Financial Regulatory Developments (FReD) - 2 August 2013

European Commission (Commission)

Data Protection WP warns on MLD4 risks to privacy: The Article 29 Data Protection Working Party (Data Protection WP) has published a letter it wrote in April to the European Parliament expressing its concerns over the impact on privacy and data protection of certain aspects of the fourth Money Laundering Directive (MLD4). The Data Protection WP recommends that the EU should specify more clearly:

that the ban on tipping off extends only to suspicious transaction reports or investigations being carried out, and that Member States cannot gold-plate this provision to include information gathered in Know Your Customer or Customer Due Diligence (CDD) profiling operations; the conditions that would legitimise the transfer of personal data to a third country for anti-money laundering and counter-terrorist financing purposes where the third country does not have adequate data protection regulation; the type of data that can be processed in simplified CDD, as it is concerned that a blanket requirement to collect information is contrary to the risk-based approach in MLD4. It says CDD data should be processed only where necessary to comply with the law. (Source: Letter from Data Protection WP to Mr López Aguilar)

European Supervisory Authorities (ESAs)

ESAs publish final FICOD RTS: The Joint Committee of the ESAs has published its final draft regulatory technical standards (RTS) on the application of article 6(2) of the Financial Conglomerates Directive (FICOD), relating to the calculation of capital at conglomerate level. (Source: ESAs Publish RTS on Calculation Methods under FICOD)

European Banking Authority (EBA)

EBA publishes final own funds RTS: EBA has published its final RTS on own funds. They cover, among other elements, own funds deductions and reductions, characteristics of savings institutions and the redemption of their capital instruments, and the concept of gain on sale. EBA has also published final RTS on credit risk adjustments and final implementing technical standards (ITS) on own funds disclosure. (Source: Merged Version of the RTS Submitted to the Commission, Final Draft RTS on the Calculation of Credit Risk Adjustments and Final Draft ITS on Disclosure for Own Funds)

EBA publishes final CRR supervisory reporting ITS: EBA has published the final version of its draft ITS on supervisory reporting requirements under the Capital Requirements Regulation (CRR). The ITS specify uniform formats, frequencies, reporting dates, definitions and IT solutions to comply with prudential and financial information reporting requirements under CRR. Although CRR applies from 1 January 2014, the RTS postpone the first reporting period for financial information until Q3 2014, with the first reference date therefore being 31 September 2014. Other reporting requirements are also delayed to ease implementation by firms. (Source: EBA Publishes Final Draft ITS on Supervisory Reporting)

EBA consults on instruments apt for variable remuneration: EBA is consulting on RTS setting out the characteristics required from Additional Tier 1, Tier 2 and other non-own funds instruments to be eligible for the purposes of staff variable remuneration. The RTS introduce strict trigger events, linked to regulatory capital levels, for the write-down or conversion of these instruments when the credit quality deteriorates but while the financial institution is still a going concern. To ensure these instruments are linked to market conditions, they must either be open to other investors (at least 60% of the issue) or have a cap on distributions. EBA asks for comments by 29 October. (Source: Consultation on RTS on Variable Remuneration Instruments)

EBA consults on internal models for debt instruments risk: EBA is consulting on RTS under article 77 of the fourth Capital Requirements Directive (CRD4) setting out at what point a national regulator should encourage a financial institution to develop internal models for calculating the level of capital needs arising from debt instruments in the institution's trading book. EBA proposes to set the trigger at the level where the sum of all long and short positions surpass EUR 1 billion, and where the institution's portfolio includes more than 100 positions in debt securities and each is greater than EUR 2.5 million. It asks for comments by 15 October. (Source: EBA Consults on RTS Related to the Specific Risk of Debt in the Trading Book)

UK Government and Parliament

Legislation

Government makes consumer credit orders: The Government has made two statutory instruments relating to the transfer of consumer credit (CC) regulation to FCA:

the Financial Services Act 2012 (Consumer Credit) Order 2013 transfers responsibility for CC regulation to FCA, provides for FCA to use certain of its powers in relation to CC business and makes other consequential changes to various pieces of legislation. It also ensures FCA can take appropriate action for breaches of the Consumer Credit Act 1974 (CCA) and requires it to make statements of policy relating to its new supervisory responsibilities. It took effect on 26 July for the purposes of allowing FCA to make policies and take certain actions under the CCA and will otherwise take effect on 1 April 2014; and the Financial Services and Markets Act 2000 (FSMA) (Regulated Activities) (Amendment) (No 2) Order 2013 primarily amends the FSMA (Regulated Activities) Order (RAO) to bring a variety of consumer credit and related activities within RAO scope and regulated by FCA. The Order, which was consulted on and placed before Parliament in draft (see previous FReDs and our "Recent Publications"), brings within the RAO various activities relating to credit broking, operating electronic systems in relation to lending, activities relating to debt, regulated credit agreements, regulated consumer hire agreements and activities relating to information. It makes consequential and related changes to other pieces of secondary legislation, including those on the business test and exemptions, and makes changes to apply the appointed representative regime to CC firms. It also brings CC activities within the scope of the financial promotion regime and applies the FSMA control provisions to it proportionately...