Being better informed: November 2016

We’re approaching the end of the year and expecting a rush from regulators to publish all the consultations and policy they promised to issue in 2016. In the coming months we expect the FCA to issue consultations on creditworthiness assessments in consumer credit, and its fourth consultation on MiFID II implementation. We also expect to see ESMA’s response to its call for evidence on asset segregation and custody service under AIFMD and UCITS V.  But in the meantime there are plenty of new developments to consider this month.

Brexit continues to be front of mind for firms. Our first feature article examines the potential impact of Brexit on MiFID II. Brexit discussions around MiFID II have so far centred on passporting and equivalence, which are important issues. But Brexit will also open up a Pandora’s Box of other technical complications, in areas like transaction reporting and the calculation of pre-trade transparency thresholds. Those issues probably won’t feature in political negotiations, but they are likely to cause headaches for firms and regulators.

This month we learned more about the FCA’s plans for the future in its mission statement. In our second feature article we look at that, as well as the FCA and PRA’s recent suite of publications on the SM&CR, and what these tell us about the regulators’ culture agenda.

Many firms breathed a sigh of relief when the FCA issued its final report on its investment and corporate banking market study. It concluded that competition is working effectively in many aspects of the market. But it issued a consultation paper to look at banning certain contractual clauses, and plans some follow-up work on initial public offerings, so firms should watch out for possible rule changes in these areas.

The FCA has been taking a closer look at how firms treat customers who are in mortgage arrears, and has issued a consultation on new guidance for firms. It found that as a result of some firms’ methods of calculating mortgage payments, customers were not being treated fairly. The FCA reckons around 750,000 customers have been affected (although will be due relatively small amounts of compensation), and has developed a voluntary remediation framework.  

Transparency remains high on the agenda for the FCA. It wants asset managers to provide standardised disclosure of their investment funds’ aggregate transaction costs to trustees and independent governance committees of workplace pension schemes. The FCA proposes requiring asset managers to calculate and disclose both implicit and explicit transaction costs.

Turning to prudential developments, Sam Woods, Chief Executive of the PRA, declared the post-crisis regulatory overhaul of prudential standards in the UK is ‘over’ in his Mansion House speech last month. But he said there remains important work to finish off in Basel, and a ‘constant evolution’ will be necessary as firms and markets evolve. Woods added that the PRA will press ahead with the UK's bank ring-fencing reforms despite the Brexit vote.

The Basel Committee, meanwhile, published its final standard on TLAC holdings - setting out the regulatory capital treatment for when a bank holds instruments issued by another bank that qualify as total loss-absorbing capacity. The rules require all internationally active banks to deduct TLAC holdings that do not qualify as regulatory capital from their own Tier 2 capital - a more onerous approach than the current 'like-for-like' deductions that apply.

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