FReD: 12 March 2010

Headlines

Parliament reports on CRD3

Parliament calls for financial transaction tax

Treasury responds on issuer liability

FSA publishes Financial Risk Outlook

FSA updates on PPI reforms

FSA announces insider dealing conviction

European industry comments on client categorisation

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European Union

 

Counsel of the European Union

Council discusses AIFMD approach: Among the issues tabled for discussion at the ECOFIN meeting on 16 March is reaching agreement on a general approach on the Alternative Investment Fund Managers Directive.  The Council confirmed there is increasing convergence on the compromise position, although some delegations are still not happy with the proposed text on third country issues.  (Source: Main Topics for the Coming Fortnight 8 – 21 March 2010 and 6800/1/10)

Contact: Rosali Pretorius or Matthew Hodgson.

 

European Commission

Commission speaks on priorities: Jose Manuel Barroso, speaking in Greece, said the Commission intends to present a Directive on derivatives before the summer and on market abuse before the end of the year.  He also spoke of the Commission's concerns about "naked" practices in the sovereign debt credit default swap markets.  (Source: SPEECH/10/80)

Contact: Chris Borg or Matthew Hodgson.

Commission updates FAQs: The Commission has updated its FAQs on:

• the Capital Requirements Directive on the meaning of "credit reserves"; and
• the Payment Services Directive on several new issues, including on the scope of the PSD and charges passed on to customers.

(Source: Questions on Single Market Legislation)

Contact: Brett Hillis or Melissa Thornton.

 

European Parliament

Parliament Committee discusses derivatives markets: The Economic Affairs Committee in the European Parliament is discussing measures aimed at ensuring safer derivatives markets.  The Committee wants risks of derivatives expressed more clearly in their price and a greater distinction made between whether companies or financial institutions are using derivatives.  The draft resolution under debate addresses credit default swaps specifically, recommending mandatory central clearing and even the ability for regulators to ban individual products.  MEPs have until 24 March to present their amendments.  After that there will be a hearing on 27 April with a vote in committee on the resolution on 4 May.  (Source: Press Release)

Contact: Chris Borg or Brett Hillis.

Parliament reports on CRD3: Parliament has published a draft report on the "CRD3" proposal, which plans to amend the CRD in respect of capital requirements for the trading book and re-securitisations and the supervisory review of remuneration policies.  The rapporteur's (Arlene McCarthy) amendments mainly deal with incorporating FSB standards on remuneration into the proposal and on bringing the capital changes in line with the Basel position, which is still under discussion in some respects.  (Source: 2009/0099(COD))

Contact: Brett Hillis or Melissa Thornton.

Parliament calls for financial transaction tax: Parliament has called for a global tax to discourage excessive risk taking by financial institutions and to ensure the industry pays for the crisis.  Parliament has asked the Commission to develop plans for a tax in time to discuss at June's G20 meeting, but does not rule out the possibility of the EU acting alone if there is no global agreement.  (Source: Press Release)

Contact: Robert Finney or Brett Hillis.

Parliament to discuss changes: Among the items timetabled for discussion at the Parliament's Economic and Monetary Affairs Committee on 16 and 17 March are:

• public hearing on cross-border crisis management in the banking sector;
• CRD3;
• amendment to the Prospectus and Transparency Obligations Directives; and
• the Gauzes report on the AIFMD.

(Source: ECON(2010)0316_1)

Contact: Emma Radmore or Matthew Hodgson.

 

Committee of European Securities Regulators (CESR)

CESR publishes CRA FAQs: CESR has published a set of questions and answers on the Credit Rating Agencies Regulation, setting out common positions its members have agreed.  The questions cover:

• corporate governance and compliance;
• endorsement;
• exemptions;
• registration;
• structured finance;
• national implementation;
• scope; and
• employee rules.

(Source: CESR/10-222)

Contact: Robert Finney or Brett Hillis.

 

Financial Stability Board (FSB)

FSB plans for global cooperation and information exchange: FSB is trying to encourage better cooperation and information sharing between jurisdictions.  It has plans for structures, standards, memoranda of understanding and methods to evaluate cooperation and also wants to name and shame jurisdictions that do not cooperate.  Ultimately, it may call on members to implement sanctions against jurisdictions that do not cooperate a year after receiving a poor evaluation report.  (Source: Promoting global adherence to international cooperation and information exchange standards)

Contact: Robert Finney or Rosali Pretorius.

