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On 4 February 2016 the FCA issued Policy Statement (PS) PS16/3 entitled ‘Strengthening accountability in banking’. Although predominantly focused on final rules extending the forthcoming Certification Regime (CR) to wholesale market activities, the PS also provided an update on the regulatory reference proposals previously outlined in the joint FCA/PRA Consultation Paper issued in October 2015. The proposals focus on the risk posed to consumers and to market integrity if individuals with a history of questionable conduct, or so-called “bad apples”, are able to move from one regulated entity to another, without their new employer being aware of any historic conduct issues.
New investor protection rules under MiFID II are set to reshape investment managers’ product and distribution strategies in Europe. As the impact of the changes will vary across countries and distribution channels, there is no single optimal approach for firms to adopt. Investment managers distributing funds across the EU will need to think carefully about their strategy in each market. Innovative solutions around online platforms and robo-advice may offer some answers. While the final details of the rules are still pending, policymakers are considering a potential delay of the MiFID II go-live date until 2018. But firms still need to prepare now to be ready in time.
The Basel Committee on Banking Supervision published its finalised framework for assessment of market risk, a major part of the Fundamental Review of the Trading Book (FRTB), on 14 January 2016. This follows a lengthy period of consultation with the industry. National regulators must implement the new rules by 2019.
The Common Reporting Standard (CRS) is now live and has brought with it a number of new regulatory requirements for in-scope Financial Institutions. One key change is the absence of a reporting exemption for listed equity and debt. This is contrary to the US FATCA position where the definition of in-scope accounts specifically excluded equity and debt interests in investment entities where those interests were regularly traded on an established securities market.
Just in time for Christmas, the EBA published its long-awaited report setting out recommendations for a review of the current prudential regime for investment firms. Produced at the request of the European Commission, and in cooperation with ESMA, the report identified a number of issues in the current application of the CRD/CRR requirements to investment firms (including a lack of adequate risk sensitivity and the complexity of the framework stemming from the current categorisation of firms based on MiFID definitions) and suggested a new approach to their categorisation. The latter would distinguish between systemic and "bank-like" investment firms, to which full CRD/CRR requirements should apply, and other investment firms namely those that are not considered ‘systemic’ or ‘interconnected’. For the ‘non-systemic’ firms, the EBA recommended that requirements should be tailored to reflect the risks specific to their activities.
Some say that technology revolutionized knowledge. Once controlled by a privileged few, knowledge is now becoming available to everybody. What if the same were about to happen with trust?
The EBA published draft Regulatory Technical Standards (RTS) on the assessment and approval of internal models for market risk on 14 December 2015. The new document sets out far more detail on market risk model requirements than is currently contained in the Capital Requirements Regulation (CRR) or the PRA Rulebook and Supervisory Statements.
Uncertainty surrounds the impact that the long-awaited International Financial Reporting Standard (IFRS) 9 will have on bank’s financial reporting. Debates are currently taking place between market participants around how banks will interpret key concepts and apply the standard – including the requirement for credit loss estimates to be probability-weighted – in practice. The standard is still subject to endorsement in the EU, but widely expected to be endorsed so that it takes effect for periods commencing 1 January 2018 for EU adopters as for other IFRS 9 reporters.
Defining vulnerability and ensuring staff understand and apply the definition has long presented a challenge to firms.
One of the Financial Conduct Authority’s (FCA’s) main observations, in its occasional paper (number eight), was an acknowledgement that vulnerability is difficult to define and that currently firms apply a range of definitions. It concluded that vulnerability itself is a very fluid, changeable state but for some individual consumers it can indeed be a permanent state. Nonetheless, it made clear that the firms need to work around these difficulties as access to services for all consumers is seen as central to core conduct.
We explore some of the challenges a firm may face when implementing a vulnerability definition across an operation.