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By Andrew Barber and Emma Radmore
FCA is consulting on changes to its Disclosure and Transparency Rules (DTR) with respect to the disclosure of inside information. Following the EU Market Abuse Regulation (MAR) coming into effect in July, FCA has assessed its rules against the MAR requirements and European Securities and Markets Authority (ESMA) guidelines, to check whether it needs to make any amendments. It feels it needs to amend certain parts of the DTR to comply with ESMA's Guidelines on delay in the disclosure of inside information. FCA proposes to delete those parts of DTR which do, or could, conflict with ESMA's guidance, but keep those parts that it considers could still be useful. FCA asks for comment by 6 January 2017.
FCA is consulting on policy proposals for regulatory fees and levies in 2017/18. The main areas in which it proposes to increase its fees are to cover its costs of tackling illegal money laundering and of implementing the MiFID 2 package. It notes it will keep under review all its proposals in light of Brexit. It asks for comments by 16 January 2017.
The Prudential Regulation Authority (PRA) is consulting on a proposed new supervisory statement that sets out how it expects all Solvency 2 firms to prudently manage cyber underwriting risk. PRA carried out thematic work which highlighted a number of risks the insurance industry faces from underwriting insurance contracts that are exposed to losses resulting from a cyberattack. Its research found many potential risks from what it calls “silent cyber”—that is, implicit cyber exposure within policies that do not explicitly exclude cyber risk. It found these silent cyber risks are material and are increasing over time. It says casualty lines are potentially significantly exposed to it and that there is potential for silent losses in marine, aviation, transport and property lines, although underwriters are generally comfortable to provide implicit cyber coverage. Reinsurers are aware of the risks, particularly of aggregation of silent cyber, and are looking to address them. But, overall, most firms do not have clear strategies and have not invested in developing the necessary expertise. PRA also noted firms do not understand well enough the aggregation and tail potential of affirmative cyber cover. Although models are under development to help manage risks, PRA believes it needs to clarify to firms what it expects of them. Its draft statement explains:
The consultation closes on 14 February 2017.
PRA has published its second consultation paper on changes it needs to make to its rules as a result of MiFID 2. This paper focuses on the changes needed to take account of the requirements in the MiFID 2 Delegated Regulation on Organisational Requirements, and deals also with the practicalities of variations of permission to carry on newly regulated activities (operating an OTF) or with new investments (emissions allowances), or notifications necessary to allow certain services in relation to structured deposits. Consultation closes on 27 February 2017. (see related story)
PRA and FCA have issued a consultation paper on the authorisation and supervision of insurance special purpose vehicles (ISPVs). An ISPV is used in the transfer of risk from a (re)insurer to the capital markets by issuing insurance linked securities (ILS). HM Treasury is also consulting on the new regulatory and tax framework for ILS. The HM Treasury consultation proposes, amongst other things, a new regulated activity of risk transformation. The FCA and PRA consultation includes:
The consultation paper proposes that PRA will be the lead regulator and the structure of ISPVs will be governed by the Financial Services and Markets Act 2000 (FSMA), the Risk Transformation Regulations and Solvency 2.
The paper proposes that where a clear and straightforward application is made and there is prior engagement with the regulators then a result can be expected within 6–8 weeks of an application being made. PRA considers in its draft supervisory statement that independent legal opinions may be useful for ISPV applicants who need to demonstrate that the contractual transaction documents meet the regulatory requirements. Consultation closes on 23 February 2017. HM Treasury plans to introduce regulations to implement the new ISPV regime in the Spring of 2017. Going forwards, PRA and FCA acknowledge that the policy will be kept under review to assess whether any changes may be necessary as the ILS market grows and as a result of Brexit.
FCA has written to the Treasury Committee outlining what the regulatory landscape for financial services would be if the U.K. were a “third country” in respect of the remaining EU27, with access rules essentially governed by World Trade Organisation (WTO) protocols. The letter considers:
The letter annexes a chart showing which equivalence decisions the European Commission has made in respect of which third countries, under which EU financial services legislation.
BBA has published a series of “quick briefs” on Brexit. It says the papers should help explain the major issues Brexit presents for banks and customers. The briefs cover:
Edwin Schooling Latter, FCA Head of Markets Policy, has spoken on conduct risk in the foreign exchange (FX) markets. He noted that spot FX trading is in an “interesting place” because most of it falls outside the FSMA regulatory perimeter, but trading in certain circumstances is within the scope of regulation. However, he said this does not mean there should be lower standards of behaviour or conduct than in the regulated markets. It also does not mean FCA is not interested in the markets, but it does mean it does not have such a well-established set of rules and regulations against which to assess conduct. In 2014, FCA initiated a remediation programme requiring 30 firms to address the root causes of the failings identified in the FX market and to drive up market standards. FCA is pleased with the results, and the improvement in conduct, and now wants all other relevant firms to implement the same higher standards. FCA is also pleased with the Bank for International Settlements' (BIS) FX global code. Finally, he looked at the link between the global code and the senior managers and certification regime (SMR). When the BIS has completed the global code firms should expect compliance with it to be a key component of the standards it expects from firms.
Treasury has announced the launch of the Department for International Trade's new FinTech “one stop shop.” The service is part of the FinTech bridge program the U.K. has in place with Singapore, Korea and China. The service will give advice and provide support to U.K. FinTechs wishing to cross the bridge, and the aim is to encourage both U.K. exports and inward investment flows.
Andrew Barber, partner, and Emma Radmore, legal director, are members of Bond Dickinson's financial services team, London. They may be contacted at email@example.com and firstname.lastname@example.org.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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