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UK Government and Parliament

 

HM Treasury

Treasury publishes draft remuneration regulations: Treasury has published draft Regulations on disclosure of bankers' pay.  It would be able to make the Regulations under the Financial Services Bill and has published the Regulations so the House of Lords, which is currently scrutinising the Bill, can see how it would make use of its powers.  The Regulations would sit alongside FSA's oversight of rewards and build on the Walker recommendations.  Treasury intends to refine the draft before a full public consultation, which would happen after Royal Assent for the Bill.  Treasury would like the disclosure regime to come into force for annual reports for 2010 issued in early 2011.  (Source: Draft Regulations on Remuneration and The Executives' Remuneration Reports Regulations 2010)

Contact: Brett Hillis or Robert Finney.

Treasury responds on issuer liability: Treasury has published its response and proposals on issuer liability, following analysis of responses to its 2008 consultation.  It has decided to amend section 90A of FSMA and insert a new Schedule 10A to deal with several points, including to:

• make no change to the current basis of liability (fraud);
• attach liability in respect of securities traded on a UK regulated market or MTF and to apply the regime to all cases where securities are admitted to trading on a securities market where either the market is situated or operating in the UK or the UK is the issuer's home state;
• apply the regimes to "transferable securities" as defined in section 102A(3) of FSMA (clarifying who is liable to pay compensation in the case of depositary receipts and other secondary securities);
• apply a disclosure regime based on disclosures on recognised information services;
• specifically preserve certain forms of civil liability;
• include situations where an issuer dishonestly delays publication with the intention of enabling a gain or causing a loss; and
• extend the regime to cover sellers and holders of securities, but not directors and advisers.

Treasury plans the new law to take effect from 1 October.  (Source: Extension of the statutory regime for issuer liability: a response to consultation and draft Statutory Instrument)

Contact: Jeremy Cape or Robert Finney.

Treasury confirms budget date: Treasury has confirmed the Budget 2010 will take place on 24 March.  (Source: Website)

Contact: David Cohen or Roy Neillie.

Myners speaks on crisis response and AIFMD: Paul Myners, speaking at the Smith Institute, spoke on the intensive debate on regulatory reform following the crisis.  He looked at the problems of the "comfort blanket" of market efficiency.  He discussed derivative markets and his firm belief in their value but also the need for understanding of the products they offer.  He then turned to the goals for system reform – to make it safer, stronger and fairer, and to ensure financial markets can punish as easily as they reward.  He spoke of the Government's determination to make sure no bank is too complex to fail but stressed regulation cannot fix everything and that shareholders must take action to get better returns from their investments.  He also spoke to the BVCA Breakfast on AIFMD developments.  (Source: Speeches)

Contact: Robert Finney or Rosali Pretorius.

Treasury updates sanctions lists: Treasury has updated the sanctions list in respect of terrorism and Zimbabwe.  (Source: Financial Sanctions Notifications)

Contact: Emma Radmore or Matthew Hodgson.

 

Serious Fraud Office (SFO)

SFO gets Ponzi conviction: Kevin Foster, who ran the KF Concept Ponzi scheme, has been convicted of defrauding investors of millions of pounds.  The police and FSA had started investigations into the activities in early 2004 and FSA got a freezing order and had Mr Foster declared bankrupt.  He has now been convicted of eight offences under each of FSMA and the Theft Act.  (Source: Press Release)

Contact: Robert Finney or Melissa Thornton.

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UK Financial Services and Markets Regulator

 

Financial Services Authority (FSA)

FSA publishes Financial Risk Outlook: FSA has published the 2010 Financial Risk Outlook.  It has divided this year's report into four main sections covering:

• macroeconomic background and outlook: this section looks at how developed economies, specifically the UK, have fared in the last year and says the UK economy is expected to grow in 2010.  However, it identifies a number of downside risks and what these might mean for firms;
• financial stability and prudential risks and issues: in this section FSA looks at the transition to a new capital regime for banks and building societies, stress testing, funding challenges and the new liquidity requirements.  It also addresses margin challenges brought by low interest rates.  The section also looks at prudential risks and issues for insurers, including highlighting concerns over an unstable claims environment in general insurance.  Finally the section covers risk management practices in financial firms and assesses how the crisis has heightened certain risks and highlighted certain deficiencies;
• market risks and issues: this section covers changes in the markets, particularly transparency in OTC derivatives markets and the greater use of centralised clearing and settlement leading to the greater systemic importance of central systems.  It moves on to look at the changing structure of equity markets and trading platforms and notes its concerns about market abuse and the possibility of product innovation again leading to excessive risk taking; and
• retail conduct risks and issues: the final section looks at the conduct risks that arose from the crisis and how customer behaviour has adversely impacted on some firms.  It looks at how the crisis has highlighted deficiencies and identifies areas of challenge.

