Stand out for the right reasons, Financial Services Risk and Regulation March 2018

Being better informed FS regulatory, accounting and audit bulletin

PwC FS Risk and Regulation Centre of Excellence

March 2018

In this month’s edition:

• Prudential: PRA finalises Pillar 2 liquidity assessment policy

• Analysis: FCA and PRA focus on algorithmic trading

• Investment funds: IOSCO issues liquidity management guidance

• Conduct: PRA confirms SIMR amendments

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 1

‘Welcome to this edition of ‘Being

better informed’, our monthly FS

regulatory, accounting and audit

bulletin, which aims to keep you up to

speed with significant developments

and their implications across all the

financial services sectors.’

As we head into spring, our regulators are

keeping as busy as ever. Last month brought

a number of important developments,

particularly on prudential matters, at both a

UK and global level.

Among those prudential updates is the

PRA’s finalised policy for Pillar 2 liquidity

assessment. It’s broadly taking forward the

regime as previously consulted on, but with

a number of changes. For instance, the PRA

delaying by six months the introduction of a

new maturity ladder reporting form

PRA110, from January to July 2019.

Although some changes like this one have

been delayed a bit, impacted firms should

still familiarise themselves with the final

rules and begin preparations to report the

new granular cash flow mismatch template.

Meanwhile, the FCA is increasing its focus

on prudential reporting. It published a Dear

CEO letter to IFPRU investment firms and

BIPRU firms on the quality of prudential

regulatory returns. The FCA has seen a

significant number of returns with inaccurate

or incomplete data, and is asking firms to

review their submissions and reporting

practices. The letter suggests further action

is on the horizon, so impacted firms should

review their end-to-end regulatory reporting

process to ensure it’s fit for purpose.

And globally, the Basel Committee

published a consultation on Pillar 3

disclosure requirements, marking the third

phase of its revisions to Pillar 3 disclosures.

It includes new and revised requirements

relating to the Committee’s ‘Basel IV’

package published in December 2017.

Changes include revised requirements for

credit risk, operational risk, the leverage

ratio and credit valuation adjustment. Firms

should review the proposals and undertake

an initial assessment to understand any

changes in data, systems and processes as

well as governance and controls needed to

produce the enhanced Pillar 3 disclosures.

Turning to conduct-related developments,

the PRA issued a policy statement on its

approach to implementing the SM&CR for

insurers, setting out final amended SIMR

rules and proposals for board diversity for

insurers. The amended SIMR is due to take

effect from 10 December 2018, following a

decision by HMT.

IOSCO issued recommendations and best

practice guidance on investment fund

liquidity management, providing a

suggested approach for countries to adopt

voluntarily. IOSCO emphasises the

importance of aligning fund structure and

investment strategy with liquidity needs,

and of disclosing liquidity management

approaches to investors. It also discusses

stress testing requirements. UK and EU

rules already address many of the

recommendations, but IOSCO’s focus on

stress testing and disclosure could prompt a

closer focus on these areas in the UK.

Meanwhile the FCA and the PRA are

scrutinising algorithmic trading in

wholesale markets. In this month’s feature

article we analyse what the findings of an

FCA thematic review and proposed

expectations from the PRA mean for firms.

The regulators’ focus on algorithmic trading

signals the level of scrutiny that firms can

expect on MiFID II compliance. It also

highlights the regulators’ willingness to go

beyond MiFID II, as the FCA’s good practice

applies to non-MiFID firms engaged in

algorithmic trading, and the PRA’s

proposed framework covers spot FX, which

is out of scope of MiFID II.

Looking ahead, the FCA plans to publish a

policy statement on measures to address

remuneration-related risks in consumer credit

firms later this month, and we expect Member

States to agree a common position on the

proposed EU banking reform package by May.

For now we hope you enjoy reading the

latest updates.

Laura Cox

FS Risk and Regulation Centre of Excellence

020 7212 1579

laura.cox@pwc.com

Laura CoxLead Partner

PwC FS Risk and Regulation Centre of Excellence

Executive summary

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 2

How to read this bulletin?

Review the Table of Contents the relevant Sector sections to identify the news of interest. We recommend you go directly to the topic/article of interest by clicking in the active links within the table of contents.

Contents

Executive summary 1

Regulators hone in on algorithmic trading 3

Cross sector announcements 6

Banking and capital markets 13

Asset management 16

Insurance 18

Monthly calendar 23

Glossary 27

Contacts 33

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 3

With the recent go-live of MiFID II on

3 January 2018, the industry is watching

closely for any signs of which areas

regulators might prioritise in scrutinising

compliance. The PRA and FCA recently

published guidance signalling that they will

be focusing on algorithmic trading, which is

perhaps unsurprising given that poorly

designed and managed algorithms can pose

financial stability risks. But firms shouldn’t

look at their use of algorithms solely

through a MiFID II lens - the regulators are

strengthening algorithmic requirements

across the board, even for firms and

products not covered by MiFID II. The

regulators have coordinated their efforts to

ensure all firms have robust controls and

effective governance, putting the entire

market on notice. They’ve laid out a

roadmap to help firms get algorithmic

trading right. Now it’s down to firms to

assess their current approaches and take the

necessary steps to address any gaps.

