The pace of regulatory developments picked up in February, with updates on PSD2, MiFID II and the UK definition of investment advice.
PSD2 continues to move forward, with HMT consulting on the UK approach to implementation. HMT plans to implement the directive as the Payment Services Regulations 2017 (PSRs 2017), repealing and replacing the existing PSRs 2009.
HMT also published its response to an earlier consultation on the draft statutory instruments transposing MiFID II this month. The Government wants to maintain the current third country regime, meaning that opening a branch in the UK will remain optional and not a requirement for third country firms. Additionally, HMT grants the FCA authority to regulate non-MiFID II firms (such as firms dealing on own account in commodity derivatives) and clarifies a number of other points. Another piece of the MiFID II puzzle was also completed in February, with ESMA publishing long-awaited draft technical standards on packaged transactions.
Looking ahead, ESMA signalled its intention to increase its focus on CCPs this year. The supervisory authority published several work programmes for 2017, in which it said it plans to strengthen the robustness of CCPs, and improve stress testing work for CCPs and investment funds.
Turning to capital, the PRA consulted on refinements to its Pillar 2A capital framework, with the aim of improving competition among banks. It aims to do this by narrowing discrepancies in capital requirements between the standardised and IRB approaches. The PRA proposes adjusting its Pillar 2A framework for using the standardised approach for credit risk, so that any excesses can be used to adjust low risk firms’ variable Pillar 2A capital add-ons.
Firms that offer advice and guidance services should consider the implications of HMT’s decision to change the definition of investment advice for regulated firms. HMT has changed the definition so that regulated firms will only be giving advice where they provide a personal recommendation. It intends to leave the wider RAO definition of advice as ‘advising on investments’ in place for unregulated firms. This will allow regulated firms to provide a broader range of services, without necessarily being caught by the advice definition, and its associated requirements and risks. The new definition will also align with the advice definition under MiFID II, and is due to come into effect on the same date as the directive – 3 January 2018.
Our first feature article this month looks in detail at the future shape of investment fund liquidity regulation. The FCA is gathering evidence through a discussion paper on whether new rules on illiquid assets and open-ended investment funds are needed to support market stability and protect consumers. The FSB also issued recommendations to address structural vulnerabilities from asset management earlier this year, so we look at where the two authorities’ approaches overlap and diverge.
Our second feature focuses on the IDD, which will represent a new focus for UK and EU insurance firms. The IDD came into force on 23 February 2016 and must be transposed into national law by 23 February 2018. With just under a year until this deadline, and with EIOPA, HMT and the FCA recently providing further insight, this article looks at what changes the IDD will bring to the UK insurance market and beyond.