Welcome to the latest edition of our financial services updater.
Highlights this week include:
- Commission proposes new ECB powers for banking supervision as part of banking union
- FSA issues consultation on PRA and FCA regimes relating to aspects of authorisation and supervision
To view know-how corner our video summary concerning this week's highlights please click here.
ARROW visit coming up? It is important that firms properly prepare themselves for an ARROW visit. There are many ways in which we can assist in this preparation to ensure that the process runs smoothly. For further information please contact either Jonathan Herbst or Peter Snowdon.
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Commission proposes new ECB powers for banking supervision as part of banking union
The European Commission has published legislative proposals for a single supervisory mechanism (SSM) for banks in the euro area. Under the proposals ultimate responsibility for specific supervisory tasks related to the financial stability of all Euro area banks will lie with the European Central Bank (ECB).
The proposals comprise a:
- Draft Regulation conferring powers on the ECB for the supervision of all banks in the euro area, with a mechanism for non-euro countries to join on a voluntary basis.
- Draft Regulation aligning the existing Regulation on the European Banking Authority (EBA) to the new supervisory structure for banking to make sure that the EBA’s decision-making remains balanced and that the EBA continues to preserve the integrity of the single market.
- Communication outlining the Commission’s overall vision for the banking union, covering the single rulebook and the SSM, as well as the next steps involving a single bank resolution mechanism.
Under the proposals the ECB would be exclusively responsible for key tasks concerning the prudential supervision of banks. This would include:
- To authorise and withdraw the authorisation of all banks in the euro area.
- Ensure compliance with all prudential requirements laid down in EU banking rules and set, where necessary, higher prudential requirements for banks.
- Carry out supervisory stress tests to support the supervisory review and carry out supervision on a consolidated basis.
- Impose capital buffers and exercise other macro-prudential powers.
- Carry out supplementary supervision over banks in a financial conglomerate.
However, national supervisory authorities will continue to play an important role in EU banking supervision. In particular:
- The ECB is being assigned specific tasks, not overall responsibility for banking supervision within the EU. Because of this, certain key supervisory tasks necessary for the supervision of banks, notably all key tasks related to financial stability, are conferred on the ECB while all tasks not spelt out in the draft Regulation would remain with the relevant national supervisory authority. Therefore national supervisory authorities remain responsible, for example, on issues of consumer protection, receiving notifications from banks in relation to the right of establishment and the free provision of services, supervising banks from third countries establishing a branch or providing cross-border services in the EU, supervising payments services and preventing money laundering.
- For those tasks assigned to the ECB, most day-to-day verifications and other supervisory activities necessary to prepare and implement the ECB’s acts could be exercised by national supervisors operating as an integral part of the SSM.
The Commission notes that preparatory and implementing activities that national supervisory authorities could deliver within the SSM include:
- In the case of a request for authorisation of a new bank, the national supervisory authority could be responsible for assessing compliance with any conditions for authorisation set out in national law, and could propose a decision to the ECB which could authorise the bank if it is satisfied that the conditions set out in EU law are met.
- National supervisory authorities could carry out on-going day-to-day assessment of a bank’s situation and on-site verifications, implementing general guidance or regulations issued by the ECB.
- In the case of a request from a bank to use an internal risk model, the national supervisory authority could assess the request and its compliance with EU law and any guidance issued by the ECB and could propose to the ECB whether and under which conditions to validate the model.
- Sanctioning powers would be shared between the ECB and the national supervisory authority.
For cross border banks active both within and outside Member States participating in the SSM, existing home/host supervisor coordination procedures will continue as present. To the extent that the ECB has taken over supervisory tasks, it will carry out the functions of the home and host supervisory authority for all participating Member States.
The Commission is proposing to have the SSM in place by 1 January 2013. As of 1 January 2013 the ECB will be able to decide to assume full supervisory responsibility over any bank, particularly those which have received or requested public funding. As of 1 July 2013 all banks of major systemic importance will be put under the supervision of the ECB. The phasing in period is expected to be completed by 1 January 2014 when the SSM will cover all banks.
The ECB will cooperate with the EBA within the framework of the European System of Financial Supervision. The EBA will continue to develop the single rulebook and will seek to enhance supervisory convergence through the development of a single supervisory handbook.