The FCA published Algorithmic Trading in

Wholesale Markets on 12 February 2018,

following its cross-firm review of

algorithmic trading themes. Alongside this,

the PRA published CP5/18 Algorithmic

Trading, outlining its expectations on

governance and risk management for firms

engaged in algorithmic trading. The FCA

report provides much more detail and the

PRA is only at the consultation stage, but

the two approaches are clearly aligned.

By focusing on algorithmic trading so soon

after MiFID II implementation, the UK

regulators are signaling that they will be

monitoring this type of market activity very

closely in the year ahead. Firms should take

note, and ensure they have developed

policies and procedures that align with

regulatory expectations. Algorithmic trading

can raise significant market abuse and

market stability concerns and so firms

should strive to achieve best practice to

minimise those risks.

The UK regulators reiterated their

expectations that firms need to approach

their regulatory responsibilities

comprehensively, by harnessing the

expertise of the entire business (the ‘three

lines of defence’ model). In its review

findings, the FCA consistently highlights the

importance of involving front office

functions in the compliance process, to

ensure firms harness the expertise held by

the market-facing side of the business to

address risks.

The FCA helpfully provides examples of

good and bad practice for every stage of the

algorithmic trading life-cycle. With MiFID

II already live, firms should benefit from the

practical examples of how to improve their

algorithmic governance, and the FCA

provides an important framework for

assessing controls implemented as part of

compliance efforts. MiFID II requires firms

to provide an annual self assessment of

algorithmic trading controls and UK firms

should pay close attention to the FCA’s

examples as they go through this process for

the first time.

Going beyond MiFID II

MiFID II implemented extensive new

requirements for algorithmic trading.

The MiFID II rules outline detailed

development, testing and deployment

requirements to ensure that algorithmic

trading strategies are both operationally

effective and safe for the wider markets. In

addition, firms need to address algorithmic

strategies that could prove problematic

(e.g. by implementing a ‘kill functionality’).

But the FCA’s good practice examples and

the PRA’s proposed supervisory framework

extend beyond MiFID II and MiFID firms.

Importantly, the PRA’s proposed

expectations will cover spot FX which is out

of scope of MiFID II. Likewise, the FCA

indicates that its good practice extends to

non-MiFID firms engaged in algorithmic

trading. Such gold-plating of EU rules

indicates that the UK regulators will take an

aggressive approach based on the perceived

risks emerging from this activity.

The UK regulators’ moves to intervene

beyond MiFID II also suggest that their

current approach to algorithmic trading is

unlikely to change as a result of Brexit. The

UK regulators drove much of the MiFID II

Dominic MullerManager

020 7213 2905dominic.b.muller@pwc.com

Regulators hone in on algorithmic trading

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 4

requirements and have consistently

signalled their commitment to robust

standards, and in some cases gold-plating

EU rules. Given the UK’s prominence as an

algorithmic trading location, the UK

regulators will likely keep their approach

consistent to ensure the ongoing stability

and integrity of markets post-Brexit.

Defining algos correctly

The FCA confirms that firms should develop

a detailed definition of algorithmic trading

and consider potentially relevant activities

across the firm’s business, to ensure it

identifies all relevant activities, as opposed

to simply those areas of the firm where algo

trading is well-established. Given the

proliferation of algorithmic strategies and

systems in firms, the FCA wants to ensure

that firms identify the full scope of these

activities so they can best apply conduct and

stability controls.

Likewise, the FCA indicates that firms

should have a formal process to identify

material changes to algorithmic trading

activity – either in terms of a shift in

strategy or the introduction of new

algorithms. Conducting reviews on an ad-

hoc basis is not sufficient, as failing to

identify new algorithmic activity means

firms will not appropriately subject such

activity to a consistent development and

testing framework. The FCA also confirms

that the algorithmic inventory must be very

detailed and include:

a breakdown of the various

components/algorithms contained

within the strategy or system

technical details of the coding protocols

a comprehensive list of all the

risk controls.

Developing and testing algo trading

The FCA makes it clear that firms cannot

develop and test algorithmic strategies in a

vacuum. They must establish clear lines of

authority and accountability to drive these

processes forward and ensure they

appropriately leverage expertise across

the firm.

To ensure consistent oversight, the FCA

wants firms to assign a dedicated project

lead to develop and test algorithmic trading.

The project lead should be responsible for

dividing the development process into

separate phases and driving early due

diligence. In line with the FCA’s broader

focus on collaboration between front,

middle and back offices, the project lead

should be charged with ensuring a ‘culture

of open communication’ exists between

different business units. At the same time,

the project lead needs to keep the

development and oversight roles separate so

reviews remain independent.

Emphasising the importance of structure

and communication, the FCA says it wants

to see that firms have detailed staging and

scheduling plans. By breaking the

deployment process into stages, the FCA

hopes firms will be able to better determine

whether they need to make any material

changes - and to roll the trading strategy

back to the development and testing process

if necessary. Such a controlled approach to

the production environment will also

increase the likelihood of firms’ identifying

market stability risks prior to deployment.

Applying risk controls

While the MiFID II rules set out detailed

requirements for what risk controls firms

should apply, the FCA goes further. The EU

rules indicate that risk controls are

warranted for:

market and credit risk limits

maximum order volumes and maximum

order values

maximum message limits

repeated automation execution throttles

price collars

maximum longs and shorts

for derivatives.

