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MiFID II took seven years from consultation to implementation and generated 30,000 pages of rules.1 Nine months have passed since the go-live date on 3 January. Firms could be forgiven for finally wanting to tick it off their “To Do” lists. However, they can’t take that red pen out yet – we haven’t yet reached our destination on the MiFID journey. As with all things regulation, there is always more to do. And where there are rules, more often follow.
Many of us, particularly those of us lucky enough to have been away over the summer, will now be experiencing the financial services professional's equivalent of the dreaded "back to school" feeling. Only for us, it's a case of "back to Brexit". Judging by the amount of new material they have published, neither the UK nor the EU authorities have taken much holiday. So to ease our "back to Brexit" blues, we've brought together the key publications in one note together with some summary commentary.
Many insurance businesses are struggling with the treatment of reinsurance held under IFRS17. Much of the struggle is to understand the accounting implications, but there are a number of tax issues that businesses should be addressing at the same time. This highlights the importance for businesses of making a place for their tax team within the leadership of the IFRS 17 implementation project.
The UK motor finance sector has grown rapidly over the last few years. This is due, in large part, to the popularity of personal contract purchase (PCP) arrangementsi which now account for around 80% of gross flows for new dealership car finance1. In response, the UK authorities have undertaken a series of reviewsii to assess the risks they may pose to consumers, firm solvency and the market. Explaining the FCA’s stance on PCP lending, Andrew Bailey has said that while the FCA does not regard PCP contracts as “per se bad” “there are issues that we seek to understand on the terms of such lending and how well they are understood by consumers, so we are not complacent on such terms2.”
On 12 July, UK and US regulators sent the clearest warning signal yet to market participants on the need to abandon the London Interbank Offered Rate (LIBOR) and transition to alternative Risk Free Rates (RFRs). We circulated a briefing note to clients on 13 July regarding these developments. Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA), J. Christopher Giancarlo, Chairman of the U.S. Commodity Futures Trading Commission (CFTC), and Commissioners Brian Quintenz and Rostin Behnam, as well as the Financial Stability Board (FSB) released statements on benchmark reform.
In May-June 2018, the European Central Bank (ECB) and the Basel Committee on Banking Supervision (BCBS) published reports on the progress of the largest, internationally active banks towards compliance with the BCBS Principles for Effective Risk Data Aggregation and Reporting – known as BCBS 239.
In December 2017 the Risk Transformation Regulations were passed, enabling the incorporation of Insurance Linked Securities (ILS) vehicles in the UK for the first time. So far there have been 2 issuances (a collateralised reinsurance vehicle for Neon syndicate and a cat bond for SCOR), with rumours of many more in the pipeline.
On 27th July 2018, the PRA published its Consultation Paper (CP) 17/18 on Credit Risk Definition of Default (DoD). This paper sets out the PRA’s proposed approach to implementing the European Banking Authority’s (EBA’s) three regulatory packages relating to DoD in the Capital Requirements Regulation (575/2013) (CRR) specifically:
- Regulatory Technical Standards (RTS) for the materiality threshold for credit obligations past due1;
- Guidelines (GL) on the application of the DoD2; and
- Opinion paper (‘the EBA Opinion’)3 on the use of the 180 days past due (DPD) criterion in the DoD.
The FCA launched its Retirement Outcomes Review (ROR) Market Study in June 2016, in order to explore how the retirement income market had changed since pension freedoms were introduced in April 2015, and to “assess how the market is evolving, to address any emerging consumer harm and to put the market on a good footing for the future”.
Having published an Interim Report in July 2017, the FCA has now published its Final Report, alongside a Consultation Paper, CP18/17, on its proposed packaged of remedies. The FCA is exploring further remedies which it intends to cover in a later consultation paper due in January 2019.
As someone who has delivered systems changes in finance and actuarial teams for insurance clients for over two decades, I have mixed feeling following the firming up of the IFRS 17 rules and deadlines.