FSA will carry out more analysis of the risks and issues it identifies in the Outlook and many of them will be the basis of the priorities FSA will set out in its imminent Business Plan.  Alongside the Outlook, FSA published sectoral digests for the asset management, banking, insurance and retail intermediation sectors.  (Source: FSA/PN/040/2010, Financial Risk Outlook 2010, Asset Management Sector Digest, Banking Sector Digest, Insurance Sector Digest and Retail Intermediaries Sector Digest)

Contact: Rosali Pretorius or Robert Finney.

FSA updates on PPI reforms: FSA has published feedback on its plans to reform the PPI market.  Consumer respondents to its previous consultation supported its plans, but PPI providers and industry groups criticised them.  Industry's main complaints were that FSA had not proved there were problems that needed addressing and had proposed guidance that was inappropriate, unworkable and disproportinate.  FSA has taken comments on board and as a result has published revised proposals for a further six-week consultation.  FSA wants comments on the new proposals by 22 April.  (Source: FSA/PN/039/2010 and Consultation Paper 10/6***: The assessment and redress of Payment Protection Insurance complaints: Feedback on CP09/23 and further consultation)

Contact: Brett Hillis or Emma Radmore.

FSA clarifies on enhanced liquidity: FSA has stated it will not increase liquidity requirements across the industry at the moment and will make its next announcement on its position in the last quarter of 2010.  (Source: Statement)

Contact: Brett Hillis or Melissa Thornton.

FSA announces insider dealing conviction: A Crown Court has found a former equities marketmaker guilty of insider dealing.  It found Malcolm Calvert guilty on five counts of insider dealing and is the third successful insider dealing prosecution FSA has brought.  Bertie Hatcher, a friend of Calvert, gave evidence.  Mr Hatcher was also involved in the dealings and FSA has fined him £56,098 for market abuse and published details of its agreement with him that formed the basis for his giving evidence at the trial.  Margaret Cole said FSA would continue to enter into agreements of this sort where it believes it is in the interests of the public and justice.  It wants to encourage people to help in financial crime investigations.  (Source: FSA/PN/041/2010 and Final Notice)

Contact: Paul Morris or Chris Borg.

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Other Authorities/Regulators/Trade Associations

 

British Bankers Association (BBA)

BBA responds to Future of Banking Commission: BBA has responded on the future of British banks.  Its response looks at the international nature of the UK market place and of regulation as well as the domestic role of UK banks.  It addresses how the UK banking industry plans to help raise the standard of customer service.  The response also considers the systemic benefits of size and diversity of banking organisations, and practices that are already changing, whether as a result of the Walker review or otherwise.  (Source: Future of Banking Commission: written evidence from the British Bankers' Association)

Contact: Robert Finney or Brett Hillis.

 

Chartered Insurance Institute (CII)

CII agrees general insurance standards: CII announced the "Aldermanbury Declaration", which calls on the general insurance industry to commit to high levels of professionalism to highlight the market's intent to raise its standing and reputation with the public.  The Declaration calls on intermediaries and insurers to make sure their key individuals are qualified to "advanced diploma level".  Insurers should also meet the criteria for corporate chartered insurer status within business divisions and all employers should ensure their staff participate in appropriate training and development programmes.  (Source: Press Release and The Aldermanbury Declaration: A common framework for standards within the general insurance profession)

Contact: Robert Finney or Emma Radmore.

 

European Forum of Securities Associations (EFSA)

European industry comments on client categorisation: A group of European securities associations has written to the Commission setting out its concerns about an internal European Commission proposal to categorise any client as retail when dealing with complex products.  The response stresses any decision to do this may lead to the closing of some markets or to certain firms closing down, as they are not designed to operate in a retail client environment.  While investors must have the right protections, the associations stress investors must also be encouraged and enabled to take responsibility for their own actions.  (Source: Client categorisation: EFSA's view on the DG Markt's suggestion to categorise any client as retail for very complex products)

Contact: Chris Borg or Emma Radmore.

