Financial Regulatory Developments (FReD) – 17 July 2015

HEADLINES

EP votes on CMU resolution EBA publishes product governance guidelines FCA publishes mortgage advice review results FCA publishes new enforcement referral criteria FCA consults on NRFB disclosure PRA consults on leverage ratio framework EUROPEAN UNION AND INTERNATIONAL

Financial Stability Board (FSB)

FSB reports benchmark reform progress: FSB has published an interim progress report on its efforts to reform the major interest rate benchmarks (IBORs), and to develop and introduce alternative near risk-free interest rate benchmarks (RFRs). The report notes:

since July 2014, the administrators of the IBORs have all taken major steps in strengthening the benchmarks they administer and other reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transactions data; this progress has included compiling reviews of respective benchmark methodologies and definitions, conducting data collection exercises and feasibility studies, consideration of transitional and legal issues, and broad consultations with submitting banks, users and other stakeholders; jurisdictions beyond those to which the recommendations were originally addressed have also taken steps towards reforming the existing rates in their own jurisdiction; and Official Sector Steering Group (OSSG) members have also made concrete progress in identifying potential RFRs. The OSSG will continue to monitor progress in implementing FSB's recommendations over the next year ahead, and will prepare an updated progress report for FSB in July 2016. (Source: FSB Interim Interest Rate Benchmark Reform Interim Report)

Contact: Rosali Pretorius or Michael Wainwright

European Commission (Commission)

Working party notes DP importance in MiFID 2 and MAR: A working party on data protection has written to the Commission noting the importance of complying with data protection standards when implementing the revised Markets in Financial Instruments Directive (MiFID 2) and Market Abuse Regulation (MAR) regimes. It notes the particular tensions in respect of record keeping, recording of customer communications, publication of sanctions, protection of reporting persons and data subject rights. (Source: Working Party Notes DP Importance in MiFID 2 and MAR)

Contact: Nick Graham or Danielle Van der Merwe

Commission consults on CRD 4 effects on bank financing: The Commission is consulting on the potential impact of the Capital Requirements Regulation (CRR) and Directive (CRD 4) on bank lending to the economy. The Commission has to report by 2016 on their impact on loans to people, small businesses and long-term financing in infrastructure. To help it prepare its report, the consultation seeks views on many issues, including:

to what extent have CRR and CRD 4 affected the level of capital held by banks? are all the new requirements under all circumstances proportionate to the risks they were meant to address? what impact are the rules having on lending to smaller businesses, and to infrastructure projects? could some of the rules be simplified or differentiated by risk or size, without compromising their objectives of financial soundness and stability of banks? It asks for responses by 7 October. (Source: Commission Consults on CRD 4 Effects on Bank Financing)

Contact: Rosali Pretorius or Michael Wainwright

European Parliament (EP)

EP votes on CMU resolution: EP has voted on an Economic and Monetary Policy Committee (ECON) proposal for resolution to progress the Capital Markets Union (CMU) initiative. ECON wants:

CMU building blocks in place by 2018; reliable non-bank sources of business finance working alongside well-established bank financing; cross-border insolvency rules that work, and a recovery and resolution framework for non-banks, in particular central counterparties; high-quality, easily comparable financial information on firms seeking crowdfunding or peer-to-peer loans available across borders; SME-friendly regulatory requirements, involving simple procedures with a proportionate administrative burden; and rules that aim to remove entry barriers for SMEs, improve access to finance for innovative companies and ensure that prudential standards are proportionate to the risks that such companies may cause. MEPs believe that simple transparent and standardised securitisation may be useful for some SMEs. EP also says it is important that all Member States implement CMU and that there is some degree of standardisation in the financial markets. (Source: EP Votes on CMU Resolution)

Contact: Michael Wainwright or Juan Jose Manchado

European Banking Authority (EBA)

EBA publishes product governance guidelines: EBA has published its final guidelines on product oversight and governance arrangements for retail banking products. The guidelines will apply from 3 January 2017 and will apply to manufacturers and distributors when designing, marketing and selling mortgages, personal loans, deposits, payment accounts, payment services and electronic money. The guidelines cover:

for manufacturers: Guideline 1: Establishment, proportionality, review and documentation Guideline 2: Manufacturer's internal control functions Guideline 3: Target market Guideline 4: Product testing Guideline 5: Product monitoring Guideline 6: Remedial action Guideline 7: Distribution channels Guideline 8: Information for distributors for distributors Guideline 9: Establishment, proportionality, review and documentation Guideline 10: Distributor's governance Guideline 11: Knowledge of the target market Guideline 12: Information and support for the manufacturer's arrangements. The guidelines also address outsourcing, reminding firms they should comply with the Committee of European Banking Supervisors' guidance, and that senior management of the outsourcing institution will retain responsibility for compliance. EBA stresses that manufacturers should periodically assess (i) that the internal product oversight and governance arrangements are being duly complied with, (ii) that the internal arrangements are still valid and up to date and (iii) whether the specifications of particular products continue to meet the interests, objectives and characteristics of the target market for which they were designed. Distributors should comply with the product oversight and governance arrangements of the manufacturer that related to bringing products to the market. Distributors should know and recognise the target market for which the product was designed and should normally sell and offer the...

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