Financial Regulatory Developments (FReD) – 02 April 2015

HEADLINES

Treasury consults on MiFID 2 Treasury makes MCD Order 2015 FCA makes Solvency 2 rules FCA consults on approved persons for non-Solvency 2 insurers FCA and PRA consult on approved persons changes for Solvency 2 firms FCA publishes MCD rules PRA consults on SIMR for non-Solvency 2 firms FReD wishes its readers a Happy Easter

EUROPEAN UNION AND INTERNATIONAL

European Parliament (EP)

EP backs benchmark setting rules: MEPs from the Economic and Monetary Affairs Committee have supported proposals for rules to end conflicts of interest in setting "critical" benchmarks, such as LIBOR and EURIBOR, which influence financial instruments and contracts with an average value of at least €500 billion and could thus affect the stability of financial markets across Europe. Under the proposed rules:

the setting of critical benchmarks that affect more than one country would be overseen by a "college" of supervisors, including ESMA and other competent authorities; critical benchmark-setting data would have to be verifiable and come from reliable contributors who are bound by a code of conduct for each benchmark; contributors, such as banks contributing data needed to determine a critical benchmark, would have to notify the benchmark administrator and the relevant authority if they wished to cease doing so, but would nonetheless have to continue doing so until a replacement were found; critical benchmark administrators would have to have a clear organisational structure to prevent conflicts of interest, and be subject to effective control procedures; the final decision on whether a benchmark is "critical" would be up to ESMA and national authorities, but a national authority could also deem a benchmark administered within its territory to be critical if it had a "significant" impact on the national market; and all benchmark administrators would have to be registered with ESMA and would have to publish a "benchmark statement" defining precisely what their benchmark measures and to what extent it is reliable. They would also have to publish or disclose existing and potential conflicts of interest and meet accountability, record keeping, audit and review requirements. The draft text will be put to a vote by EP as a whole to consolidate its position before its three-way negotiations with EU Member States and the Commission. (Source: Economic Affairs MEPs Target Conflicts of Interest in Benchmark Setting)

Contact: Rosali Pretorius or Michael Wainwright

Financial Stability Board (FSB)

FSB publishes meeting minutes: FSB has published a report on its meeting in Frankfurt on 26 March. The meeting addressed:

welcoming the ministries of finance for Argentina, Indonesia, Saudi Arabia and Turkey and the South African Reserve Bank as new FSB members; a discussion of issues related to implementation, home-host issues, proportionality and sequencing raised by emerging market and developing economies; a range of the vulnerabilities in the financial system; a work plan to identify financial stability risks associated with market liquidity in fixed income markets and asset management activities and longer-term structural financial stability issues that may arise; the responses received on the proposed application of numerical haircut floors to non-bank-to-non-bank securities financing transactions; the responses to its public consultation on policy proposals to enhance the total loss-absorbing capacity of global systemically important banks (G-SIBs) in resolution and reviewed progress of impact assessment studies under way; next steps to finalise FSB's guidance on statutory and contractual approaches to the cross-border recognition of resolution actions, following the recent public consultation; a work plan to promote central counterparty (CCP) resilience, recovery planning and resolvability; a work plan to address misconduct in financial institutions which have the potential to create systemic risks by undermining trust in financial institutions and markets; the draft outline of the consolidated annual report to the G20 on the implementation and effects of financial regulatory reforms; the draft thematic peer review report on supervisory frameworks and approaches for systemically important banks; and a proposal for the third and final phase in the implementation of its initiative to collect data on G-SIB exposures and funding through a common data template. FSB also heard reports from the co-chairs of its six regional consultative groups, which cover the Americas, Asia, the Commonwealth of Independent States, Europe, Middle East & North Africa, and Sub-Saharan Africa. (Source: Meeting of the FSB in Frankfurt on 26 March)

Contact: Rosali Pretorius or Michael Wainwright

European Banking Authority (EBA)

EBA updates Q&As: EBA has updated its single rulebook Q&As. Five new items have been added. (Source: EBA Single Rulebook Q&As)

Contact: Rosali Pretorius or Michael Wainwright

European Insurance and Occupational Pensions Authority (EIOPA)