But the FCA states that firms should apply

these controls at the strategy or client level,

as well as on a firm-wide basis. In addition,

the regulator expects firms to maintain

complete, accurate and consistent trade and

account information, plus comprehensive

trading logs. Developing appropriate

controls is a key element of algorithmic

trading risk mitigation, as they are the

primary means by which an algorithmic

strategy is constrained to accommodate

market abuse and market stability

considerations. As a result, the FCA wants

these controls to be as detailed as possible.

Monitoring compliance effectively

The FCA appears concerned that

compliance personnel lack the technical

sophistication to fully understand

algorithmic trading strategies, which could

hinder their ability to provide effective

oversight. Also, the regulator observes that

compliance staff are not sufficiently

involved throughout the development

process. The message for the industry is

clear: compliance staff must be

technologically savvy and empowered to

engage with the front-office throughout the

development and deployment process. The

FCA is warning firms they not only need the

right processes in place but the right people,

and they need to account for technological

complexity when making

personnel decisions.

In terms of specific practices, the FCA

would welcome more sophisticated use of

visual and audible alerts, such as automated

control thresholds where alerts are

generated at pre-defined levels. Also, the

regulator expects that the three lines of

defence present the relevant committees

with management information (MI) which

includes details on how they have amended

controls.

The FCA is further concerned about firms

which maintain basic market abuse alerts

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 5

(such as insider dealing or layering and

spoofing) but do not consider other types of

market manipulation which can be

associated with algorithmic trading

(e.g. momentum ignition, quote stuffing and

reference price gaming). More broadly, the

FCA reminds firms that MiFID II

compliance requires much more than

ensuring the operational effectiveness of the

algorithms, but also monitoring and

identifying potential market misconduct.

Getting the governance right

Also, the FCA calls for firms to introduce a

governance framework that sits above the

project lead. It recommends firms form an

independent committee to check all relevant

documentation, ensure all testing

procedures have been completed

satisfactorily and verify that algorithms are

consistent with the original specifications.

The regulator indicates that it expects firms

to have active representation on the

committee from various departments,

including risk, compliance, legal, business,

technology, finance and operations.

Firms need to provide effective MI to senior

management on relevant activities,

including conformance testing, operational

arrangements, pre-trade risk parameters,

training and surveillance procedures.

Likewise, it expects an audit trail that

captures: theoretical construction,

behavioural characteristics, details on the

types and use of input data, numerical

analysis routines and specific mathematical

calculations.

The regulator is clearly concerned that

different parts of a firm are generating

algorithmic strategies and systems without

central oversight and that leadership teams

have inadequate visibility over the process.

While firms will have flexibility to establish

governance frameworks that fit their

business, they should bear in mind the

FCA’s guidance.

What do firms need to do now?

The go-live of MiFID II means that robust

algorithmic trading controls has moved

from a regulatory concept to a day-to-day

requirement. Likewise, it is no surprise that

this area of market activity will be a

supervisory focus for UK regulators in light

of the risks that algorithmic trading can

pose for markets. But, the catalogue of good

practice outlined by the FCA provides firms

with a more detailed roadmap for

implementing a very complex set of

requirements. Similarly, the PRA’s

consultation paper, while more high-level,

provides industry with a chance to bring

their insights to the table.

In the near-term, firms should respond to

the PRA consultation by 7 May 2018, after

which the PRA intends to publish a

supervisory statement in early summer.

The PRA also notes that its algorithmic

trading work will be used as a basis for

wider reviews of firms’ operational

resilience.

In addition, firms should expect the FCA to

increase its supervision in this area and

follow up with individual firms on their

algorithmic trading compliance in light of

these good practices. The regulator

indicates that it will be looking at whether

MiFID and non-MiFID firms have

established adequate algorithmic

trading controls.

Both regulators and the industry realise the

complexity of rolling out large-scale

regulatory changes to wholesale markets.

This is evidenced by the wide range of

implementation challenges for MiFID II

that firms and the regulators are working

together to address. As a result, the FCA

and PRA’s latest publications provide a

valuable opportunity for firms to adhere to

more detailed expectations while continuing

a conversation with regulators about

making implementation as balanced and

effective as possible.

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 6

In this section:

Regulation 6 Advice 6 Brexit 6 Capital and liquidity 6 Conduct 7 Innovation 8 Market infrastructure 8 Pensions 8 Reporting 9 Wholesale markets 9

Accounting 9 Our publications 9

Also this month 10 A brief round up of other regulatory

developments

Regulation

Advice Advice and guidance – achieving clarity?

The FCA confirmed amendments to PERG

guidance on personal recommendations in

PS18/3: Perimeter guidance on personal

recommendations on retail investments

on 23 February 2018.

It comes after the FCA proposed new

guidance in CP17/28 in August 2017, in

response to FAMR which recommended the

FCA give firms greater confidence to offer

guidance without straying into regulated

advice. The FCA is broadly taking forward

the new guidance as consulted on, with

some additional examples to help give firms

further clarity on whether a service might

amount to a personal recommendation.

The FCA also confirms it will retire FG15/1

(which provides guidance on a number of

issues relating to advice on retail

investments) as a standalone document

with immediate effect, and incorporate the

new guidance into PERG. In addition, the

FCA publishes a consumer guide which

explains the difference between the terms

‘advice’ and ‘guidance’.

The finalised perimeter guidance marks the

final step in the FCA’s implementation of

the FAMR recommendations. It plans to

conduct a review of the impacts of the

recommendations in 2019, and publish its

findings in 2020.