The draft Regulation aligning the existing Regulation on the EBA (the draft EBA Regulation) changes voting modalities. At present decisions are taken by simple majority (one member, one vote) by members of the EBA’s Board of Supervisors. In relation to binding EBA powers, this includes decisions on the application of EU law in the context of breach of law procedure, action in emergency situations and settlement of disagreements between national supervisory authorities.
However, decisions in relation to the adoption of guidelines and recommendations and of draft technical standards are taken by qualified majority. The draft EBA Regulation changes the voting modalities on breach of law and settlement of disagreement. It does not change voting modalities on matters subject to qualified majority voting and on action in emergency situations.
In the Communication the Commission states that the legislative proposals mark an important first step which will improve financial stability and confidence in the Euro area. The Commission envisages that further steps will include a proposal for a single resolution mechanism which would govern the resolution of banks and coordinate the application of resolution tools to banks within the EU banking union. The Commission also envisages a pan-EU deposit guarantee scheme with the first step being harmonisation and simplification of protected deposits, faster payouts and improved financing of schemes, notably through ex-ante funding of deposit guarantee schemes and a mandatory mutual borrowing facility.
View Commission proposes new ECB powers for banking supervision as part of banking union, 12 September 2012
FSA consults on non-EEA national depositor preference regimes
The FSA has published Consultation Paper 12/23: Addressing the implications of non-EEA national depositor preference regimes (CP12/23).
In certain non EEA countries, if a firm becomes insolvent, the claims of depositors in the home country will take preference over the claims of depositors outside the home country, including the depositors of the UK branch. The FSA wants firms from non-EEA countries who operate these depositor preference regimes to take steps to address this subordination of UK branch depositors.
In the Consultation Paper, the FSA makes two main proposals in relation to national depositor preference regimes upon wish it welcomes feedback.
The FSA’s first proposal is that non-EEA countries that operate national depositor preference regimes should be prohibited from accepting deposits using a branch in the UK unless they implement measures to eliminate the disadvantages that UK branch depositors would face compared to home country depositors. In relation to this the FSA would expect non-EEA firms to establish a UK-incorporated subsidiary to carry out their UK-based deposit-taking business or set up alternative arrangements. The FSA suggests an alternative arrangement might be for firms to ring-fence assets of the UK branch under a trust arrangement to meet the deposit liabilities of that branch.
The FSA intends to have this new rule in place by January 2013. The FSA recognises that firms will need time to make changes to their existing deposit-taking branches and propose to give them a two year transition period to make the necessary arrangements to comply with the new requirements.
The FSA’s second proposal is that during the two year transition period firms should disclose information about the national depositor preference regimes of their home countries to all UK branch customers and highlight the fact that claims of depositors in the firm’s home country will be preferred to the claims of depositors based outside the home country. The FSA states that merely making a reference to UK branch depositors being in a weaker position would not in itself be sufficient. The FSA proposes that the information to be disclosed to all UK branch customers include the following:
- A statement that the UK branch operates in accordance with the national depositor preference legislation of the home country.
- Information concerning the relevant legislation.
- A statement to highlight the fact that the claims of the UK branch depositors compared to the preferred depositors will be subordinated to the claims of the depositors in the home country if the firm becomes insolvent.
- A reference to the risk of loss being greater for UK branch depositors compared to the preferred depositors of the home country as a result of their claims being subordinated in the hierarchy of creditor claims
The FSA intends to have this new rule in place by January 2013 and it intends to give firms three months to comply with this new disclosure requirement, that is, until April 2013.
The deadline for comments on CP12/23 is 11 December 2012.
View Consultation Paper 12/23: Addressing the implications of non-EEA national depositor preference regimes, 11 September 2012
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Handbook Release 129
The FSA has published its latest handbook Release (no. 129). This Handbook Release contained pages to be inserted into paper versions of the FSA Handbook in order to bring it up to date. These changes came into force between 7 August 2012 and 6 September 2012.
View Handbook Release 129, 11 September 2012
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Digital Protect: unauthorised firm offering insurance
The FSA has issued a short statement concerning Digital Protect Ltd (as known as Sampora and Domestic Protect) which has been offering insurance for home entertainment and digital equipment without FSA authorisation.
