FS Risk and Regulation Monthly
Keeping up to date with FS regulation
Risk and Regulation Monthly provides a summary of the key International, European and UK regulatory developments and pertinent regulatory activity affecting the Financial Services industry.
July was a busy month, as is often the case ahead of the holiday peak in August. Rules and guidelines on setting up new or expanded operations in the EU were the subject of papers from ESMA, EIOPA and BaFin, while a number of areas around MiFID implementation and finalisation – particularly the need for firms that want MiFID permissions to have their applications submitted – were the subject of papers from the FCA, ESMA and the European Commission. The FSB was particularly busy, giving its views on a range of topics from finalising the post-crisis reforms to shadow banking, TLAC and derivatives reform.
June saw the publication of some significant EU proposals on the treatment of central counterparties (CCPs) as part of the review of the European Markets Infrastructure Regulation (EMIR). The regulatory implications of IFRS 9 were also in focus, with both the Bank of England and the European Banking Authority (EBA) publishing materials on the incorporation of the new accounting standard into stress testing, and the European Council agreeing to fast-track legislation to introduce a transitional phase-in of the impact of IFRS 9 on capital requirements. The UK’s Financial Conduct Authority (FCA) published a long-awaited study into the asset management industry, along with a consultation on remedies to what it described as “weak” price competition in the sector. The European Commission published a set of proposals which would create a pan-European Personal Pension Product, or “PEPP”. The Single Resolution Board (SRB) undertook its first resolution in the Eurozone with the resolution of Spain’s Banco Popular.
May saw a number of developments around Brexit, including the publication of several papers outlining the negotiating position of the European Commission. The outcome of the UK general election on 8 June has led to some suggesting that the British government’s approach to the Brexit talks may be altered, but it is currently too early to say what the effect might be.
April saw the Financial Stability Board (FSB) consult on a framework for the post-implementation evaluation of the G20 financial regulatory reforms to help identify “material unintended consequences”. Mark Carney stressed the need for their implementation to be both “full, timely and consistent” as well as dynamic enough to allow authorities to make adjustments as necessary to optimise results.
March saw several important regulatory discussions and updates. Issues related to levelling the playing field between banks using the Standardised and Internal Rating Based (IRB) approaches were highlighted in the Bank of England’s (BoE) work, while both the BoE and the European Central Bank (ECB) unveiled details of their upcoming stress tests. The Asset Management sector was again at the centre of the Financial Conduct Authority’s (FCA’s) attention, as it reviewed their dealing commission expenditure and best execution.
February saw several noteworthy regulatory developments. A possible red flag in the MiFID II implementation was pointed out by ESMA as it wrote to the European Commission warning about firms trying to circumvent certain MIFID II rules around the trading obligation and the systematic internaliser regime. ESMA also unveiled a framework for 2017 CCP stress test indicating a more expansive approach to the exercise that will now also incorporate a liquidity risk assessment.
In January the UK Supreme Court ruled that the UK Government could only give notice of its intention to leave the European Union (EU) if it was given the power to do so by an Act of Parliament. The Government set out its priorities for the exit negotiations, confirming that the UK would not seek membership of the Single Market. Meanwhile, the FCA opened its doors to applications for authorisation or variation of permission from firms under the Markets in Financial Instruments Directive (MiFID) II.
December saw a number of regulatory developments, as authorities sought to finalise a range of deliverables before the year’s end. At the international level, the Financial Stability Board (FSB) issued consultations on setting internal Total Loss-Absorbing Capacity (TLAC) in banks; and on maintaining access to Financial Market Infrastructures (FMIs) during resolution. At the European level, both the Council and the Parliament of the EU adopted legislation to delay the application of rules on packaged retail and insurance-based investment products (PRIIPs) until 1 January 2018. In the UK, both firms and authorities continued to assess the potential practical implications of Brexit, including the role that a transitional exit arrangement could play in that process.
November’s highlights included publication of proposed revisions to the Capital Requirements Directive (CRD IV) and Regulation (CRR) (the CRD V / CRR II package) and the results of the UK 2016 bank stress test. The European Banking Authority (EBA) commented on implementation of the new Standardised Approach for Counterparty Credit Risk (SA-CCR) and the fundamental review of the trading book (FRTB), suggesting these would have significant impact on capital requirements. The EBA also outlined options for the design and calibration of new prudential rules for investment firms. As expected, the European Commission proposed extending the compliance deadline for the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) till 2018. Other important updates included the UK High Court ruling on Brexit, a political agreement on the EU Money Market Funds (MMFs) Regulation and the European Commission’s report on the review of the European Market Infrastructure Regulation (EMIR).