Brexit Bailey highlights Brexit risks

Andrew Bailey, CEO of the FCA, gave a

speech on 5 February 2018 setting out his

views on the future of the City of London. In

his speech Bailey focused on Brexit,

highlighting that the FCA is treating Brexit

as a key priority and identifying some of the

risks Brexit poses to the UK and EU-27.

Bailey also re-emphasised that he believes

free trade in financial services to be of

benefit to both the UK and EU-27.

Capital and liquidity Clarifying credit risk mitigation guarantee eligibility

The PRA published consultation paper

CP6/18 Credit risk mitigation: Eligibility of

guarantees as unfunded credit protection

on 16 February 2018. The PRA identifies

that some firms are unclear on what

contracts and other documented obligations

are eligible to be treated as guarantees for

credit risk mitigation (CRM) purposes

under the CRR. It proposes to amend

supervisory statement SS 17/13 – Credit

risk mitigation to clarify its expectations

regarding certain eligibility criteria for

guarantees that enable firms to reduce the

risk weight of credit exposures in their

calculation of capital requirements.

The CRR requires that a guarantor is

obliged to pay out ‘in a timely manner’. The

PRA considers this means that pay out

occurs ‘without delay and within days, but

not weeks or months’, of the date on which

an obligor covered by the guarantee fails to

make the payment due. But there are

exceptions, such as where guarantees cover

residential mortgages and securitisation

positions. The proposals also cover

expectations concerning eligible

guarantees being:

legally effective and enforceable

clearly defined and incontrovertible

without clauses that could provide

barriers to the pay out by the guarantor

in ‘a timely manner’.

In addition, the PRA addresses the terms

‘limited coverage’ and ‘certain types of

payment’ that concern the eligible amount

of guarantees that don’t cover all payments

relating to a credit exposure. Finally, the

PRA emphasises that under the EBA SREP

guidelines it must assess the level and

quality of guarantees that would mitigate

losses where credit events occur, including

those not eligible for CRM in capital

requirement calculations. These

clarifications affect the standardised

approach and the foundation IRB approach

Cross sector announcements

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 7

to credit risk. The advanced IRB approach is

outside the scope of these proposals. The

consultation closes on 16 May 2018.

Setting materiality thresholds for credit default

Regulation (EU) 2018/171 on

supplementing CRR with regard to RTS for

the materiality threshold for credit

obligation past due appeared in the Official

Journal on 6 February 2018. This follows

the EBA’s September 2016 final report on

the draft RTS and is largely unchanged from

that draft. But recognising its impact, the

RTS allows for an extended and flexible

implementation period.

The CRR specifies that firms should

consider a counterparty in default when it is

past due for more than 90 days in respect of

any material credit obligation. This RTS

specifies the conditions supervisory

authorities should consider in setting the

threshold at which credit obligations are

deemed material – both retail exposures

and non-retail exposures.

The threshold has an absolute and relative

component. The absolute measure is the

total amount of the credit obligation past

due from the borrower. This is set at a

maximum of €100 and €500 for retail and

non-retail exposures respectively. The

relative measure is a percentage of the past

due credit obligation in relation to the total

on-balance sheet exposures to the borrower

excluding equity exposures. This is set at 1%

for all exposures for risk levels assessed as

‘reasonable’. But supervisory authorities

may set a different level within a range of

0% to 2.5% if the risk characteristics in their

jurisdiction justify it.

Supervisory authorities must agree a date

for the application of the thresholds they set

which may vary for different categories of

firms. This must be no later than

31 December 2020 for firms using the

standardised approach. There is no

specified date set for firms using the IRB

approaches, allowing supervisory

authorities to defer implementation.

But the RTS indicates that ‘to prevent

excessive delays…such longer periods

should be limited’.

Pillar 2 liquidity policy goes live

The PRA published policy statement PS

2/18 Pillar 2 liquidity on 23 February 2018,

providing feedback to responses to its

consultation papers, CP 21/16 and CP 13/17.

The Pillar 2 policy seeks to complement the

Pillar 1 regime by addressing liquidity risks

not captured or not fully captured under the

LCR requirement. This new regime applies

to UK banks, building societies and PRA-

designated investment firms.

It implements this by finalising a new

statement of policy Pillar 2 liquidity,

updating supervisory statement SS 24/15

The PRA’s approach to supervising

liquidity and funding risks and introducing

a new PRA110 cashflow mismatch return

(accessible through updated SS 34/15), that

replaces the current FSA047 and

FSA048 returns.

In CP 21/16 and CP 13/17, the PRA set out

the framework of risks covered under Pillar

2 and methodologies it intends to use to

perform liquidity risk assessments. This

includes introducing a cashflow mismatch

risk (CFMR) framework and setting out

survival guidance on the granular LCR

stress within the CFMR framework. The

Pillar 2 liquidity risks comprise CFMR,

franchise viability, intraday liquidity as well

as other liquidity risks – margined

derivatives, securities financing margin,

intragroup liquidity together with liquidity

systems and controls.

In response to feedback, the PRA makes a

number of changes including:

removing monetisation in the granular

LCR stress scenario which the PRA uses

as a basis for setting Pillar 2

liquidity guidance

deferring the introduction of the PRA110

return by six months until 1 July 2019

defining new timing assumptions on a

number of outflows in the PRA110

return, including a new row for the

reporting of Pillar 2 add-ons in the

PRA 110 return

amending the stress uplift reference

point for calculating intraday

liquidity risk.

