Financial services updater

25 February 2008

Regulation and compliance

Consultation Paper 08/3 - Simplifying Disclosure: Information about services and costs

The FSA has published Consultation Paper 08/3 - Simplifying Disclosure: Information about services and costs (CP08/3). In CP08/3, the FSA seeks views on a new disclosure document that investment firms can use to explain their services and costs to consumers. The proposal is to introduce the new disclosure document into guidance in the new Conduct of Business Sourcebook (COBS). This will replace the existing Initial Disclosure Document and menu. The new disclosure document is described in further detail in chapter 4 of CP08/3. The FSA is also proposing to update the Combined Initial Disclosure Document (CIDD) to have consistency between its proposed services and costs disclosures document and the investments sections of the CIDD. In addition, the FSA will update its templates and ‘build your own’ tools which are accessible through the FSA website to help firms who want to use this guidance. The deadline for comments on CP08/3 is 19 March 2008. The FSA will publish feedback on the responses in a Policy Statement in July 2008 together with the final Handbook text.

View Consultation Paper 08/3 - Simplifying Disclosure: Information about services and costs, 19 February 2008

Financial Advisers newsletter - issue 12

The FSA has published issue 12 of its Financial Advisers newsletter. The newsletter briefly covers:

• More help for small firms on Treating Customers Fairly (TCF).
• The TCF management information deadline in March 2008.
• The FSA’s recent consultation on simplifying disclosure.
• Appointed Representatives and TCF.
• The Money Laundering Regulations 2007.

View Financial Advisers newsletter - issue 12, (PDF 45.5KB), 20 February 2008

FSA speech - Regulation in different industries

The FSA has published a speech by Callum McCarthy (Chairman, FSA) entitled Regulation in different industries. In his speech Callum McCarthy starts by recognising that there are a wide and diverse range of organisations which fall within the general category of “regulators”. He then refers to the 2005 Hampton Review of national regulators, which identified 62 national regulators which it regarded as falling within its scope, a further 16 which fell out of its scope and four new national regulators which had been created or proposed while the review was in process.

Callum McCarthy then discusses some of the particular characteristics of regulation, the relationship between regulatory organisation and government, the difference between structural and behavioural regulation and the threat to the regulatory relationship arising from price controls.

On the issue of the relationship between regulatory organisation and government Callum McCarthy mentions that difficult decisions on authorisations, capital adequacy, the appropriate stress tests for banks are the responsibility of the FSA rather than HM Treasury.

Callum McCarthy then states that legitimacy is a central question for any regulatory organisation and discusses the following four issues:

• Any regulatory organisation must cleave to the statute which established it as this is the bedrock of the organisation’s legitimacy.
• In giving powers to a regulatory organisation Parliament should not delegate essentially political or value judgments, as distinct from those which are essentially subject to technical or economic analysis.
• Those responsible for taking regulatory decisions should be particularly aware of the need for continuity, predictability and due process.
• A critical element of legitimacy covers the general question of how to ensure compliance with the principles and rules promulgated by a regulatory organisation, and how, within a general framework, to enforce those principles and rules.

View Directive amending Directive 2004/39/EC on markets in financial instruments, as regards the implementing powers conferred on the Commission, 13 February 2008

Directive amending Directive 2004/39/EC on markets in financial instruments, as regards the implementing powers conferred on the Commission

The European Parliament and the Council of the European Union have adopted a Directive which amends the Markets in Financial Instruments Directive (MiFID) in respect of the implementing powers conferred on the European Commission. The Directive has not yet been published in the Official Journal. The amendments made to MiFID by the Directive do not require transposition by Member States as they are technical in nature and concern EU legislative procedures only.

