FReD: 29 January 2010
Headlines
FSB welcomes US
proposals on moral hazard
BoE speaks on shadow
banking
Supreme Court
quashes Terrorism and Al-Qaida Orders
OFT consults on
unenforceable agreements
Turner speaks on
banks and accounting
FSA writes to CEOs on client money
concerns
European Union
European Commission
Commission confirms
B&B and Dunfermline plans: The Commission has approved
under EU State Aid rules the aid the UK authorities have provided
for the liquidation of Bradford & Bingley and the restructuring
of the Dunfermline. The UK Government welcomed the decisions.
(Source: IP/10/47 and /48 and Treasury
06/10)
Contact: Robert Finney or
Brett
Hillis.
Commission updates
implementation tables: The Commission has updated its tables
showing the extent to which Member States have implemented single
market Directives. (Source:
Website)
Contact: Emma Radmore or
Ciaran
Boyle.
Council of the European Union
Council publishes
compromise text on ESAs: The Presidency has published its
compromise text on a proposed Directive that will amend various
single market Directives when the new European Supervisory
Authorities start operating. (Source:
EF 3, ECOFIN 20 , SURE 2 and CODEC 13)
Contact: Robert Finney or
Emma
Radmore.
European Parliament
Progress of reform
initiatives in Parliament: According to the European
Parliament’s legislative observatory:
- a report on cross-border crisis management in
the banking sector should be adopted in June;
- a report on future policy actions in
derivatives markets is due for adoption in April; and
- the dossier on remuneration of directors of
listed companies and remuneration policies in the financial
services sector is awaiting Parliament decision.
(Source: Legislative Observatory)
Contact: Emma Radmore or
Melissa
Thornton.
Parliament confirms
consideration of AIFMD: The agenda for the meeting of the
European Parliament Committee on Legal Affairs in the last week of
January confirmed its discussion of the Gauzes report on the
Alternative Investment Fund Managers Directive and set a deadline
of 5 February for tabling amendments. The Committee was also
due to consider the draft opinion on capital requirements for the
trading book and for re-securitisations, and the supervisory review
of remuneration policies. Finally, it would consider the
draft opinions on the new European supervisory bodies and their
powers. The Economic and Monetary Affairs Committee was
considering the capital requirements and review of remuneration
policies proposal, as well as amendments to the Prospectus
Directive and future policy actions in the derivatives
markets. (Source: JURI(2010)0127_1 and
ECON(2010)0126_1)
Contact: Emma Radmore or
Melissa
Thornton.
European Central Bank (ECB)
ECB sets eligibility
criteria for CSDs: ECB has set basic principles to determine
whether CSDs are eligible to join T2S. (Source: Press Release)
Contact: Rosali Pretorius
or Matthew
Hodgson.
Committee of European Banking Supervisors (CEBS)
CEBS speaks at
Parliament hearing: The Chairman of CEBS spoke to the
Economic and Monetary Affairs Committee of the European
Parliament. He explained CEBS' work since the crisis and
spoke on the new European architecture, the Basel and Commission
proposals aimed at promoting a more resilient banking sector and
CEBS' priorities for 2010. (Source:
Speech)
Contact: Robert Finney or
Brett
Hillis.
Financial Stability Board (FSB)
FSB welcomes US proposals on moral
hazard: FSB has welcomed the proposals from the US to
address the moral hazard of too-big-to-fail institutions. It
says it is considering several other options to address the
problem, including:
- targeted capital, leverage and liquidity
requirements;
- better supervisory approaches;
- simpler firm structures;
- stronger national and cross-border resolution
frameworks; and
- changes to financial infrastructure that
reduce contagion risk.
FSB thinks a mix of approaches will be
necessary. (Source: Press
Release)
Contact: Robert Finney or
Brett
Hillis.
UK Government and Parliament
Bank of England
BoE and FDIC enhance
MOU: BoE and the US Federal Deposit Insurance Corporation
have announced a new memorandum of understanding expanding their
co-operation. They feel it is a big step towards better
co-ordination between the countries. (Source: News Release and Memorandum of Understanding
concerning consultation, cooperation and the exchange of
information related to the resolution of insured depository
institutions with cross-border operations in the United States and
the United Kingdom)
Contact: Robert Finney or
Chris
Borg.