The statement of policy and updated

supervisory statement apply with

immediate effect on 23 February 2018. The

PRA110 return applies from 1 July 2019.

Conduct Managing CCP conflicts of interest

ESMA released Guidelines on CCP

management of conflicts of interest on 7

February 2018. ESMA clarifies which

relationships could potentially result in a

conflict of interest, between CCPs and their

clearing members, and the clients of those

clearing members. ESMA provides detail

around governance and organisation

arrangements, including:

limiting the number of contracts that

board members and executive directors

may have

avoiding the appointment of external

auditors which have previous business

relationships with the CCP

obtaining pre-approval for staff to

engage in outside activities that might

pose conflicts

developing staff policies for investments

and gifts.

In addition to outlining requirements for

staff training and oversight, ESMA's

guidelines impose additional requirements

on CCPs that belong to a wider group.

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 8

Managing equity capital raising conflicts

IOSCO consulted on Conflicts of interest

and associated conduct risks during the

equity capital raising process on 21

February 2018. It proposes guidance for

regulators to identify and address conflicts

of interest that may arise during the equity

capital raising process. Regulators should

consider requiring firms to:

take reasonable steps to prevent analysts

from coming under pressure to take

a favourable view on the offering.

establish appropriate controls to

manage potential conflicts of interest

arising from connected analysts

performing an internal advisory role.

support the timely provision of a wide

range of independent information

to investors.

maintain a policy outlining the

allocations approach and allowing the

issuer to express their preference.

maintain records of allocation decisions

to demonstrate that conflicts of interest

are appropriately managed.

The guidance could define regulator

expectations of conduct by market

intermediaries in the equity capital

raising process. The consultation closes

on 4 April 2018.

Innovation Moving towards a global sandbox?

The FCA published a request for

feedback on the merits of launching a global

regulatory sandbox on 14 February 2018.

The FCA’s existing sandbox allows

financial services firms to test innovative

ideas with customers and markets in the UK

in a controlled environment. So far, 60

firms have used it since its creation in 2016.

But as financial markets and

the FinTech sector operate on a global basis,

the FCA seeks feedback on the scope for a

global sandbox which could allow testing of

innovations in multiple jurisdictions. The

FCA believes a global sandbox could help

reduce regulatory problems in testing new

innovations, support firms operating on a

cross-border basis and help regulators

globally address regulatory challenges and

work towards consistent approaches. The

feedback period closed on 2 March 2018.

Market infrastructure UK implements BMR

HMT published the Financial Services and

Markets Act 2000 (Benchmarks)

Regulations 2018 on 9 February 2018,

implementing BMR in the UK. This

statutory instrument designates the FCA

as the NCA authorised to regulate

benchmarks, administrators and ‘other

persons involved in the provision of

benchmarks’, the so-called miscellaneous

benchmarks persons.

The statutory instrument also adds

‘administration of a benchmark’ as a new

regulated activity. But it retains the RAO

articles which permit the FCA to regulate

eight specified benchmarks, including

LIBOR, SONIA and RONIA. These

provisions remain in effect throughout the

BMR transitional period which ends on 1

January 2020, and will be automatically

repealed on 1 May 2020.

FCA consults on BMR procedures

The FCA published CP18/5: EU

Benchmarks Regulation Implementation

(DEPP and EG) on 5 February 2018. It

proposes changes to the DEPP and

Enforcement Guide (EG) to comply with the

UK Benchmarks Regulations 2018.

The FCA proposes to notify EU

administrators in writing whether their

applications for authorisation or

registration have been refused or approved

with limitations. It would also provide

written notice if it imposed additional

requirements or adjusted the scope of the

regulated activity. Administrators which

relied on transitional provisions would be

required to stop providing benchmarks

pending appeal.

The FCA also proposes to notify third

country administrators in writing whether

their applications for recognition or

endorsement have been refused, including

when it decides on its own initiative to

withdraw, suspend or adjust an order for

recognition or endorsement.

Finally the FCA proposes enforcement

procedures for so-called ‘miscellaneous

benchmarks persons’ (MBMPs) who are

unauthorised and also contributors,

outsourced third party service providers,

legal representatives of recognised third

country administrators or administrators

of benchmarks subject to Art. 51(4). The

proposal would give the FCA the power to

investigate, censure or to impose financial

penalty and restitution on MBMPs who

are not otherwise directly within the scope

of BMR.

The consultation closed on 5 March 2018.

Pensions FCA considers competition in private pensions

The FCA published a discussion paper on 2

February 2018, to gather views on the

market for non-workplace pensions. In

DP18/1: Effective competition in non-

workplace pensions, the FCA seeks

feedback to better understand consumer

outcomes and whether competition is

working well in the market. The FCA

intends to focus on:

product complexity

fund choice and the use of defaults

whether providers are competing

on charges

whether consumers can identify and

freely move to more competitive

products

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 9

The conduct regulator says it’s possible that

weaknesses it has previously identified in

the workplace pensions market may exist in

non-workplace pensions. But it says it

doesn’t assume that the same remedies

should apply to both markets.

The FCA welcomes responses by

27 April 2018. It plans to consider

responses and then collect data to better

understand any problems identified.

