EMEA Centre for Regulatory Strategy in Financial Services UK
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The Financial Conduct Authority (FCA) published terms of reference on 18 November 2015 for its market study into asset management. The study will focus on: (i) how asset managers compete to deliver value for money; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) the effect of investment consultants and other advisers on competition for institutional asset management. Across these topics, the FCA will also consider whether any barriers to innovation or technological improvements are preventing investors from getting better value for money.
Global systemically important banks (G-SIBs) will be required to meet a new prudential requirement – Total Loss-Absorbing Capacity (TLAC) – by 2019, in line with a new global standard published by the Financial Stability Board (FSB).
November 4, 2014 marked a turning point in European banking supervision. It was the day the Single Supervisory Mechanism (SSM) took over responsibility for banking supervision in the Eurozone. Compared to many other European endeavours, the SSM was set up quickly; the vision for the Banking Union, of which the SSM is a part, was created only in 2012. During this period a whole new organisation had to be made operational, with supervisory approaches and processes drawn from best practices across Europe, and staffing and governance adapted to the new arrangements. On its first birthday, how is the SSM getting on?
The first year of the Single Supervisory Mechanism (SSM) was a busy one for banks – and for supervisors. There is much still to do, but even as they continue to tackle the near-term challenges, many banks are asking what the SSM will look like in the future, and what the implications will be for their business models, and for the banking industry more broadly.
MiFID II will have significant and wide-ranging implications for the strategy, operations, conduct and governance of a broad range of firms in Europe. It raises many important questions for the investment management industry. What are the key challenges and implications of MiFID II? How can investment managers gain a competitive advantage? And how much progress have investment managers made in implementation? We discussed these questions with 15 investment managers and two independent external experts to inform our new paper Navigating MiFID II - Strategic decisions for investment managers. The key findings are highlighted below.
On Monday, ESMA published its final draft technical standards detailing the MiFID II / MiFIR rules for firms caught by the Directive and Regulation. The technical standards (28 in total) were consulted on in three papers (in May 2014, December 2014 and February 2015), and since then have been widely debated and long-awaited by the industry. In the revised standards, ESMA has made a number of substantial changes, particularly regarding the liquidity assessment for non-equity instruments, best execution and algorithmic trading. However, further clarification is still pending across a number of areas, such as the use of dealing commissions, costs and charges, and thresholds for defining systematic internalisers (SIs), which will be set out in the Delegated Acts to be released later this year.
The FCA issued a loud wake-up call to the market in its recent thematic review of firms’ oversight and controls in relation to financial benchmarks.1 Although the FCA identified some positive changes, it found that none of the firms it had reviewed between August 2014 and June 2015 (12 in total) had “fully implemented changes across all benchmark activities” and that all firms still have work to do.
In September 2015 the EU Commission is expected to bring forward a legislative proposal in on ‘high-quality’ securitisation as part of the Capital Markets Union. The Commission suggests it may be possible to incentivise the issuance of high quality securitisation through a differentiated capital charge relative to standard securitisation. This in turn could re-invigorate the European securitisation market.
HM Treasury, the Bank of England and the Financial Conduct Authority have delivered the final report on the Fair and Effective Markets Review (FEMR), a broad and comprehensive analysis of the fixed income, currency and commodities (FICC) markets. The review seeks to identify the root causes of the recent misconduct and other sources of perceived unfairness in FICC markets, evaluate the impact of regulatory reforms, and make recommendations to fill the remaining gaps.
When it comes to talking about the new Senior Managers Regime (SMR) for banks, both Andrew Bailey and Martin Wheatley have taken to referring to Agatha Christie’s “Murder on the Orient Express”, characterising the SMR as putting an end to the “safety in numbers” defence. Fans of the novel and film will recall that 12 people enter the victim’s darkened train compartment and take it in turns to stab him. As Poirot observes “They themselves would never know which blow actually killed him”. This may strike readers as rather an extreme example. More prosaically, however, the regulators want to remove ambiguity - for perfectly understandable reasons - and to be able to hold individual Senior Managers to account when things go wrong on their watch. It should always be clear “whodunnit”.