BoE speaks on shadow
banking: Paul Taylor spoke on the role of shadow
banking. He looked at examples of structures that developed
before the crisis, such as money market mutual funds, Structured
Investment Vehicles, prime brokerage services and repo-financing of
mortgage-backed securities. He said authorities should accept
alternative structures that offer deposit and monetary services and
bring them into the banking world, but cautioned that not all
activities sometimes described as “shadow banking” are in fact
banking. (Source: News Release and
Speech: Shadow banking, capital markets and financial
stability)
Contact: Robert Finney or
Brett
Hillis.
HM Treasury
Supreme Court quashes Terrorism and Al-Qaida
Orders: Treasury has published the Government's ministerial
statement on the Supreme Court judgment in the case of HM
Treasury v. Ahmed and Others. The Supreme Court has
decided the powers in the Terrorism and Al-Qaida and the Taliban
Orders, both made to give effect to UN measures, go beyond the
scope of powers under the UN Act. It has ruled that the
Terrorism Order and article 3(1)(b) of the Al-Qaida Order will be
quashed, but they remain in force until the court decides when to
make orders to quash them. So the assets frozen under the
orders will remain frozen for the time being. The Government's
response will be to fast-track primary legislation to restore the
UK's terrorist asset freezing regime as well as regulations under
the European Communities Act to ensure the right enforcement
procedures are in place to implement fully the EU Regulation in
respect of Al-Qaida and the Taliban. (Source: Financial Sanctions Notice, Written Ministerial
Statement and Her Majesty's Treasury (Respondent) v. Mohammed Jabar
Ahmed and Others (FC) (Appellants); Her Majesty's Treasury
(Respondent) v. Mohammed al-Ghabra (FC) (Appellant); R (on the
application of Hani El Sayed Sabaei Youssef)(Respondent) v. Her
Majesty's Treasury (Appellant) [2010] UKSC 2)
Contact: Paul Morris or
Brett
Hillis.
Treasury updates
sanctions lists: Treasury has updated the financial
sanctions lists in respect of Al-Qaida and the
Taliban. (Source: Financial Sanctions
Notification)
Contact: Emma Radmore or
Melissa
Thornton.
Treasury speaks on
building societies: Paul Myners spoke at the launch of the
Building Societies Association Governance Report. He stressed
the importance of robust and effective governance and the
consequences of its absence. He said ultimately a relatively
small number of people take responsibility for a series of
important decisions. (Source:
Speech)
Contact: Robert Finney or
Brett
Hillis.
Office of Fair Trading (OFT)
OFT consults on unenforceable
agreements: OFT has published for consultation a guide for
industry and consumers on the parts of the CCA that allow consumers
to ask for information about their credit agreements. It
seems some debtors think they can use these sections to get their
debts written off and some creditors are not providing the
information they should. The guidance clarifies several
issues, including that the creditor can provide a reconstituted
agreement rather than an exact copy of the original and that if it
cannot comply with the sections it is restricted in the debt
collection activities it can do. OFT wants comments by 21
April. (Source: 05/10 and Guidance on
sections 77/78/79 of the Consumer Credit Act 1974 – the duty to
give information to debtors and the consequences of non-compliance
on the enforceability of the agreement: An OFT
consultation)
Contact: Ian Roberts or
Brett
Hillis.
Parliament
FSB in
Parliament: The Financial Services Bill is continuing its
Parliamentary stage and the House of Commons has published a report
on the Commons Committee Stage. (Source: Parliament Website and Financial Services Bill:
Committee Stage Report)
Contact: Robert Finney or
Brett
Hillis.