Reporting Formalising CCP incident reporting

The BoE Consulted on a new rule for

Central Counterparties relating to incident

reporting on 9 February 2018. CCPs must

notify the BoE of incidents impacting their

IT systems, through a written notification of

an incident that significantly impacts the

continuity of its services as soon as possible

after it becomes aware. CCPs would also

have to provide information to enable the

BoE to determine the impact of the

incident, formalising aspects of the current

supervisory expectation to report

operational incidents.

CCPs should consider responding to

the consultation, which closes on

3 April 2018.

FCA beats regulatory reporting drum

The FCA published a Dear CEO letter,

Quality of Prudential Regulatory Returns

on 19 February 2018 directed at

investments firms within scope of CRD IV

(IFPRU firms) and most investment firms

within the scope of MiFID (BIPRU firms). It

identifies that a significant number of firms

submit returns that contain inaccurate

and/or incomplete data. Andrew Bailey,

CEO of the FCA, urges the CEOs of these

firms to review their ‘regulatory reporting

practices to ensure they are fit for purpose,

comply with the relevant reporting

provisions and produce materially accurate

data’. Failings the FCA detected include:

inadequate understanding of the

prudential rules

incomplete submissions through failure

to submit underlying templates in

COREP returns

failure to submit entire returns such as

the EU financial reporting return

incorrect calculation of risk exposures

leading to misstated capital

requirements

inconsistencies across COREP

reporting templates.

The FCA plans to review a sample of returns

from 1 October 2018. If it continues to find

shortcomings, it intends to consider further

action to improve the standards of returns.

Using technology to improve regulatory reporting

The FCA launched a Call for Input: Using

technology to achieve smarter regulatory

reporting on 20 February 2018. It's seeking

views on how it can improve a proof of

concept that could facilitate regulatory

reporting and improve the quality of

information firms provide. The proof of

concept was developed by participants at an

FCA TechSprint event in November 2017,

and could make regulatory reporting

requirements machine-readable and

executable. The FCA is also seeking

feedback more widely on the role

technology can play in regulatory reporting.

The Call for Input closes on 20 June 2018.

The FCA plans to publish feedback in

summer 2018.

Wholesale markets Making algorithmic trading safer

The FCA published Algorithmic Trading in

Wholesale Markets on 12 February 2018,

setting out the results of cross-firm reviews

on themes relating to algorithmic trading.

Alongside this, the PRA consulted on

CP5/18 Algorithmic Trading on the same

date, outlining its expectations on

governance and risk management for firms.

There is alignment between the good

practices in the FCA report and the

proposed PRA supervisory expectations.

Firms should have already implemented

MiFID II rules on algorithmic trading as of

3 January 2018. Although the review reveals

improvements, the FCA notes a lack of

comprehensive control frameworks with

identification, documentation and testing of

algorithms. The FCA encourages all firms

engaging in algorithmic trading to use the

practices cited in the report as non-

exhaustive examples of how to comply with

applicable requirements. The PRA's

consultation includes spot FX which is out

of scope of MiFID II. The FCA also indicates

that its good practices extend to non-MiFID

firms engaged in algorithmic trading.

See our feature article on p. 3 for more

detailed analysis.

Accounting

Our publications IASB amends defined benefit plan requirements

The IASB issued amendments to the

guidance in IAS 19 Employee Benefits on 7

February 2018. The amendments will affect

any entity that changes the terms or the

membership of a defined benefit plan such

that there is past service cost or a gain or

loss on settlement. The amendments apply

prospectively to plan amendments,

settlements or curtailments that occur after

the beginning of the first annual reporting

period beginning on or after 1 January 2019.

Our In brief – IASB issues amendments to

IAS 19 – plan amendment, curtailment or

settlement considers the new requirements

and their impact.

IFRS News

Our IFRS News – February 2018 includes

the following articles:

IASB issues amendments to IAS 19 –

plan amendment, curtailment

or settlement

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 10

ESMA public statement on accounting

by European listed entities for the recent

US tax law changes

IFRS 9 impairment: intercompany loans

in separate financial statements

Accounting for Initial Coin Offerings.

Accounting briefing

Our Accounting-briefing – February 2018

includes articles on US tax reform, Tackling

the FRS 102 triennial review, our latest UK

GAAP publications and Timeline for new

UK GAAP.

Adopting IFRS or preparing a transaction document?

Our Publication In brief – Adopting IFRS

or preparing a transaction document? You

may be subject to different transition

requirements when applying IFRS 9, 15, 16

and 17 highlights the differences between

how existing reporters and first time

adopters transition to the new standards.

Those preparing a longer ‘track record’ of

financial information for initial public

offerings or other transactions as a first time

adopter may also be affected.

Modification of financial liabilities under IFRS 9

IFRS 9 was initially expected to have a

limited impact on financial liabilities. But

the IASB recently confirmed the accounting

for modifications of financial liabilities

under IFRS 9. Our In brief – Modification

of financial liabilities under IFRS 9 looks at

the details.

IFRS 9 intercompany loans in separate financial statements

IFRS 9 introduces an ‘expected loss’ model

for recognising impairment of financial

assets held at amortised cost, including

most intercompany loans receivable. Our

In depth – IFRS 9 Impairment –

Intercompany loans considers how to apply

IFRS 9’s impairment requirements to

intercompany loans.