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Recent publications and forthcoming events

Bank Notes on new regulatory treatment of sukuk: The latest edition of our Bank Notes publication includes an article by Robert Finney and Matthew Sapte on the new regulatory treatment of sukuk.

PLC/DWS practice note on Consumer Credit Directive:  We have collaborated with PLC Financial Services on a practice note looking at key issues in implementation of the Consumer Credit Directive into UK law.  For more information, please contact Ian Roberts, Brett Hillis or Matthew Hodgson.

Thoughts on the Financial Services Bill: Robert Finney spoke to PLC Financial Services about the Financial Services Bill. His comments were published by PLC on 23 December 2009.

Brett Hillis on the Financial Services Bill: Brett Hillis spoke to Complinet's Vox Pop on "Will the Financial Services Bill become law before the election and would it change Tory policy if it did?".  Brett said: "The Bill will not change Conservative proposals relating to moving bank supervision to the Bank of England and setting up a Consumer Protection Agency.  It will be difficult for the Tories to backtrack on these even though they fully deserve the scepticism they have generated in the City.  Changing the regulators is a distraction that creates uncertainty and may cause problems with ensuring "joined-up regulation" between consumer protection and prudential regulation.  Plus, it is still unclear who will act as listing authority and regulator of markets and exchanges.

"However, I do think the bill contains some interesting ideas around living wills, collective proceedings and FSA disciplinary proceedings that the Tories could adopt and yet still maintain the political stance of arguing regulatory failure is due to the structure adopted by the current government."

Single Customer View: Time to get your customer data in shape: John Worthy, a partner in Denton Wilde Sapte's Technology group, has written an article for Complinet in which he reviews what FSA's new rules on the SCV mean, what issues they raise and whether there is good news for financial institutions.

The Financial Services Bill - after the hype? We have written an article for Complinet on the Financial Services Bill.  For more information, please contact Brett Hillis or Emma Radmore.

Bedding Down to BCOBS: We have written an article for Compliance Monitor on FSA's new Banking Conduct of Business Rules. For more information, please contact Brett Hillis or Emma Radmore.

Financial Markets and Regulation partners' opinions in the media: You can see the Financial Markets and Regulation group's national media appearances on the BBC, in the Financial Times, City AM and other national press and on CNBC. Recent topics include:
 

1. Brett Hillis in City AM on bankers' employment contracts
2. Brett Hillis in the Financial Times and on CNBC on bank splitting
3. Rosali Pretorius in the Independent on the mortgage review
4. Robert Finney on CNBC on the first anniversary of the UK bank bail-outs
5. Robert Finney on CNBC and in the Guardian on Tobin tax
6. Brett Hillis on CNBC on FSA's financial remuneration code.

Turner Review feedback: a victory for FSA?: We have written an article for Complinet on FSA's response to the Turner Review feedback.  For more information, contact Robert Finney or Emma Radmore.

Perfect har-money?: the new e-money directive: We have written an article on the new e-money directive and its interaction with other legislation.  For further information, contact Brett Hillis or Melissa Thornton.

Structure of UK financial regulation: fix it or rip it up and start again?: We have written an article on key reports analysing flaws in regulation and changes needed.  For further information, contact Robert Finney or Emma Radmore.

Reforming financial markets - or not? We have written an article for Complinet on the views of the Government, the Conservative Party and the Treasury Select Committee on the tripartite system, following Robert Finney's appearance on CNBC's Strictly Money show discussing the Committee's report. For more information, please contact Robert Finney or Rosali Pretorius.

Financial sanctions and financial institutions: We have written an article on UK financial sanctions and FSA's expectations of the regulated community for Financial Regulation International.  For further information, please contact Robert Finney or Emma Radmore.

Social usefulness: The purpose of regulation?: We have written an article for Complinet on Lord Turner's recent speech in New York.  For further information, please contact Rosali Pretorius or Emma Radmore.

Can you prove your TCF?  We have published an article looking at how a firm can prove it has met FSA's TCF outcomes.  For further information, please contact Brett Hillis, Emma Radmore or Dominic Gilmore.

Know your contacts: We have written an article on the lessons from the Aon fine.  For further information, please contact Rosali Pretorius or Emma Radmore.

New choices for credit card issuers: We have written an article on how the Payment Services Directive may affect credit card issuers.  For further information, please contact Ian Roberts, Brett Hillis or Dominic Gilmore.