View Digital Protect: unauthorised firm offering insurance, 6 September 2012
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Publication of Money Laundering (Amendment) Regulations 2012
The Government has published the following statutory instruments together with an explanatory memorandum:
- The Money Laundering (Amendment) Regulations 2012 (SI 2012/2298) (the MLR Amendment Regulations).
- The Terrorism Act and Proceeds of Crime Act 2002 (Business in the Regulated Sector) (No.2) Order 2012 (SI 2012/2299) (the TAPC Order).
The MLR Amendment Regulations make a number of changes to the Money Laundering Regulations 2007 (the 2007 Regulations) and these include:
- Changing the definition of estate agents to include estate agents who sell property outside the UK.
- Allowing consumer credit financial institutions to be relied on to carry out customer due diligence.
- Making the FSA the formal supervisor for recognised investment exchanges under the 2007 Regulations.
- Clarifying when registration under the 2007 Regulations may be cancelled.
The TAPC Order amends the definition of business in the regulated sector for the purposes of Part 3 of the Terrorism Act 2000 and Part 7 of the Proceeds of Crime Act 2002, to clarify that estate agents selling property outside the UK are within the scope of the definition.
The MLR Amendment Regulations and the TAPC Order both come into force on 1 October 2012.
View The Money Laundering (Amendment) Regulations 2012 (SI 2012/2298), 10 September 2012
View The Terrorism Act and Proceeds of Crime Act 2002 (Business in the Regulated Sector) (No.2) Order 2012 (SI 2012/2299), 10 September 2012
View Explanatory Memorandum to The Money Laundering (Amendment) Regulations 2012 and The Terrorism Act and Proceeds of Crime Act 2002 (Business in the Regulated Sector) (No.2) Order 2012, 10 September 2012
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Regulation & compliance
Making financial centres contribute to the wider economy
On 6 September 2012, the European Commission published a speech by Michel Barnier (European Commissioner for Internal Market and Services) on the contribution of European financial centres to the wider economy.
In his speech, Mr Barnier puts forward the question: How can we ensure that Europe’s financial centres are able to rise to today’s challenges? Mr Barnier’s answer to this question is based on two main pillars of reform:
- The need to stabilise the financial sector and re-establish confidence. As a result of the recent financial crisis, it has become clear that the financial services sector must be reformed. Mr Barnier expresses the need for a ‘single rulebook’ and states that the experiences during the crisis have demonstrated the need for common European rules. Approximately 30 targeted measures have been proposed by the European Commission and it is Mr Barnier’s goal to have all new legislation in force by 2013.
- The need to put in place measures to ensure the financial sector supports healthy growth and investment. This pillar will require taking up a series of challenges, all of which will require long term financing which is where Europe’s financial centres have a key role to play. In this respect, they should perform at least three tasks: (i) provide a stable platform for institutional investors such as pension funds and insurers to match their long term liabilities with long term assets; (ii) offer safe and profitable vehicles for household savings; (iii) support sustainable, green and socially responsible economic growth.
Mr Barnier goes on to explain that the Commission will produce a broad consultation later this year which will examine how to ensure the financial sector can fulfil these roles as efficiently and effectively as possible.
Mr Barnier also mentions the work being carried out by the Commission’s high-level expert group which is examining structural reforms to the EU banking sector. Mr Barnier stated that the group intends to finalise its work in October 2012. The Commission will then evaluate its recommendations and respond as appropriate.
View Making financial centres contribute to the wider economy, a speech by Michel Barnier, 6 September 2012
FSA issues consultation on PRA and FCA regimes relating to aspects of authorisation and supervision
The FSA has published its latest Consultation Paper on UK regulatory reform, Consultation Paper 12/24: Regulatory Reform: PRA and FCA regimes relating to aspects of authorisation and supervision (CP12/24).
The FSA's approach to amending its Handbook ready for the legal cut over to the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) is based on making only those changes that are required to implement properly the Financial Services Bill (the Bill) and to support the creation of the new regulatory structure. A key component of this approach is that when the PRA and FCA acquire their powers the provisions in the existing FSA Handbook will be adopted by the PRA, FCA or both to form the new PRA and FCA Handbooks. As a result of this approach the FSA believes that the majority of the provisions in the current FSA Handbook will be carried forward to the new regulators' Handbooks. From legal cut over the PRA and FCA will then amend the provisions within their Handbooks in line with their respective objectives and functions.
