Legal Shorts 19.07.19 including FCA news: new platform to replace Gabriel

ESMA call for evidence on impact of MiFID II disclosure requirements for inducements and costs and charges

On 17 July 2019, ESMA published a “call for evidence” on the impact of the disclosure requirements relating to inducements and costs and charges under the MiFID II Directive. ESMA stated that it has launched the call for evidence following receipt of a mandate from the European Commission (EC) in May 2019. In this, the EC asked ESMA to assess whether firms comply with inducement and costs disclosure rules in practice, whether the application varies across member states and, if so, how it varies. The EC invited ESMA to analyse and provide an assessment of the effects of these rules for both professional and retail clients and stated that ESMA’s analysis should be guided by the broader consideration of the extent to which investors have benefited from the new rules to date. 

In the call for evidence, ESMA summarises the disclosure requirements for inducements permitted under Article 24(9) of the MiFID II Directive and the costs and charges disclosure requirements under Article 24(4) of the MiFID II Directive. It requests responses from stakeholders to the list of questions set out at the end of the document. 

The EC will use ESMA’s advice in complying with its obligation to produce a report on the impact of, among other things, the inducement disclosure rules by 3 March 2020, under Article 90(1) of the MiFID II Directive. The deadline for comments is 6 September 2019.

New Prospectus Regulation: ESMA consultation on draft guidelines on disclosure requirements

On 12 July 2019 ESMA published a consultation on the draft guidelines on disclosure requirements under the new Prospectus Regulation.

The draft guidelines are stated to apply to competent authorities as defined in the new Prospectus Regulation and market participants, such as the persons responsible for a prospectus under Article 11(1) of the new Prospectus Regulation. They aim to help market participants comply with the disclosure requirements set out in the Commission Delegated Regulation supplementing the new Prospectus Regulation regarding the format, content, scrutiny and approval of prospectuses and to enhance consistency across member states in the way the annexes to the Commission Delegated Regulation are interpreted.

The content of the draft guidelines and the explanatory text to each guideline generally follows the content of the CESR recommendations, although drafting changes have been introduced to simplify the context and improve readability. Additional changes have been made to transform the text of the CESR recommendations into guidelines and to reflect the repeal of the Prospectus Directive and its replacement by the new Prospectus Regulation. ESMA has also introduced some new guidelines and some additional content in the explanatory text.

The deadline for responding to the consultation is 4 October 2019. ESMA expects to publish a final report containing a summary of all consultation responses and a final version of the guidelines in Q2 2020.

FCA News: new platform to replace Gabriel

On 16 July 2019, the FCA announced that it is working to improve the way it collects data from firms and plans to move to a new platform for data collection systems. This will include replacing Gabriel which is the FCA’s main regulatory data collection system, facilitating the collection of over 500,000 submissions annually, across 120,000 users and 52,000 firms.

The FCA hopes to implement an easy-to-use system so that firms can submit data in an efficient way and through a system and approach that can be adapted to changing needs. Early changes to the FCA’s new platform will be technology focused, so initially there will be no change to the way firms currently provide data to the FCA. It will make more significant improvements in the future, having considered the feedback from users.

This FCA commented that this work is central to its Data Strategy, which is designed to help it deepen its understanding of markets and consumers, and more swiftly identify, appropriately intervene and remediate issues to minimise harm. This new data collection platform supports the FCA’s Digital Regulatory Reporting work which is exploring how technology could make it easier for firms to meet their regulatory reporting requirements and improve the quality of information they provide. The FCA will communicate further on its Data Strategy plans later this year.

You can access the survey here:
https://www.fcaonlinesurveys.org.uk/jfe/form/SV_6MDeKfQBn2I07J3

FCA speech on role of artificial intelligence in future of regulation

On 16 July 2019, the FCA published a speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at The Alan Turing Institute’s “AI ethics in the financial sector” conference.

The FCA highlighted the following points from the speech:

“As the regulator, we consider the use of AI in financial services from three main perspectives:

  • firstly, which parts of the debate are novel and where is there continuity;
  • secondly, how can we ensure AI is creating value for citizens; and
  • lastly, how can we work with others to develop a shared understanding that will determine our approach over the years ahead.”