Our In brief – IFRS 9 impairment

intercompany loans in separate financial

statements gives an overview of

the requirements.

PwC IFRS Talks – IAS 38 Intangible assets

PwC released Episode 19: IAS 38 Intangible

Assets in its podcast series. It outlines

common misconceptions in IAS 38,

Intangibles and explains when you can and

can’t recognise an intangible asset; how to

consider the unit of account; and the latest

thoughts around variable consideration.

Also this month

BoE

The BoE issued its statement of

commitment to the new Global FX

Code on 9 February 2018. Central banks

previously suggested they would

not engage with firms in FX markets

unless they also committed to the code.

So far, only the FCA has come closest to

making adherence enforceable through

the SMR.

The BoE issued its Supervision of FMIs

— Annual Report on 20 February 2018.

The report highlights the BoE’s focus on

governance, and financial and

operational resilience during 2017.

It also sets out its priorities for 2018,

including cybersecurity and IT

resilience.

EC

The EC launched the EU Blockchain

Observatory and Forum on 1 February

2018 with the aim of mapping key

existing initiatives in Europe,

monitoring developments, analysing

trends, addressing emerging issues and

enabling cross border cooperation.

The EC published Final report:

Identifying market and regulatory

obstacles to cross-border development

of crowdfunding in the EU on 2

February 2018, outlining research

findings on the impact of regulatory

divergence among Member States on

cross-border crowd-funding activity.

The EC published a report Identifying

market and regulatory obstacles to the

development of private placement debt

in the EU on 16 February 2018.

The report identifies that EU debt

markets remain poised for continued

growth but that better cross-border

alignment of withholding tax treatment

would be beneficial.

The EC held a Roundtable on

Cryptocurrencies on 26 February 2018

to discuss the implications of virtual

currencies for financial markets, the

risks and opportunities associated with

their use, and the recent development of

Initial Coin Offerings. The EC recognises

that the EU must take advantage of

these developments while maintaining

investor protection, market integrity and

financial stability.

The EC is currently conducting a

Consultation on fitness check on

supervisory reporting to gather

evidence on the cost of compliance with

existing EU-level supervisory reporting

requirements. The deadline for

responding to the consultation has been

extended from 28 February 2018 to

14 March 2018.

ECB

The ECB confirmed changes to statistical

reporting requirements for pension funds,

in Feedback statement: Responses to the

consultation on the draft ECB Regulation

on statistical reporting requirements for

pension funds on 19 February 2018. The

corresponding Regulation (EU) 2018/231 of

the ECB on statistical reporting

requirements for pension funds appeared in

the Official Journal on 26 January 2018.

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 11

EP

The EP’s Draft Report on 2 February 2018

recommended changes to the EC’s

proposed amendments to EMIR CCP

regulation, with the EP offering more detail

around what EU central banks can require

of third country CCP applicants before

authorisation is granted.

ESAs

The ESAs issued a warning to consumers

on the risks of virtual currencies (VCs) on

12 February 2018, highlighting the risk of

buying or holding VCs. The ESAs indicate

that VCs expose consumers to a variety of

risks which they should fully understand

before buying these products.

ESMA

ESMA published the Findings of its

2017 EU-wide CCP stress test on

2 February 2018, concluding that under

all market scenarios, EU CCPs are

overall resilient to common shocks and

multiple defaults.

ESMA updated its Q&As on BMR on

5 February 2018. It responded to queries

on the use of an index by investment

funds and on calculating the threshold

for commodities benchmarks exempt

from BMR.

ESMA published the official

translations of the Guidelines on MiFID

II product governance requirements on

5 February 2018. NCAs have two

months to comply or explain.

ESMA updated its Q&A:

Implementation of

EMIR on 5 February 2018, to include

new details on accessibility of trade

repository data.

ESMA updated its Short Selling

Regulation Q&A on 5 February 2018,

to provide additional nuance around

the circumstances under which

unissued shares could be used to cover

a short sale.

ESMA published its 2018 Supervisory

Convergence Work Programme

on 7 February 2018. In addition to

MiFID II and Brexit, ESMA will also

focus on the quality of data reporting,

investor protection and financial

innovation. It intends to collaborate

with NCAs to ensure the consistent

application of regulatory requirements.

ESMA updated the MiFID II Q&As on

Transparency on 7 February 2018.

It clarifies pre-trade transparency

waivers for negotiated transactions in

non-equities.

ESMA published its final report on

draft ITS on forms and procedures for

co-operation under Articles 24 and 25

of MAR between NCAs and ESMA on 6

February 2018. The EC has three

months to endorse the ITS.

ESMA published responses to the CP

Amendments to Commission Delegated

Regulation (EU) 2017/587 (RTS 1)

on 7 February 2018, which clarified the

term ‘prices reflecting prevailing market

conditions’ for systematic internaliser

quotes in equity instruments.

ESMA updated its Questions and

Answers on CSDR implementation on

6 February 2018, covering ancillary

services, general organisational

requirements and operational risks.

CSDs providing data reporting services

should comply with MiFID II. CSDs

cannot share a risk committee with an

entity in the same group, though the

committee could have the same

membership and T2S does not qualify as

a critical service provider.

ESMA published its 2018 Risk

Assessment Work Programme on

9 February 2018, providing an overview

of the key analytical, research, data and

statistical activities to be undertaken

in 2018. The results of the risk

assessment feed into ESMA publications

and its contributions to international

regulatory bodies.

