Legal Shorts 02.08.19 including European Commission publishes package of materials assessing EU AML and CTF framework

BCBS and IOSCO extend final implementation phase of margin requirements for non-centrally cleared derivatives

On 23 July 2019, the Basel Committee on Banking Supervision (BCBS) published an updated version of the margin requirements for non-centrally cleared derivatives jointly with the International Organization of Securities Commissions (IOSCO).

A related press release explains that the BCBS and IOSCO have agreed to extend, by one year, the final implementation phase of the margin requirements. With this extension, the final implementation phase will take place on 1 September 2021, at which point covered entities with an aggregate average notional amount (AANA) of non-centrally cleared derivatives greater than EUR8 billion will be subject to the requirements. To facilitate the extension, the BCBS and IOSCO will introduce an additional implementation phase whereby, as of 1 September 2020, covered entities with an AANA of non-centrally cleared derivatives greater than EUR50 billion will be subject to the requirements.

The BCBS and IOSCO have agreed to the extended timeline to support smooth and orderly implementation of the margin requirements. They expect covered entities to act diligently to comply with the requirements by the revised timetable, and strongly encourage market participants to make all relevant arrangements on a timely basis.

European Commission publishes package of materials assessing EU AML and CTF framework

On 24 July 2019, the European Commission published a package of materials assessing the EU’s anti-money laundering (AML) and counter-terrorist financing (CTF) framework, together with related Q&As. The Commission believes that these materials, addressed to the European Parliament and the Council of the EU, will support the EU and national authorities to better address money laundering and terrorist financing risks. Some improvements can be made quickly at the operational level. The Commission will continue to support member states in this, while also reflecting on how to address the remaining structural challenges. It considers that the package will serve as a basis for future policy choices on how to further strengthen the EU AML and CTF framework. The assessment included, among others, reports assessing recent money laundering cases, financial intelligence unit’s co-operation framework, and interconnection of national central bank account registries.

FCA and FCA Practitioner Panel report setting out findings of 2019 joint survey of regulated firms

On 31 July 2019, the FCA and the FCA Practitioner Panel published a report setting out the findings of their 2019 joint survey of regulated firms.
The survey was carried out by Kantar Public, an independent market research organisation, which sent it to a sample of firms. Between January and March 2019, 2,888 firms completed the survey, which requests feedback on how well the FCA is achieving its three operational objectives.
In 2019, scores against the first two objectives (that is, securing an appropriate degree of protection for consumers and protecting and enhancing the integrity of the UK’s financial system) have risen slightly. In relation to the third objective (promoting effective competition in the interests of customers), the confidence of the larger fixed portfolio firms increased, but the overall score for all firms decreased from 72% to 70%.

The survey results also revealed some specific areas for improvement. In particular:

Information requests. There was a substantial increase in the proportion of fixed firms indicating the number of FCA information requests are greater than seems necessary. This is an issue both the Financial Services Consumer Panel (FSCP) and the Smaller Business Practitioner Panel (SBPP) have raised, highlighting both the volume of requests and the associated costs to firms.

Trust in supervision. Flexible portfolio firms have overall higher satisfaction scores than fixed firms, but are less likely to agree that FCA staff have sufficient experience and are appropriately qualified. Since the survey, the FCA has clarified its approach to supervision.

European Commission Communication on equivalence policy with non-EU countries

On 29 July 2019, the European Commission published a Communication (and annex) on equivalence in the area of financial services. The Commission explains that in the light of international policy developments and new legislation, it is timely to take stock of the EU’s approach to equivalence and to set out the challenges that the policy faces. The Communication contains a section on the purpose of equivalence and how policy decisions are made. It emphasises how each new equivalence decision needs to provide a prudent and sustainable framework, be compatible with EU policy priorities, and consider the prudential treatment granted to EU market participants.

The Commission indicates that “in the coming months” it will work closely with the ESAs to increase co-operation relating to monitoring of equivalence decisions. It also sets out an outline of its priorities for 2019 and 2020, which include:

  • Continuing work on equivalence assessments, especially relating to the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds ((EU) 2016/1011) (Benchmarks Regulation or BMR).
  • Repealing existing decisions where the third-country framework no longer delivers the necessary outcomes (for example, under the CRA Regulation).
  • Focusing on high-impact areas and third countries (EMIR (Regulation 64/2012) is specifically mentioned).
  • Areas where there is an impending review or expiry of an equivalence deadline (the Capital Requirements Regulation (575/2013) is specifically mentioned).

Examining market segments that are undergoing dynamic or structural changes (the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR) is specifically mentioned).

FCA final rules on extension of SM&CR to FCA solo-regulated firms and new financial services directory

On 26 July 2019, the FCA published a policy statement (PS19/20) setting out its final rules on extending the senior managers and certification regime (SM&CR) to FCA solo-regulated firms. It also sets out the final rules on a new directory of individuals working in financial services.

In general, the FCA has implemented the proposed changes to the SM&CR as consulted on, which includes:

  • Confirming that the head of legal function is excluded from the requirement to be approved as a senior manager under the senior managers regime (SMR).
  • Amending the intermediary revenue criteria for the enhanced regime.
  • Clarifying the requirements and scope of the certification regime. In particular, the scope of the client dealing function will be amended and the FCA will introduce new guidance for situations in which a senior manager holds a senior management function (SMF) and also performs a systems and controls role. In this situation, the individual may need to be certified for the systems and controls part of their role if it differs significantly from their SMF role.
  • Extending senior manager conduct rule 4 (SC4) to non-approved executive directors at limited scope firms.

Making two changes to the wording of regulatory forms to ensure they accurately reflect the rules in the FCA’s Handbook.

FCA signs IOSCO-ESMA agreement covering transfer of personal data between EEA and non-EEA authorities

On 25 July 2019, the FCA published an agreement setting out administrative arrangements for the transfer of personal data between European Economic Area (EEA) authorities and non-EEA authorities.

Among other things, in the agreement, the authorities have regard to:

  • Article 46(3)(b) of the General Data Protection Regulation ((EU) 2016/679) (GDPR) and Article 48(3)(b) of Regulation (EU) 2018/1725 on the protection of natural persons with regard to the processing of personal data.
  • The relevant legal framework for protecting personal data in their jurisdictions. The authorities acknowledge the importance of regular dialogue between the EEA authorities and their national data protection authorities, or the European Data Protection Supervisor (EDPS) in the case of ESMA.

The need to process personal data to carry out the public mandate and exercise of official authority vested in them, and the need to ensure efficient international co-operation between them acting in accordance with their mandates to safeguard investors or customers, and foster integrity and confidence in the securities and derivatives markets.