    Mr Woolard mentioned the following initiatives in relation to AI and the regulatory arena:

 

  • the FCA has partnered with The Alan Turing Institute to explore the transparency and explainability of AI in the financial sector. Through this project it hopes to move the debate on – from the high-level discussion of principles (towards a better understanding of the practical challenges on the ground that machine learning presents. They will be undertaking a joint publication around these themes, with a workshop planned for early 2020; and 
  • at an international level, the FCA is also leading a workstream on machine learning and AI for IOSCO, exploring issues around trust and ethics and what a framework for financial services might look like.

The European Money Markets Institute (EMMI) benchmark statement for administration of EURIBOR

On 17 July 2019, EMMI published the benchmark statement for the administration of EURIBOR under the Benchmarks Regulation ((EU) 2016/1011) (BMR). The EMMI is an authorised benchmark administrator under the BMR and EURIBOR has been designated as a critical benchmark under the Regulation. EMMI published the benchmark statement to comply with Article 27 of the BMR, which requires benchmark administrators to publish a benchmark statement for each benchmark or family of benchmarks provided.

In addition to providing general information about EURIBOR, the statement contains information on:

  • market or economic reality measured by the benchmark;
  • input data and methodology;
  • exercise of judgement or discretion by the EMMI or contributors;
  • cessation and change of the methodology;
  • potential limitations of the benchmark; and
  • specific disclosures for interest rate and critical benchmarks.

As a Critical Benchmark Administrator, EMMI has defined and implemented robust governance and control arrangements to ensure EURIBOR’s integrity and reliability. Therefore, EMMI has adopted a Governance Framework establishing the requirements and principles related to the provision of the EURIBOR benchmark under the hybrid methodology. The EURIBOR Benchmark Statement should be read in conjunction with the EURIBOR Governance Framework, methodology and policy documents which are available on EMMI’s website.

EMMI remains committed to communicating on the continued progress, participation, and commitment of all parties involved in the gradual implementation of the hybrid methodology. This ongoing process, which started in Q2 2019 is expected to conclude in Q4 2019. EMMI will issue a statement at the end of the phase-in to the new methodology. This announcement will also mark the EURIBOR Governance Framework entering in to application. As of that date, all features and characteristics of the methodology will also apply, including the reliance on the previous day’s transactions for the determination of contributions and the calculation of EURIBOR following the three levels in the hybrid methodology.

FCA proposes new rules to help consumers with pre-existing medical conditions access suitable travel insurance

On 15 July 2019 the FCA launched a consultation on proposals designed to help consumers with pre-existing medical conditions (PEMCs) have better access to travel insurance products. The consultation is seeking views on introducing a new ‘signposting’ rule, to provide consumers with details of a directory of travel insurance firms that have the appetite and capability to cover consumers with more serious PEMCs. Firms will be required to signpost consumers in the following circumstances:

  • When cover is declined or cancelled mid-term due to a PEMC.
  • When cover is offered with an exclusion for a PEMC that cannot be removed.
  • Where a consumer is offered cover with an additional loading to their base premium due to their PEMC.

In addition to signposting, the FCA will be working with stakeholders to try to improve consumer understanding of the travel insurance market, including producing material on PEMCs. This information will help consumers understand the implications of travelling with exclusions, and how factors such as country of travel can impact medical costs and therefore travel insurance premiums.

The FCA estimates there to be up to 14.1 million consumers with a PEMC that look to purchase travel insurance each year. Of these consumers, approximately 0.7% were declined cover, and 11% purchased a policy with an exclusion for their PEMC. Some consumers who are offered a policy may also benefit from shopping around, as they might find more affordable cover with a different provider. 

In developing its proposals, the FCA has engaged extensively with stakeholders which has helped it explore and test the possible options for addressing the problems identified, and develop proposals that address the harm in a proportionate and practical way. This work is part of the FCA’s wider work to improve outcomes for vulnerable consumers. 

The FCA is consulting on the draft rules until 15 September 2019

Claire Cummings

Claire practises financial services law with a focus on regulatory issues, cryptocurrencies and tokens, trading and brokerage documentation and advising both existing and start-up funds and fund managers.

If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.

Phone: 0207 585 1406
Email: claire.cummings@cummingsfisher.com

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