EMEA Centre for Regulatory Strategy in Financial Services UK
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On 14 September, the EU Parliament voted to reject the EU Commission’s Delegated Regulation on the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs). This is the first time that the EU Parliament has formally rejected technical rules on financial services legislation. The Delegated Regulation, based on the final draft Regulatory Technical Standards (RTS) prepared by the European Supervisory Authorities (ESAs), dated 31 March 2016, was rejected as “so flawed and misleading that it could actually lose [retail investors] money”. MEPs overwhelmingly passed the resolution rejecting the RTS (by 602 votes to 4, with 12 abstentions), calling for the EU Commission to submit a new RTS taking into account the EU Parliament’s concerns about the text. The Parliament also called on the EU Commission to postpone the application date of PRIIPs.
As is now customary, the Financial Stability Board (FSB) published a slew of reports ahead of the G20 Leaders’ Summit in Hangzhou. These documents included a second progress report, published on 1 September, on measures to reduce misconduct risk in financial services. This follows a workplan agreed in May 2015, and a first progress report in November 2015. The latest report describes progress made since the end of 2015.
Firms subject to Senior Managers and Certification Regimes (SMCR) are obligated to capture, assess, and report breaches of Conduct Rules by individuals who are in scope of the rules. Holding individuals to account is a core concept of the new regime.
The Financial Conduct Authority (FCA) has published its further consultation paper on the future of payment protection insurance (PPI) complaints. CP 16/20 adds further detail to the regulator’s plans to bring the ongoing issues raised by the historic sales of PPI to an orderly close, with a final date for making new complaints now estimated for June 2019.
Amongst mortgage lenders, variations in banks’ Risk Weighted Assets (RWAs) are observed in the market. This information is published in firms’ Pillar 3 disclosures, as well as by the Prudential Regulation Authority (PRA). As an example, in January 2015 the PRA reported performing risk weights ranging from 10.8% to 14.6% for performing residential mortgages with 70%-80% Loan To Value (LTV) amongst firms using the Internal Ratings Based (IRB) approach to calculating RWAs. The variations lend credence to a distrust of banks’ internal models by regulators, shareholders and the general public.
The Financial Stability Board (FSB) has consulted on policy recommendations for addressing structural vulnerabilities from asset management activities. This follows a long debate at international level involving both the FSB and the International Organization of Securities Commissions (IOSCO). The FSB’s proposed recommendations relate to risks arising from liquidity mismatch, leverage, operational issues in transferring investment mandates in stressed conditions, and indemnifications related to securities lending.
The UK has voted to leave the European Union (EU). Uncertainty in financial markets and among the business community is understandably very high. Today, there are many more unknowns than knowns – especially about how financial services firms operating in the UK will access and trade with the EU’s Single Market in future.
The introduction of multiple reporting requirements under different regulations and on different timelines should prompt banks and investment firms to think strategically when implementing regulatory changes and when improving existing reporting processes. In particular, they should consider the potential overlaps and synergies across these reporting requirements, assess the capabilities of their current practices and IT infrastructure, and work out how they can capitalise on the use of reporting data for their own purposes.
Despite the many years that have passed since the global financial crisis, its causes and consequences continue to demand attention from industry and policymakers alike.
In recent papers1, the Basel Committee (BCBS) has proposed a number of changes to the scope and use of internal modelled approaches. Taken together, they represent a tectonic shift in banks’ ability to use internal models for regulatory capital purposes: