UK regulatory 

FCA publishes MiFID II policy statement and consultation paper

The FCA has published its final policy statement (Policy Statement II) PS 17/14 [03.07.17].  This includes final rules for implementing MiFID II. The Policy Statement covers conduct issues including research, inducements, client categorisation, best execution, appropriateness, taping, client assets and perimeter guidance.  It is of broad relevance to the market especially to consumers, investment managers and advisers.  The FCA also reminds firms to continue to prepare for 3 January 2018 when MiFID II applies and that those needing to apply for authorisation or variation of permission in light of changes MiFID II makes, must now do so immediately. For more on applications see here.   The FCA also issued its sixth set of implementing proposals for MiFID II: Consultation paper VI (CP17/19) [03.07.19]. This contains the FCA's proposals for bringing RIEs operating MTFs and OTFs into the FSCS – as MiFID II requires them to have an investor compensation scheme; changes to DEPP and EG; and consequential changes to the Prospectus rules and Glossary. The FCA asks for comments by 7 September 2017.

FCA publishes the FAMR Baseline Report

The FCA and HM Treasury published their Financial Advice Market Review (FAMR) baseline report [30.06.17]. They jointly launched FAMR in 2015 to look into how to generate affordable and accessible financial advice and guidance – for everyone.  The FAMR final report published in March 2016 included a recommendation for the FCA and HM Treasury to work on identifying a baseline and indicators for monitoring how the financial advice market develops. These should be tracked each year and the results published on the FCA's website.  The FCA and Treasury identified a range of indicators, including measures of consumers' use of advice and guidance ('demand side') and measures of its provision ('supply side') to provide a snapshot of the financial advice market and set a baseline. The indicators would act as the benchmark to measure the impact of FAMR against the 'success factors' in the final report. The success factors are:

·        good availability of affordable, high quality advice and guidance for consumers at all stages of their lives to access;

·        greater innovation in consumers' interests, encouraged by a flexible and well understood regulatory framework for advice;

·        variety of channels for consumers to access advice and guidance, including in the workplace, and appropriate flexibility in how consumers pay for advice; and

·        consumer engagement with their financial affairs and seeking the advice and guidance they  need.

The Baseline Report is underpinned by two pieces of consumer research: Qualitative research and Quantitative research. Quantitative consumer research will be available annually as will supply-side data from FCA reporting.  The FCA and HM Treasury plan to carry out the same research in two years' time in 2019 and compare the data sets generated, to see how the market is evolving.

The Retail Distribution Review's 2017 Post-Implementation Reviews will be combined with the 2019 post-FAMR review to give the market time to react to regulatory changes flowing from FAMR and MiFID II and minimise reporting by firms. The results will be published early in 2020.  Read more here.

FCA publishes its annual report

The FCA published its annual report and accounts for the year ended 31 March 2017 [05.07.17] looking back on significant work in 2016/17. The FCA also published [05.07.17] three other separate annual reports for 2016/17 on: Competition, Enforcement, Anti-Money Laundering and Diversity.  Their Annual Public Meeting at which the Annual Report and Accounts will be discussed is to be held on 18 July 2017. It is now fully booked but will be live-streamed.

FCA publishes prospectus rules instrument

The FCA has published its Prospectus Rules (Miscellaneous Amendments) Instruments 2017 (FCA 2017/40) [06.07.17]. It contains amendments to the Glossary and Prospectus Rules sourcebook, and comes into force on 20 July 2017.


EU regulatory 

Commission publishes PRIIPs communication

The Commission published a Communication [07.07.17] in the Official Journal containing Guidelines on the application of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation (Regulation (EU) No 1286/2014) (Regulation).  The objective of the Communication is to: "facilitate the implementation of, and the compliance with, [the] Regulation 1286/2014 by smoothing out potential interpretative divergences throughout the Union."  It does not contain or create new legal rules.  The Guidelines cover a range of areas including territorial application, running offers on 1 January 2018, offers that are closed by 31 December 2017, use of Key information Documents (KIDs) by UCITS, distribution channels, translations of KIDs, length of KIDs – and more.  The Commission's position is without prejudice to any interpretation the European Court of Justice gives to the Regulation.   

ESAs publish Q&A on the KID

The European Supervisory Authorities (ESAs) published [04.07.17] their first Q&As on the Key Information Document (KID) requirements for Packaged Retail and Insurance-based Investment Products (PRIIPs). More than 70 Q&A address a range of matters. These include: market risk assessment, methodology for assessing credit risk, summary risk indicator, performance scenarios, derivatives, costs calculation methodology among other costs requirements.

Regulation on money market funds published in the Official Journal

The Regulation on money market funds was published in the Official Journal of the European Union [30.06.17]. For further information on ESMA's consultation on the regulation please see here and for information on its adoption see here. The Regulation enters into force twenty days after its publication in the Official Journal and applies from 21 July 2018 with the exception of a small number of provisions which apply from 20 July 2017.