Last month the Financial Conduct Authority (FCA) launched a long-awaited consultation on its new “Mission Statement”, and also published the outputs of several thematic reviews. Elsewhere, senior figures from the European Central Bank (ECB) expressed concerns about the sustainability of the business models of European banks, while the European Banking Authority (EBA) consulted on the incorporation of information technology risk into the Supervisory Review and Evaluation Process (SREP). On Brexit, the most significant development came after the end of the month, with the UK High Court’s ruling that Parliament should have a role to play in relation to Article 50.
The summer period has ended and our focus is back to the dual tasks of implementing rules that have already been agreed and assessing how the regulatory framework still needs to change. G20 Leaders meeting in Hangzhou, China received an update on the progress of global regulatory efforts from the Financial Stability Board (FSB), and the Basel Committee on Banking Supervision (BCBS) held an important meeting later in the month on finalising the post-crisis bank capital framework. In Brussels, the European Commission re-affirmed its commitment to pressing forward with the Capital Markets Union (CMU) agenda and gave further detail on its legislative plans in this area. In Britain, Prime Minister Theresa May used the Conservative Party conference to indicate the Government’s intent to trigger Article 50 and launch exit negotiations by March 2017.
July was busy with the publication of the EBA’s bank stress test results, a swathe of technical publications relating to MiFID II, and a variety of documents relating to UK bank ring-fencing. New Chief Executives also took up their posts at the UK regulators.
The UK’s referendum decision to leave the EU in June sent shockwaves around the financial sector and raised a number of fundamental regulatory questions for UK, European and foreign firms. Regulators, however, continued to have a busy month and June saw the first clearing obligations for interest rate derivatives begin to be implemented on a staggered basis and the final text delaying the implementation date of Markets in Financial Instruments Directive and Regulation (MiFID II/MiFIR) by one year being published in the Official Journal of the EU.
In May the European Commission consulted on application and implementation of the revised framework for market risk and on the Net Stable Funding Ratio (NSFR) under the Capital Requirements Directive (CRD) IV. Political agreement was reached to delay the application and transposition dates of the Markets in Financial Instruments Directive and Regulation (MiFID II and MiFIR) and the Commission adopted a number of Delegated Regulations under MiFID II/MiFIR.
In April the Basel Committee on Banking Supervision (BCBS) published its long-awaited final proposals on interest rate risk in the banking book (IRRBB). A formal delay to the MiFID II/MiFIR package was brought one step closer as EU institutions agreed their negotiating positions. Elsewhere, the Single Resolution Board (SRB) held its first public conference at its new permanent premises in Brussels.
March saw publication of the Financial Advice Market Review in the UK, a continued retreat from models at Basel, the Financial Policy Committee’s (FPC) decision to enact the Counter-cyclical Capital Buffer in the UK, and a promise from the Financial Stability Board (FSB) to consult by mid-2016 on proposals to address structural vulnerabilities in the asset management sector.
The news headlines in February were dominated by the announcement of the date for the UK referendum on membership of the EU. This has led to a substantial pick-up in planning activity, as the industry works to understand and make early preparations for the possible impact of any vote to leave.
January saw a number of important milestones. The Solvency II Directive came into effect, introducing the new capital regime for insurers in the EU. The Single Resolution Board (SRB), overseeing bank resolvability in the Banking Union, assumed its full powers. The Basel Committee on Banking Supervision (BCBS) published the final rules for the Fundamental Review of the Trading Book (FRTB). Finally, Andrew Bailey was appointed Chief Executive of the Financial Conduct Authority (FCA).
As always, December was a busy month. The Financial Conduct Authority (FCA) published its first consultation on MiFID II implementation. The clearing obligation timeline was triggered by the publication of technical standards for the European Market Infrastructure Regulation (EMIR) in the Official Journal. The Single Resolution Board (SRB) published its work plan for 2016, while the European Central Bank (ECB) reflected on the first year of the Single Supervisory Mechanism (SSM). And the European Bank Authority (EBA) published its long-awaited report on the prudential regime for investment firms.
The G20 Summit resulted in an agreement on a number of issues, including the final standards on total loss absorbing capacity (TLAC) for global systemically important banks ("G-SIB's") as part of the program to end "Too Big To Fail". In the EU, there was talk of a potential delay in the implementation of the revised Markets in Financial Instruments Directive and Regulation (MiFID II and MiFIR).
October saw important announcements from the Basel Committee on Banking Supervision (BCBS) on the progress of its work on risk-weighted assets, the publication of the Bank of England's consultations on ring-fencing rules and operational continuity in resolution, and the extension of the UK Senior Management and Certification Regime to all firms in the financial services sector.