UK Financial Services and Markets Regulator
Financial Services Authority (FSA)
FSA consults on governance: FSA
has published a consultation paper on effective governance
standards within firms. The paper addresses the
recommendations from the Walker review specific to FSA. It
highlights the benefits of listed banks and insurers establishing
board risk committees and appointing top executives as their chief
risk officers. The paper builds on FSA's approach to
significant influence functions (SIF) by proposing a new, more
detailed, framework of controlled functions. The proposals
cover:
- measures that focus on the role individuals
in SIFs play in delivering effective governance including
separating some key roles from existing functions;
- building on recent changes to the scope of
the approved persons regime, with proposals that will catch more
individuals outside regulated firms who exercise significant
influence over such a firm. New functions would include that
of "parent entity SIF", and the CF1 and 2 functions would be split
into new sub-categories. There would also be three new
systems and controls functions, and FSA is considering extending
the CF29 function to UK branches of EEA banks;
- discussion of how FSA vets and supervises
individuals carrying out SIF, including how it plans to develop its
relationships with NEDs;
- the specific role and responsibilities of
NEDs, taking into account FSA's previous consultations and the
recommendations from the Walker review, including on the time
NEDs and chairmen should devote to their firms; and
- FSA's specific response to the Walker
recommendations on risk and stakeholder engagement in firms,
specifically listed banks and insurers.
The consultation includes draft new
rules. FSA wants comments by 28 April and plans to have final
rules in place during the third quarter of 2010. (Source: FSA/PN/015/2010 and Consultation Paper
10/03***: Effective corporate governance (significant influence
controlled functions and the Walker Review)
Contact: Robert Finney or
Chris
Borg.
FSA speaks on asset
management trends and priorities: Dan Waters spoke on
specific issues affecting the asset management industry. He
looked at the investment value chain and product governance, design
and oversight. He spoke of FSA’s work on provider/distributor
relationships and TCF. He then discussed the European
regulatory agenda. On the AIFMD he said it was surely not
sensible for a Directive to achieve investor protection at the
expense of protection of financial stability. (Source: Speech)
Contact: Rosali Pretorius
or Matthew
Hodgson.
FSA consults on
mortgage advice and arrears: FSA has published a new
consultation as part of the mortgage review. This paper
proposes:
- strengthening existing rules on handling of
arrears, including stopping firms from adding early repayment
charges on arrears charges, making them consider all options for
borrowers and requiring them to record all calls about arrears
handling; and
- creating a new controlled function for home
finance advisers and those who arrange non-advised sales and
requiring a CF10 function holder to be responsible for compliance
oversight of home finance activities.
It wants comments by 25 April. (Source: FSA/PN/013/2010 and Consultation Paper
10/2***: Mortgage Market Review: Arrears and Approved
Persons)
Contact: Rosali Pretorius
or Emma
Radmore.
Turner speaks on banks and
accounting: Lord Turner stressed that accounting standard
setters and prudential regulators of banks should co-operate to be
sure they address issues arising from the unique nature of
banks. He spoke of banking practices that contribute to the
problem of pro-cyclicality and said FSA’s preference is:
- to allow the banking book to reflect a more
forward-looking approach to loan losses; and
- to limit the use of fair value accounting in
the income statement to areas of the trading book where it is most
appropriate.
He said accounting systems had to recognise
that banks are different because their failures have more extreme
effects than failures in other industries. (Source: FSA/PN/011/2010 and Speech)
Contact: Robert Finney or
Brett
Hillis.
FSA writes to CEOs on client money
concerns: FSA has published a report on client money and
assets which sets out FSA’s concerns over how insurance and
investment brokers handle client property. It has written to
the CEOs of these firms telling them to consider the report and
confirm to FSA their firm is in compliance with relevant CASS
requirements. It also wants firms to identify to it the
individual who is responsible for CASS compliance. The report
shows the results of FSA’s thematic review so far, and it will
continue visits in 2010. Among the serious concerns stemming
from the visits were:
- inadequate senior management oversight and
control;
- overly complex processes;
- failure to check or properly file “trust
acknowledgement” letters from banks;
- poor due diligence; and
- delay in reconciliations.
(Source: FSA/PN/012/2010, letter – Client
Money and Asset Report and Client Money and Asset Report)
Contact: Chris Borg or Brett Hillis.
FSA fines adviser for process
failures: FSA has fined a financial advice firm and its
two partners a total of £49,000. It found several problems
with the firm's sales and advice process including failure to
record details about its customers so it was not possible to tell
whether advice was suitable. FSA also found inadequate
systems and controls. It said the case highlights the dangers
of limited control and oversight and failure of senior management
to discharge their responsibilities properly. (Source: FSA/PN/014/2010 and Final Notices)
Contact: Emma Radmore or
Melissa
Thornton.