Prospectus regulation published in the Official Journal

The Regulation on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market repealing Directive 2003/71/EC has been published in the Official Journal of the European Union [30.06.17]. It enters into force 20 days after it is published in the Official Journal and applies from 21 July 2019 except for a small number of provisions that apply earlier on dates in 2017 and 2018.  The aim of the Regulation is to make it cheaper and easier for companies, especially smaller companies, to access capital.  It also aims to make the prospectus more accessible to investors. The Regulation requires the European Commission to adopt delegated acts on some areas within 18 months of the Regulation entering into force.  ESMA has now published [06.07.17] three consultation papers containing draft technical advice on the:

·        format and content of the prospectus (ESMA31-62-532);

·        content and format of the EU Growth Prospectus (ESMA31-62-649);

·        scrutiny and approval of the prospectus (ESMA31-62-650).

The consultations close on 28 September 2017.  ESMA is to deliver its technical advice to the European Commission by 31 March 2018.

To read more on the European Parliament's approval of the proposal for the new prospectus Regulation in April 2017 see here and on its adoption by the European Council [16.05.17] see here.

ESMA updates MAR Q&A

ESMA updated its Q&As on the Market Abuse Regulation (MAR) [06.07.17] with two new questions in the section on managers' transactions (section 7). They are:

·             if the announcement of the interim or year-end financial results determines the timing of the closed period in Article 19(11) MAR (Q7.2); and

·             whether, in the set of Q&A on closely associated persons, the phrase "the managerial responsibilities of which are discharged" in Article 3(1)(26)(d) of MAR is to be read in the same way as in the definition of a PDMR within an issuer in Article 3(1)(25) MAR (Q7.7).    

ESMA publishes Benchmarks Regulation Q&A

ESMA published [05.07.17] two Q&A on the Benchmarks Regulation. They relate to the transitional provisions under the Benchmarks Regulation as to which benchmarks supervised entities are to be permitted to use after 1 January 2018, because of transitional provisions applicable to EU index providers providing benchmarks on 30th June 2016 and those starting to do so between 1st July 2016 and 31st December 2017. The FCA welcomed the clarity given by the Q&A on the transitional provisions [07.07.17] and reminded firms its consultation on its proposed Handbook changes to align its rules with the Benchmarks Regulation is open until 22 August 2017.  Read more here.

EBA collecting data on proposed investment firm prudential framework

The European Banking Authority (EBA) has launched [06.07.17] its second round of data collecting in support of the response to the European Commission's Call for Evidence on the proposed prudential regulation framework for investment firms.  It is supplementary to the first data collection round begun on 15 July 2017 and the EBA's Discussion Paper [04.11.16] where the EBA consulted on its proposal for the prudential framework for investment firms.  The template is designed so firms that did not provide data in the first round may do so now and the EBA asks firms that did provide data previously to do so again, including repeating they previously provided.  Completed templates are to be returned to competent authorities by 3 August 2017.  The templates and instructions are addressed to firms currently within the scope of MiFID and which are expected to be in scope of MiFID II.


Financial crime

FCA publishes its Finalised Guidance on the AML treatment of PEPs

The FCA published finalised guidance [06.07.2017] on the way that financial services firms should treat their customers who are politically exposed persons (PEPs) to satisfy their anti-money laundering obligations (FG17/5). The FCA consulted, in March 2017, on guidance regarding PEPs under s. 333U of the Financial Services and Markets Act 2000 (FSMA). There is a duty in this section for the FCA to issue guidance on PEPs before regulations transposing the Fourth Anti-Money Laundering Directive or any subsequent EU measures come into force. Section 333U FSMA was not in force on 6th July 2017 and the FCA also had a duty under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (2017 Regulations) to issue guidance on the enhanced customer due diligence measures for PEPS. According to the 2017 Regulations, the FCA's duty under s. 333U FSMA does not apply if it is satisfied by guidance the FCA issues under the 2017 Regulations.  The FCA considers that by issuing guidance under the 2017 Regulations, they will have satisfied their duty under s.333U FSMA.  The FCA will not consult again on this guidance as the substance of it has already been consulted on. The EU is in the process of negotiating other amendments to the Fourth Anti-Money Laundering Directive so the final text to come from the EU my affect the FCA's Finalised Guidance.  The FCA published [July 2017] a summary of feedback they received on their consultation on the 2017 Regulations. For further information on the coming into force of the 2017 Regulations see  here.

FCA publishes MiFID II policy statement and consultation paper

The FCA has published its final policy statement (Policy Statement II) PS 17/14 [03.07.17].  This includes final rules for implementing MiFID II. The Policy Statement covers conduct issues including research, inducements, client categorisation, best execution, appropriateness, taping, client assets and perimeter guidance.  It is of broad relevance to the market especially to consumers, investment managers and advisers.  The FCA also reminds firms to continue to prepare for 3 January 2018 when MiFID II applies and that those needing to apply for authorisation or variation of permission in light of changes MiFID II makes, must now do so immediately. For more on applications see here.   The FCA also issued its sixth set of implementing proposals for MiFID II: Consultation paper VI (CP17/19) [03.07.19]. This contains the FCA's proposals for bringing RIEs operating MTFs and OTFs into the FSCS – as MiFID II requires them to have an investor compensation scheme; changes to DEPP and EG; and consequential changes to the Prospectus rules and Glossary. The FCA asks for comments by 7 September 2017.

