to questions concerning the procedures it is putting in place to enable UK market participants to comply with the Regulation’s provisions.
The Market Watch is not FSA guidance. All proposed changes to the FSA Handbook connected with the implementation of the Regulation will be the subject of a formal consultation exercise.
View Market Watch 42: Special short selling edition, 15 August 2012
Consultation Paper 12/21: Short selling regulation - Handbook changes
On 30 August 2012, the FSA published Consultation Paper 12/21: Short selling regulation - Handbook changes (CP12/21). In CP12/21 the FSA consults on certain amendments to the FSA Handbook which relate to the EU Regulation on short selling and certain aspects of credit default swaps (the Regulation).
The Regulation comes into force on 1 November 2012 and is directly applicable in the UK. It does not require specific implementation in domestic legislation and FSA rules. However, there are some areas in the Regulation where Member States have discretion about the exercise of their powers or the Regulation requires matters to be dealt with in accordance with national law.
The purpose of CP12/21 is to seek views and comments on the FSA’s policies regarding the exercise of discretion and how it will implement the Regulation in the UK. The FSA sets out the proposed changes to the Handbook:
- The repeal of the UK’s current short selling regime contained in FINMAR 2.
- An amendment to DEPP 7 to note that the existing interview policy covers the Regulation. The FSA is also proposing applying the existing penalties policy contained in DEPP 6 to the Regulation.
- An amendment to SUP to provide that a firm must allow access to FSA representatives to its business premises so that it can fulfil its obligations under the Regulation.
- An insertion in FINMAR 2 outlining the framework for the FSA’s use of temporary suspension powers given in the Regulation.
- An insertion in FINMAR 2 specifying the method for converting a Euro value into sterling for the purposes of determining one of the categories of shares admitted on UK trading venues to which the temporary suspension powers apply.
- An insertion in FINMAR 2 outlining the procedure applying to reviews of decisions by the FSA to prohibit persons from using the market-maker and authorised primary dealer exemption.
- Consequential amendments to the glossary and other parts of the FSA Handbook, including GEN.
The deadline for comments on CP12/21 is 20 September 2012.
View Consultation Paper 12/21: Short selling regulation - Handbook changes, 30 August 2012
FSA revises Remuneration Policy Statement self-assessment templates and tables
On 22 August 2012, the FSA updated its web page on the Remuneration Code. The updated web page now contains the following templates and code staff lists:
- Tier 1 firms: Template and code staff list.
- Tier 2 firms: Template and code staff list.
- Tiers 3 and 4 firms: Template and code staff list.
The Remuneration Policy Statement templates allow firms to record their remuneration policies, practices and procedures and assess their compliance with the Remuneration Code. The Code staff list allows firms to keep a record of all Remuneration Code staff identified for the current performance year.
View FSA revises Remuneration Policy Statement self-assessment templates and tables, 22 August 2012
FAQs on the transition to the FCA
On 31 July 2012, the FSA published a set of questions and answers on the transition to the proposed Financial Conduct Authority (FCA). The questions and answers cover a wide range of issues including:
- Whether the FCA will be the sole regulator for insurance intermediaries.
- Whether the authorisation process will be quicker under the FCA.
- How the FSA will drive better culture within firms.
- The regulation of dual regulated firms.
- Whether the current fee structure will be adopted by the FCA.
- The new powers of the FCA including how the product intervention power will impact product innovation.
- Whether the FCA will keep the TCF outcomes and / or whether it will publish new consumer outcomes.
The FSA also stated that it will publish an approach document on the FCA in October 2012 which will give further detail on how it will work.
View FAQs on the transition to the FCA, 31 July 2012