Third party risk is currently a ‘hot topic’ within the Financial Services sector and senior executives across many organisations in the industry are having discussions to agree strategies, procedures and policies to mitigate the risks posed by third parties. This short blog is the first in a series of three which cover the topic of third party risk. In this first blog, we explore the use of contract compliance inspections in order to obtain assurance over third parties as well as generating significant financial recoveries.
We are now a step closer to understanding how the EU landscape for capital markets and investment services is set to change following the publication last month of a bumper package of MiFID II / MiFIR implementing measures by the European Securities and Markets Authority (ESMA). On 19 December 2014, ESMA published final technical advice to the EU Commission and two consultation papers on regulatory technical standards (RTS) and implementing technical standards (ITS) (part 1 covers ESMA’s commentary and part 2 sets out the draft technical standards).
The Chancellor announced in the Budget that from April 2015 no-one will have to buy an annuity. This was a huge blow for the £14bn-a-year annuity industry, which has thrived on ‘forced’ annuitisation. Over 300,000 people retire each year with a defined contribution pension, most of whom are required to buy an annuity under current legislation. The equity’s market verdict on the announcement was dramatic: share prices of some life companies were down 40% on the day. In the first half of 2014 annuity sales have fallen by over 50%.
A New Year, and progress, of sorts, for EU bank structural reform. The European Parliament’s Rapporteur, Gunnar Hökmark, has published his draft report for the Parliament’s Committee on Economic and Monetary Affairs (ECON), while the outgoing Italian Presidency of the Council of the European Union published a progress report as the file was handed over to the Latvians. The picture remains too unclear for an assessment of eventual outcomes, but the parameters for the debate are beginning to emerge. In particular, Mr Hökmark’s report contains a number of significant proposed amendments which demand close scrutiny.
The Bank of England today announced the results of the first exercise under its new framework for stress testing the UK banking system. The results are themselves important, but once they have been pored over, attention will turn to how the exercise will evolve. There is a growing trend for supervisory stress testing exercises to increase in intensity over time. The BoE makes clear in its comments today that the UK exercise will be no exception.
The Capital Markets Union (CMU) is a flagship initiative in the European Commission’s agenda for financial services during the next five years. This “concept under construction” has already caused much debate as stakeholders attempt to define the CMU and set its primary aims and principles. However, the real debate is only just starting. The agenda will evolve rapidly over the coming months with a Commission consultation paper expected in Q1 2015 and a road map in Q3 2015.
2015 has the potential to be a turning point in terms of the post-crisis re-regulatory agenda, when the focus shifts from repairing balance sheets and reputations to the role of financial services in promoting jobs and growth. And indeed from proposing new rules to implementing the multitude that has been agreed over that last few years. Deloitte’s EMEA Centre for Regulatory Strategy have identified what we believe to be the ten key areas of regulatory focus for financial markets in 2015.
Following the recent publication of the Financial Stability Board’s (FSB) proposals for an international standard for Total Loss-Absorbing Capacity (TLAC), the European Banking Authority (EBA) has published a consultation on a version for the EU – the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). MREL, like TLAC, is intended to make banks – credit institutions and large investment firms – more resilient and ensure they have enough loss-absorbing capacity so that resolution tools, including the bail-in tool, can be applied effectively.
The landscape for global information exchange is changing rapidly. In the next three years the burden of information reporting for funds will expand exponentially driven by new global tax initiatives. As a result, reporting on investor information and financial data will be mandatory for many funds as early as March 2015. This is not just a one off exercise and it represents a new form of annual compliance that is here to stay.
What Mark Carney has termed a “watershed” moment in post-crisis financial regulation passed this weekend with the G20 Leaders’ Summit in Brisbane. In a fairly short Communique, G20 political leaders declared: “We have delivered key aspects of the core commitments we made in response to the financial crisis. […] The task now is to finalise remaining elements of our policy framework and fully implement agreed financial regulatory reforms.”