EIOPA consults on information exchange: EIOPA has published a consultation paper inviting views on the draft Implementing Technical Standards (ITS) on the procedures and templates for submitting information to the group supervisor and exchange of information between supervisory authorities especially within colleges of supervisors. Consultation ends on 22 May. (Source: EIOPA Consults on the ITS on Information Exchange Between Supervisors)

Contact: Rosali Pretorius or Michael Wainwright

EIOPA board signs coordination arrangements: EIOPA's Board of Supervisors has signed coordination arrangements for all colleges of supervisors of insurance groups with internal models. These arrangements set down the basis for future cooperation within colleges including their decision-making procedures. (Source: Coordination Arrangements Signed for Colleges of Supervisors of Insurance Groups with Internal Models)

Contact: Michael Wainwright or Juan Jose Manchado

EIOPA seeks views on infrastructure investments: EIOPA has published a discussion paper on infrastructure investments by insurers. The paper sets out initial ideas on:

definition of infrastructure investments that offer predictable long-term cashflows and whose risks can be properly identified, managed and monitored by insurers; possible criteria for this new category of infrastructure investments covering issues such as standardisation and transparency; prudentially sound treatment of the identified investments within a risk-based supervisory system, focusing on their specific risk profile; and effectiveness of the current Solvency 2 risk management requirements in ensuring that the risks of this complex and, for insurers, relatively new asset class are properly managed. The consultation ends on 26 April. (Source: EIOPA Publishes the Discussion Paper on Infrastructure Investments by Insurers)

Contact: Michael Wainwright or Juan Jose Manchado

EIOPA advises on Solvency 2: EIOPA has published its Technical Advice to the European Commission (Commission) on the Regulatory Technical Standards (RTS) on the recovery plans and finance schemes to be provided by insurers in case of non-compliance with Solvency and Minimum Capital Requirements (SCR, MCR) under Solvency 2. In its advice EIOPA:

describes in detail the information required from companies when they do not comply with SCR or MCR; advocates the submission of one combined recovery plan and finance scheme where there is simultaneous non-compliance with both SCR and MCR; highlights the criteria for the supervisory approval of the submitted recovery plan or finance scheme; provides a non-exhaustive list of the measures that supervisors can take where an insurer's solvency position deteriorates further; and describes the circumstances supervisors must take into account when deciding on the measures to be adopted. (Source: EIOPA Delivers Advice on Recovery Plan, Finance Scheme and Supervisory Powers in Deteriorating Financial Conditions Under Solvency 2)

Contact: Michael Wainwright or Juan Jose Manchado

European Securities and Markets Authority (ESMA)

ESMA information regulation published in OJEU: The Commission Delegated Regulation on the information supervisors must provide to ESMA under the Alternative Investment Fund Managers Directive (AIFMD) has appeared in the OJEU. (Source: Delegated Regulation on the Information to be Provided by Competent Authorities to the ESMA Pursuant to Article 67(3) of Directive 2011/61/EU)

Contact: Rosali Pretorius or Michael Wainwright

ESMA issues qualifying holdings final report: ESMA has published draft technical standards under the current Markets in Financial Instruments Directive (MiFID) on the assessment of acquisitions and increases in qualifying holdings in investment firms. (Source: Draft Technical Standards Under Article 10a(8) of MiFID on the Assessment of Acquisitions and Increases in Qualifying Holdings in Investment Firms)

Contact: Emma Radmore or Josie Day

ESMA updates UCITS KIID FAQs: ESMA has updated its FAQs on the Key Investor Information Document (KIID) for UCITS. There is a new section on past performance. (Source: ESMA Updates UCITS KIID)

Contact: Rosali Pretorius or Kam Dhillon

ESMA updates AIFMD FAQs: ESMA has updated its FAQs on application of the AIFMD. New additions relate to reporting frequencies and amounts, and notification for managing new Alternative Investment Funds (AIFs) in host states. There is a new section on additional own funds and advice on calculating AIF exposures. (Source: ESMA Updates AIFMD FAQs)

Contact: Rosali Pretorius or Kam Dhillon

ESMA updates EMIR FAQs: ESMA has updated its FAQs on the European Market Infrastructure Regulation (EMIR). New content addresses:

intragroup transactions; status of non-EU entities, and questions relating to application of RTS on clearing and third country contracts; the clearing exemption for pension funds; front-loading requirement for the clearing obligation; authorisation of CCPs; and...