View Directive amending Directive 2004/39/EC on markets in financial instruments, as regards the implementing powers conferred on the Commission, (PDF 102KB), 12 February 2008

The European Parliament and the Council of the European Union adopting Directives which amend Financial Services Action Plan Directives in respect of implementing powers conferred on the European Commission

The European Parliament and the Council of the European Union adopted the following Directives which amend key Level 1 Financial Services Action Plan Directives in respect of the implementing powers conferred on the European Commission:

• Directive amending the Banking Directive (2006/48/EEC), (PDF 91.9KB), 13 February 2008
• Directive amending the Re-cast Capital Adequacy Directive (2006/49/EC), (PDF 89.8KB), 13 February 2008
• Directive amending the Financial Conglomerates Directive (2002/87/EC), (PDF 95.4KB),13 February 2008
• Directive amending the Financial Conglomerates Directive (2002/87/EC), (PDF 98.3KB), 13 February 2008
• Directive amending the Prospectus Directive (2003/71/EC), (PDF 91KB), 13 February 2008

The Directives have not yet been published in the Official Journal.

Directive amending Directive 2002/83/EC concerning life assurance, as regards the implementing powers conferred on the Commission

The European Parliament and the Council of the European Union have adopted a Directive which amends Directive 2002/83/EC concerning life assurance, in respect of the implementing powers conferred on the European Commission. The Directive has not yet been published in the Official Journal.

View Directive amending Directive 2002/83/EC concerning life assurance, as regards the implementing powers conferred on the Commission, (PDF 84.5KB), 18 February 2008

CESR launches a consultation on the role of credit rating agencies in structured finance

The Committee of European Securities Regulators (CESR) has published a Consultation Paper entitled The role of credit rating agencies in structured finance. The Consultation Paper follows on from the European Commission’s additional request for CESR to review several aspects of the rating process regarding structured finance instruments. The Consultation Paper covers the following areas in relation to structured finance:

• Transparency of rating processes and methodologies.
• Monitoring of rating performance.
• CRA staff resourcing.
• Conflicts of interest.
• Regulatory options.
  

On 26 March 2008 CESR will hold an open hearing at its premises (CRAs excluded). The deadline for responses to the Consultation Paper is 31 March 2008. CESR expects to submit its final report to the European Commission by May 2008.

View CESR launches a consultation on the role of credit rating agencies in structured finance, 13 February 2008

Protocol on the operation of CESR MiFID database

The Committee of European Securities Regulators (CESR) has published a protocol on the operation of the CESR MiFID database. The protocol concerns the practical co-operation arrangements between CESR members and the CESR Secretariat in order to manage the calculation and publication of MiFID market transparency calculations.

View Protocol on the operation of CESR MiFID database, 18 February 2008

The Regulated Covered Bonds Regulations 2008 No. 346

On the Office of Public Sector Information website there has been published The Regulated Covered Bonds Regulations 2008 No. 346 (the Regulations). The Regulations implement Article 22(4) of the UCITS Directive, Article 22(4) of the Third Non-Life Directive and Article 24(4) of the Consolidated Life Directive. The relevant requirements of the UCITS Directive, the Third Non-Life Directive and the Consolidated Life Directive are in the same terms. The Regulations also implement paragraph 68 of Annex 6 to the Banking Consolidation Directive.

A covered bond is a class of corporate bond, issued by credit institutions and backed by certain assets, normally mortgages or public sector loans. Interest and repayments of principal is payable out of ring-fenced assets (an asset pool) backing the bond. Covered bonds that comply with the UCITS Directive (and equivalent requirements in the other Directives referred to above) benefit from higher prudential investment limits under the UCITS Directive and lower risk weights under the Banking Consolidation Directive.

