Being better informed: October 2017

After a quiet summer, regulators picked up the pace of regulatory developments in September with important updates on PSD2, the bank levy, consumer credit and the prudential regime for investment firms.

The EBA published its opinion on the design of a new prudential regime for investment firms. The proposed framework will change the capital and liquidity calculations for investment firms, as well as their reporting, disclosure, governance and risk management obligations. The EC will now review the EBA’s opinion and decide whether or not to endorse it. We expect the EC to publish a legislative proposal in early December 2017, followed by final rules in 2019.

The final pieces of PSD2 implementation are falling into place. The FCA and PSR published their approaches to regulating the Payment Services Regulations (PSRs) 2017 and implementing PSD2 last month. The FCA confirmed changes it will make to its handbook following earlier consultation. The PSRs 2017 widen the scope of the FCA’s authority, bringing account aggregation and payment initiation services within the scope of regulated activity. PSD2 takes effect from 13 January 2018, so firms have just three months to complete their preparations.

Meanwhile banks and building societies should consider how changes to the scope of the bank levy and the way it’s calculated will affect them, as the Government has now confirmed these changes. Under the new methodology, only UK balance sheet equity and liabilities will be subject to the levy - overseas branches of UK entities will no longer be included. This revision and others to the scope and calculation of the levy will apply from 2021, while administrative simplifications will apply from 2018.

A proposed change to the methodology used to calculate the Ogden rate could significantly impact insurers. The Ogden rate is used to calculate compensation for personal injury claims. In February 2017, the Government cut the rate from 2.5% to -0.75%, which significantly increased expected compensation payments. Following a consultation and lobbying by insurers, the Government’s now proposing a methodology that would result in a rate of between 0% and 1%. The rate cut earlier this year forced insurers to set aside additional provisions and raise premiums. The proposed change may allow insurers to release some of these provisions and keep premium rates stable, but it’s not clear when the change will come into effect so insurers should keep a watching brief for now.

Changes are afoot in EU supervision. The EC put forward its proposals to change the role of the ESAs last month, which look set to increase the ESAs’ powers and further alter the balance between financial supervision at the national and EU level. In our feature article we take an in-depth look at how these proposals are likely to impact firms and the future shape of EU legislation. 

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Tessa Norman
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