August saw the adoption of the first Regulation to impose clearing obligations under the European Market Infrastructure Regulation (EMIR). Two relatively young UK regulatory institutions - the Competition and Markets Authority (CMA) and the Payments Systems Regulator (PSR) - were also active. In the courts, Tom Hayes became the first person to be convicted in relation to LIBOR manipulation.
July was marked by the announcement of Martin Wheatley’s resignation as Chief Executive of the Financial Conduct Authority (FCA). Elsewhere, there were a series of reports on benchmark remediation and reform, and the UK regulators finalised rules on the Senior Managers and Certification Regimes. In Europe the European Banking Authority (EBA) released another batch of technical standards under the Bank Recovery and Resolution Directive (BRRD) and the European Insurance and Occupational Pensions Authority (EIOPA) issued the second set of technical standards and guidelines on Solvency II.
There were yet more fines for FX conduct failures this month, while the Prudential Regulation Authority (PRA) outlined its recommendations on board responsibilities. Elsewhere, national and international supervisors continued work on Solvency II, while the European Banking Authority (EBA) released a slew of technical documents on the Bank Recovery and Resolution Directive (BRRD) and the Capital Requirements Regulation (CRR).
This month a number of large fines were imposed by the Financial Conduct Authority (FCA), for benchmark manipulation, PPI complaints-handling and breaches of custody rules. Elsewhere the resilience of central counterparties (CCPs) continues to move up the regulatory agenda, and the European Central Bank (ECB) reported on the first six months of the Single Supervisory Mechanism (SSM).
Solvency II and MiFID II spawned multiple consultation in March, while work on the Bank Recovery and Resolution Directive (BRRD) continued, and the Single Revolution Board (SRB) held its first plenary meeting. On stress testing the Bank of England published details of its 2015 framework, though there will be no EU-wide test this year. Asset management and market liquidity issues also received regulatory attention.
Plans for the Capital Markets Union (CMU) were unveiled this month, and the Financial Conduct Authority (FCA) announced a competition study into investment and corporate banking. There was also further detail on the Senior Managers’ Regime (SMR) and the Senior Insurance Managers’ Regime (SIMR).
Following a busy December, the new year started with the continued implementation of post-crisis reforms, such as the final rules implementing the Bank Recovery and Resolution Directive (BRRD) from the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), and some new policy initiatives, such as the Capital Markets Union (CMU).
December was a busy month on several fronts, with the publication of the UK stress testing results, and a large number of technical standards on Solvency II, the Capital Requirements Directive IV and Regulation (CRD IV/CRR), and the Bank Recovery and Resolution Directive (BRRD). The Basel Committee on Banking Supervision (BCBS) also published proposals for a revised standardised approach to credit risk
A number of important announcements related to bail-in and recovery and resolution planning, and banking capital standards, were made in November, driven by the G20 summit in Brisbane.
Additionally, regulatory action on FX trading operations, the UK liquidity regime and the senior managers’ regime were of note.
In October the European Central Bank (ECB) published the Comprehensive Assessment results, and regulators continued their work on remuneration, the leverage ratio, structural reform and resolution regimes.
The Fair and Effective Markets Review also consulted on changes to fixed income, currency and commodities markets.
September was notable for a flurry of pre-G20 publications from international regulators, including the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS), and the International Organisation of Securities Commissions (IOSCO), on topics such as insurance loss absorbency, bank resolution, risk-weighted-asset consistency, and non-bank finance. Meanwhile the Prudential Regulation Authority (PRA) finalised its policy on the supervision of foreign bank branches in the UK, and there was no shortage of material on the Single Supervisory Mechanism.
Key regulatory themes
Risk and Regulation Monthly focuses on the following ten major regulatory developments.
- Capital, including stress tests
- Conduct of business
- Crisis Management
- Financial Crime
- Information Security and Data privacy
- Regulatory perimeter
- Rethinking the domestic and international architecture for regulation
About the EMEA Centre for Regulatory Strategy
The EMEA Centre for Regulatory Strategy monitors regulatory developments and provides an expert, objective perspective on opportunities and challenges for clients. It utilises Deloitte’s Risk and Regulation, Strategy Consulting and other relevant areas of expertise to understand, influence and advise on regulatory change, with a particular focus on the strategic business model and aggregate impacts.
The Centre is headquartered in London with local representation across Europe. Our core team of dedicated professionals has extensive experience in regulation, through a combination of former regulators and risk and regulation strategy advisors and consultants.