However, some substantive changes must be made to the current FSA Handbook in order to align the Handbooks of the PRA and FCA with their future objectives and functions. In CP12/24 the FSA sets out for consultation these substantive changes.
Each chapter of CP12/24 covers a particular part of the Handbook:
- Chapter 2: General Provisions and Common Definitions (GEN 2 and the Glossary).
- Chapter 3: Status Disclosure and use of the regulators' logos: Changes to General Provisions.
- Chapter 4: Skilled Persons: Changes to the Supervision Manual (SUP).
- Chapter 5: Applications to vary and cancel permissions and requirements (SUP 6).
- Chapter 6: Waiver and modification of rules (SUP 8).
- Chapter 7: Controllers and close links (SUP 11).
- Chapter 8: Passporting under EU Directives (SUP 13/14).
- Chapter 9: Notifications to the FSA (SUP 15).
- Chapter 10: Reporting requirements (SUP 16).
- Chapter 11: Insurance transfers of business (SUP 18).
- Chapter 12: Other changes to the PRA and FCA Handbooks (including deletions).
The deadline for comments on CP12/24 is 12 December 2012. The FSA states that the resulting Policy Statements will be issued by the PRA and FCA once they have acquired their legal powers.
The FSA also states that there will be further consultations on the PRA and FCA Handbooks over the coming months.
View Regulatory Reform: PRA and FCA regimes relating to aspects of authorisation and supervision, 12 September 2012
FSA publishes new fact sheet on changes to credit union rules
Earlier this year the FSA published Consultation Paper 12/5: Quarterly Consultation (No. 32) in which it consulted on certain changes to credit union rules. The changes consulted on in CP12/5 came into effect on 1 September 2012.
The FSA has now published its latest fact sheet for credit unions which explains the changes that have come into effect. The fact sheet covers:
- The changes affecting credit unions in Great Britain. These are: (i) that the maximum amount of (non-deferred) shares that may be held by a member of a credit union is now £15,000 (or 1.5% of the total non-deferred shareholdings of the credit union, if that produces a higher figure); and (ii) there is now no limit on the number of members who may jointly hold an account.
- The changes affecting credit unions in Great Britain and Northern Ireland. There have been changes to the supplementary analysis pages of the quarterly return and the annual return, along with the accompanying guidance notes.
View FSA Fact Sheet - Credit Unions , 11 September 2012
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BIS Consultation on the early implementation of a ban on above cost payment surcharges
The Department for Business Innovation and Skills (BIS) has published a Consultation Paper on the early implementation of a ban on above cost payment surcharges.
In the Consultation Paper, the Government announces its intention to ban businesses from charging consumers excessive payment surcharges. This announcement follows recommendations from the Office of Fair Trading (OFT). The increase in the number of unavoidable payment surcharges and the high charges levied by some businesses have caused widespread consumer dissatisfaction and led to the consumer group Which? launching a super-complaint to the OFT which focused on the passenger transport industry.
As a result of this super-complaint, the OFT concluded that Government action was necessary to support the work it is doing to ensure that businesses adopt fairer pricing practices. The OFT also recommended that the Government introduce legislation to prohibit retailers from imposing any surcharges for payments made by debit card.
The Government believes that businesses should be entitled to recover the costs they incur in accepting all forms of payment (including debit cards) through a fair and transparent surcharge. A complete ban on debit card surcharges alone would prevent businesses from flagging to consumers the genuine costs they incur from processing debit card payments. The Government is of the view that a more general ban, but focused only on excessive payment surcharges, can be achieved by early implementation of a provision in the Consumer Rights Directive. This will protect consumers across the EU from excessive surcharges on all payment methods.
The Consultation Paper highlights the Government's interest to understand views on the types of costs that businesses incur by using particular means of payment as these may inform any guidance which the Government intends to publish on the prohibition. The Consultation Paper is seeking views on the timing of the implementation of the Consumer Rights Directive and how best to define the scope and application of the provision.