FSA publishes EU
development pages: FSA’s website now includes brief details
of the progress of key European initiatives. The pages look
at the status of EU measures, UK implementation details and FSA’s
aims and areas of interest. The pages include information on
the AIFMD and new European Authorities. (Source: Website).
Contact: Emma Radmore or
Jasmin
Khan.
FSA sends out RDR
questionnaire: FSA has sent a questionnaire to several firms
asking for information on their strategic direction. It wants
the information to help it assess likely compliance costs of some
of its Retail Distribution Review proposals. It wants
responses by 2 February. (Source:
Retail Distribution Review Questionnaire)
Contact: Emma Radmore or
Matthew
Hodgson.
FSA publishes climate
change insurer sheet: FSA has published a factsheet for
general insurers on how they should make clear to customers the
scope of what is covered by insurance for flooding.
(Source: Climate change thematic review:
flooding – do your customers know what they are covered for?: a
factsheet for general insurer providers)
Contact: Emma Radmore or
Dominic
Gilmore.
Other Authorities/Regulators/Trade Associations
Alternative Investment Management Association (AIMA)
AIMA wants more detail
on US proposals: AIMA thinks the US banking proposals could
create opportunities for the hedge fund industry but is worried
about reduced liquidity in markets and an adverse effect on the
prime broker relationship. (Source:
Statement)
Contact: Rosali Pretorius
or Melissa
Thornton.
British Bankers Association (BBA)
BBA to study US
proposals: BBA commented the UK banks are working with
regulators and highlighted the increase in capital requirements
already in place. It said it would examine the US proposals
carefully. (Source:
Statement)
Contact: Rosali Pretorius
or Melissa
Thornton.
Bank For International Settlements (BIS)/Basel Committee on
Banking Supervision (Basel)
Basel publishes
compensation methodology: The Basel Committee has published
a guide to help supervisors review individual firms’ compensation
practices against FSB’s principles. (Source: Press Release and Compensation Principles and
Standards Assessment Methodology)
Contact: Brett Hillis or
Matthew
Hodgson.
Confederation of British Industry (CBI)
CBI reacts to US
proposals: The CBI has criticised the US proposals for the
banking sector as undermining the considered approach G20 is
taking. (Source: News
Release)
Contact: Robert Finney or
Rosali
Pretorius.
International Organisation Of Securities Commissions
(IOSCO)
IOSCO gets full take-up
on market abuse MOU: IOSCO announced it has met its
goal of having its eligible membership sign or commit to sign the
Multilateral Memorandum of Understanding on consultation,
cooperation and exchange of information on market abuse.
(Source: IOSCO/MR/01/2010)
Contact: Chris Borg or Matthew
Hodgson.
International Swaps and Derivatives Association (ISDA)
ISDA comments crisis
management: ISDA has responded to the Commission
Communication on cross-border crisis management in the banking
sector. Its main areas of concern include:
- safeguards in relation to netting, set-off,
title transfer collateral arrangements, security arrangements and
clearing and settlement systems;
- limiting any suspension of the right to
terminate transactions with troubled institutions;
- resolving some uncertainties over set-off and
netting in existing legislation; and
- strengthening close-out netting.
(Source: Letter: Commission
Communication on Cross-Border Crisis Management in the Banking
Sector)
Contact: Chris Borg or Brett Hillis.
International Securities Lending Association (ISLA)
ISLA publishes
amendment to GMSLA: ISLA has approved some minor changes to
the GMSLA in respect of manufactured income payments and collateral
in respect of income due but not yet payable. (Source: Press Release)
Contact: Matthew Sapte or
Gareth
Burton
Recent publications and forthcoming events
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:
- Brett Hillis in
City AM on bankers' employment
contracts
- Brett Hillis in the
Financial Times and on CNBC on
bank splitting
- Rosali Pretorius in the
Independent on the mortgage review
- Robert Finney on
CNBC on the first anniversary of the UK bank
bail-outs
- Robert Finney on
CNBC and in the Guardian on Tobin
tax
- 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, Emma
Radmore or Thomas Dunn.
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.