FCA publishes the FAMR Baseline Report

The FCA and HM Treasury published their Financial Advice Market Review (FAMR) baseline report [30.06.17]. They jointly launched FAMR in 2015 to look into how to generate affordable and accessible financial advice and guidance – for everyone.  The FAMR final report published in March 2016 included a recommendation for the FCA and HM Treasury to work on identifying a baseline and indicators for monitoring how the financial advice market develops. These should be tracked each year and the results published on the FCA's website.  The FCA and Treasury identified a range of indicators, including measures of consumers' use of advice and guidance ('demand side') and measures of its provision ('supply side') to provide a snapshot of the financial advice market and set a baseline. The indicators would act as the benchmark to measure the impact of FAMR against the 'success factors' in the final report. The success factors are:

·        good availability of affordable, high quality advice and guidance for consumers at all stages of their lives to access;

·        greater innovation in consumers' interests, encouraged by a flexible and well understood regulatory framework for advice;

·        variety of channels for consumers to access advice and guidance, including in the workplace, and appropriate flexibility in how consumers pay for advice; and

·        consumer engagement with their financial affairs and seeking the advice and guidance they  need.

The Baseline Report is underpinned by two pieces of consumer research: Qualitative research and Quantitative research. Quantitative consumer research will be available annually as will supply-side data from FCA reporting.  The FCA and HM Treasury plan to carry out the same research in two years' time in 2019 and compare the data sets generated, to see how the market is evolving.

The Retail Distribution Review's 2017 Post-Implementation Reviews will be combined with the 2019 post-FAMR review to give the market time to react to regulatory changes flowing from FAMR and MiFID II and minimise reporting by firms. The results will be published early in 2020.  Read more here.

FCA publishes its annual report

The FCA published its annual report and accounts for the year ended 31 March 2017 [05.07.17] looking back on significant work in 2016/17. The FCA also published [05.07.17] three other separate annual reports for 2016/17 on: Competition, Enforcement, Anti-Money Laundering and Diversity.  Their Annual Public Meeting at which the Annual Report and Accounts will be discussed is to be held on 18 July 2017. It is now fully booked but will be live-streamed.

FCA publishes prospectus rules instrument

The FCA has published its Prospectus Rules (Miscellaneous Amendments) Instruments 2017 (FCA 2017/40) [06.07.17]. It contains amendments to the Glossary and Prospectus Rules sourcebook, and comes into force on 20 July 2017.


Brexit

Andrew Bailey, Chief Executive of the FCA, spoke on why free trade and open markets in financial services matter

Andrew Bailey spoke at the Reuters Newsmaker Event [06.07.17] in London about Brexit, the FCA's Brexit work and asked if "restricting trade is an inevitable or necessary response to Brexit and in the interests of anyone?" To which his answer was no. 

The FCA has three main areas of Brexit work:

·        being ready to provide the Government with the technical advice it needs for the forthcoming negotiations;

·     working with authorised firms to understand their plans for cross-border operations into the EU and from the EU into the UK; and

·     working with the Government on the Repeal legislation.

Their objective is, with Government, to have a clear and functioning regulatory framework for when the UK is no longer a member of the EU giving certainty to all interested parties.

Andrew Bailey said that after the referendum the FCA decided to continue:

·     to be an "outward-looking regulator" engaging with global bodies including the Financial Stability Board and the International Organisation of Securities Commissions;

·     to engage constructively with their work "with, and as part of, the European Institutions", notably ESMA, and to implement EU legislation while the UK is still an EU Member State.

According to Bailey, the FCA is not going to turn away from engaging internationally – "that would be a big mistake".   "Brexit should not be conflated with whether or not to have open global financial markets and trade in financial services" Bailey said, "But we cannot take open markets, freedom of location and free trade for granted". Bailey also said "Firms should be able to take their own decisions on where they locate, subject to appropriate regulatory arrangements being in place which preserve the public interest".

Bailey asked the question "what sort of institutional structure of regulatory co-operation do we need to preserve open markets and free trade alongside Brexit?" commenting that it would "require strong co-ordination of regulatory institutions across the UK and the EU" for which four key features are:

·        rule comparability - though not exact mirroring;

·        supervisory co-ordination;

·        information exchange; and

·        a mechanism for dealing with differences.

The UK would also have to provide "comfort to trading partners" of high standards and that there would be no "race to the bottom on deregulation" he said.

According to Bailey there is "ample evidence" open financial services markets and free trade do not depend on common rules and shared regulatory institutions, they can safely exist where there are consistent regulatory outcomes.  "There is already a basis for the sensible use of equivalence as the basis for market access between the EU and UK in the future.  It is the basis that the EU uses for a growing number of other countries" he said.

House of Commons Library publishes briefing paper on Brexit and financial services

The House of Commons Library published [06.07.17] a briefing paper (House of Commons Library Briefing Paper Number 07628 by Tim Edmonds) containing a number of responses from "relevant organisations" (including financial institutions and regulators) on the impact of the vote to leave the EU. The briefing contains Parliamentary information licensed under the Open Parliament Licence v3.0.


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