The deadline for comments on the Consultation Paper is 15 October 2012.
View BIS Consultation on the early implementation of a ban on above cost payment surcharges, 3 September 2012
Make sure you are on track for the RDR
The FSA has published a guide on the Retail Distribution Review (RDR) entitled Make sure you’re on track for the RDR. In this guide the FSA provides further guidance on certain areas of the RDR that firms have been struggling to understand. The guide covers:
- Adviser charging and key issues to consider when putting together a charging structure.
- Independent and restricted advice. The FSA discusses how independence can be demonstrated, how professional indemnity cover may affect independent status and referrals to other firms.
- Professionalism including qualification gap fill and what structured and unstructured CPD looks like.
View Make sure you are on track for the RDR, 12 September 2012
FOS releases new complaints data on individual financial businesses
The Financial Ombudsman Service (FOS) has released its seventh set of bi-annual complaints data. This data covers consumer complaints handled by the FOS between 1 January and 30 June 2012. During this period the FOS received a total of 135,170 new complaints, a 27% increase on the previous period. 91% of the total number of complaints came from 169 financial businesses. Complaints about PPI made up 63% of the total complaints received by the FOS during the first half of 2012, with 85,562 new complaints. According to Natalie Ceeney, Chief Ombudsman and Chief Executive, the FOS consumer frontline is busier than ever and is currently taking over 3,000 calls solely on PPI complaints per day.
View FOS Complaints Data for the period 1 January to 30 June 2012, 13 September 2012
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OTC derivatives international roundtables
Norton Rose Group will be hosting a series of international roundtables on the European Market Infrastructure Regulation (EMIR).
In August / September there will be two roundtables in London, one for buy-side clients and another for energy clients.
Further roundtables will take place in our offices in Amsterdam, Hong Kong and Singapore.
The roundtables in Hong Kong and Singapore will give participants the chance to get an insight into EMIR and draw comparisons with local regulatory developments.
The invitation to the international roundtables can be found here.
If you can not access this link, please copy and paste the address below into your web browser.
40 minute briefing series - October 2012 to January 2013
We are pleased to announce that the invitation for the next series of 40 minute briefings is now available.
If you can not access this link, please copy and paste the address below into your web browser.
Financial services regulatory products: Phoenix, Pegasus, OTC Oracle and AIFMD expert
Having difficulty keeping up with the pace of the Government's regulatory reform proposals?
Phoenix is our new financial services product that is an online resource designed to help those who are starting their UK regulatory reform projects. It sets out the latest developments and timing of the Government's reform programme plus the key resource papers from the Treasury, Bank of England, FSA and the ICB. The latest Norton Rose LLP briefing notes, videos and webcasts are also available.
The Phoenix main page can be found here.
Behind the curve on the MiFID review?
We have launched a second online resource product called "Pegasus". Pegasus is a new financial services product that is an online resource designed to assist those starting work on MiFID review projects.
The Pegasus main page can be found here.
G20 commitment on clearing
Our third online resource product is OTC Oracle. OTC Oracle is designed to assist clients track the implementation of the G20 commitment to have all standardised OTC derivatives traded on exchanges or electronic trading platforms, where appropriate, and cleared through CCPs by the end of 2012. OTC Oracle sets out the latest developments and timing plus the key resource papers from each of the EU, Canada, Hong Kong and Singapore.
The OTC Oracle main page can be found here.
Our fourth online resource product is AIFMD expert. AIFMD expert is designed to assist clients and contacts of Norton Rose LLP when conducting their projects on the Alternative Investment Fund Managers Directive. It sets out the latest developments and timing of the AIFMD plus the key resource papers from the Commission, ESMA and the FSA. Clients and contacts are also given access to the latest Norton Rose LLP briefing notes, slides and webcasts.
The AIFMD expert main page can be found here.
Financial services Fireside Fridays
Please click on the links below:
Financial services & markets webinars
We are currently experiencing significant changes in the European financial services regime that could have a particular impact on both financial firms and non-financial firms that trade energy, commodities and emissions. To assist our clients we have produced a series of short webinars which will look at the forthcoming regulatory changes and their impact on the financial regulation of trading.
Financial services webcasts
Please click on the links below:
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