The Regulations provide a new legislative framework for covered bonds in the UK. The Regulations establish a new regime supervised by the FSA and take account of UK practice in relation to covered bonds. Part 1 of the Regulations sets out definitions. Part 2 sets out the functions of the FSA and provides for it to have regard to certain considerations, including the need to preserve investor confidence in regulated covered bonds in the UK. Part 3 requires the FSA to maintain a register of issuers and a register of regulated covered bonds and sets out the registration process. Part 4 imposes requirements on issuers and Part 5 imposes requirements on owners. In particular, the issuer and the owner must make arrangements for the maintenance and administration of the asset pool so that the claims of bond holders and other specified parties may be met. Part 6 establishes that regulated covered bond holders and other specified persons must be paid in priority to all other creditors, after the payment of expenses of the receivership or winding up etc. Part 6 also provides for certain expenses incurred by a receiver or liquidator etc. to rank above the payment of all other expenses. Part 7 sets out the enforcement powers of the FSA and the Courts. Part 8 confers functions on the Financial Services and Markets Act Tribunal and Part 9 (and Schedule 1) contains provision for notification to the European Commission, guidance to be issued by the FSA and various modifications of primary and secondary legislation.

View The Regulated Covered Bonds Regulations 2008 No. 346, 19 February 2008

View Explanatory Memorandum - The Regulated Covered Bonds Regulations 2008 No. 346, (PDF 169KB), 19 February 2008

Proposals for a UK regulated covered bonds legislative framework: Summary of responses and final impact assessment

HM Treasury and the FSA have jointly published a document entitled Proposals for a UK regulated covered bonds legislative framework: Summary of responses and final impact assessment. This document summarises the responses to HM Treasury’s consultation on the proposed legislative framework for UK regulated covered bonds. The consultation was launched on 23 July 2007 and closed on 15 October 2007 and ran alongside the FSA’s consultation on its proposed implementation of the regime.

View Proposals for a UK regulated covered bonds legislative framework: Summary of responses and final impact assessment, (PDF 555KB), 18 February 2008

CESR/ERGEG Call for Evidence on record keeping, transparency, supply contracts and derivatives for electricity and gas

In December 2007 the European Commission issued a Call for Technical Advice to the Committee of European Securities Regulators (CESR) and the European Regulators Group for Electricity and Gas (ERGEG) in relation to Articles 22f and 24f and Recitals 20 and 22 respectively in the two proposals for Directives amending Directive 2003/54/EC and Directive 2003/55/EC (the Third Energy Package).

CESR and ERGEG are being asked to jointly give advice on issues concerning record keeping and transparency of transactions in electricity and gas supply contracts and derivatives. The aim of the Call for Technical Advice is to find out if additional measures are necessary with respect to transparency in energy trading and to provide the Commission with technical background information to allow it to adopt guidelines on record keeping under the Third Energy Package.

CESR and ERGEG are requested to deliver their technical advice to the Commission in two parts, by the end of May 2008 and by the end of December 2008.

CESR/ERGEG have now jointly published a Call for Evidence on record keeping, transparency, supply contracts and derivatives for electricity and gas. The deadline for responses to the Call for Evidence is 18 March 2008.

View CESR/ERGEG Call for Evidence on record keeping, transparency, supply contracts and derivatives for electricity and gas, (PDF 940KB), 19 February 2008

FSA Final Notice - Wessex Finance Limited

The FSA has published a Final Notice concerning Wessex Finance Limited cancelling its permission to carry on regulated activities.

View FSA Final Notice - Wessex Finance Limited, (PDF 19.5KB), 15 February 2008

FSA Final Notice - Russell Terry (trading as Harlequin Motor Company)

The FSA has published a Final Notice concerning Russell Terry (trading as Harlequin Motor Company) cancelling his permission to carry on regulated activities.

View FSA Final Notice - Russell Terry (trading as Harlequin Motor Company), (PDF 21KB), 15 February 2008

FSA Final Notice - Mr Amjad Ali Malik

The FSA has published a Final Notice prohibiting Mr Amjad Ali Malik, from performing any function in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm.

View FSA Final Notice - Mr Amjad Ali Malik, (PDF 86.1KB), 20 February 2008

FSA Final Notice - Mr Tahir Mahmood

The FSA has published a Final Notice prohibiting Mr Tahir Mahmood, from performing any function in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm.

View FSA Final Notice - Mr Tahir Mahmood, (PDF 91.1KB), 20 February 2008