ESMA published its 2017 Annual

Report and 2018 Work Programme on

8 February 2018, highlighting data

quality and the quality of the credit

rating process as its key supervisory

priorities for TRs and CRAs respectively.

The work programme also includes

activities for third country CCPs which

focus on assessing outstanding

applications for recognition in the EU.

FCA

The FCA highlighted some recent

and upcoming publications in its

Policy development update on

2 February 2018.

The FCA and the Information

Commissioner’s Office (ICO) published

a joint update on GDPR on 8 February

2018. The FCA states that firms should

implement appropriate governance

arrangements to demonstrate steps

taken towards GDPR compliance.

The FCA and ICO emphasise they will

work closely to support firms during the

implementation of the regulation which

applies in the UK from 25 May 2018.

The FCA published its performance

against service standards, including

dealing with regulatory applications, on

13 February 2018.

The FCA reminded firms holding the

pension transfer and opt out permission

of its pension transfer advice

requirements in a letter (dated

16 January 2018) published on

14 February 2018.

The FCA updated its EMIR news

12 February 2018, confirming that the

EC's equivalence decision on the US

margin rules also extends to the

intragroup exemption.

The FCA published a statement on

proposals to introduce a public register

on 26 February 2018. The FCA confirms

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 12

that it will consult during the summer

on a central public record of SM&CR

certification employees and other

important individuals in FCA

regulated firms.

FRC

The FRC published its Publication

policy regarding decisions under the

Accountancy and Actuarial Schemes on

14 February 2018. It concerns the public

disclosure of decisions and other

information concerning disciplinary

related investigations, other than

those relating to statutory audits dealt

with under its separate Audit

Enforcement Procedure.

The FRC published its Publications

policy (Audit Enforcement Procedure)

on 14 February 2018. It concerns the

public disclosure of decisions and

actions relating to disciplinary

investigations of statutory audits under

its Audit Enforcement Procedure.

HMT

HMT issued Statutory Note 2018 No. 204

on 20 February, correcting S.I. 2018/135

which implements BMR in the UK. The

correction clarifies that pre-existing

administrators benefit from transitional

provisions under BMR for pre-existing as

well as new benchmarks.

IOSCO

IOSCO launched a Consultation Report on

Retail OTC Leveraged Products on 13

February 2018. It proposes policy measures

to reduce the risks to investors offered retail

OTC leveraged products including contracts

for differences, rolling spot forex, and

binary options. The consultation closes on

27 March 2018.

ISDA

ISDA in collaboration with AFME, ICME

and SIFMA published the Benchmark

Transition Roadmap on 1 February

2018. The Roadmap is intended to

provide a baseline of information about

the need to reform interbank offered

rates (IBORs), market use and the

transition to alternative risk-free

reference rates. The organisers plan a

market study and intend to use the

results to develop solutions to ‘reduce

reliance on IBORs with minimal market

disruption’.

ISDA published the Final ISDA

Taxonomy v1.0 and Final ISDA

Taxonomy v2.0 on 20 February 2018.

Taxonomy v1.0 remains an option for

global transaction reporting of OTC

derivatives. Taxonomy v2.0 can be used

to determine product classifications

when generating ISINs for derivatives

under MiFID II.

The ISDA Collateral Infrastructure

Committee issued Best Practice for

Margin Call Issuance and Response

on 20 February 2018. The document

provides required and optional fields

for outgoing margin calls and

responses for counterparties still reliant

on manual processes instead of

electronic messaging.

TC

The TC launched a Digital Currencies

inquiry on 22 February 2018 to understand

the risks and opportunities presented by

digital currencies in the UK, examine the

impact of distributed ledger technology and

assess the regulatory response from the

FCA, BoE and UK Government. Responses

should be submitted by 13 April 2018.

The World Federation of Exchanges

The World Federation of Exchanges

announced its 2018 business priorities on

2 February 2018, focusing on regulatory

coherence, CCP recovery and resolution

issues, cyber security, FinTech and SMEs.

UK Government

The UK Government published its

Response to the Commission on

Dormant Assets’ Report on Tackling

Dormant Assets: Recommendation to

benefit investors and society on 22

February 2018. It agrees with the report

that there is significant potential to

expand the dormant asset scheme to a

wider range of asset classes and outlines

the next steps to achieve this.

The UK Government confirmed plans to

require trustees and scheme managers

of certain occupational pension schemes

to publish more information on costs

and charges, in Disclosure of costs,

charges and investments in DC

occupational pensions – Government

response on 27 February 2018.

Alongside this it issued Guidance for

trustees and managers of

occupational schemes.

World Bank

The World Bank released a report on the

Financial Sector's Cybersecurity

Regulation and Supervision on 26

February 2018. It presents its ideas on

cybersecurity regulation and attempting

to identify the emerging practices in

implementing and supervising

regulations.

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 13

In this section:

Regulation 13 Capital and liquidity 13 Conduct 14 Financial crime and enforcement 14 Innovation 14 Retail products 14

Also this month 15 A brief round up of other regulatory

developments

Regulation

Capital and liquidity ESRB’s final word on macro instruments

The ESRB released its Final report on the

use of structural macroprudential

instruments in the EU on 27 February 2018.

This covers the use of structural regulatory

capital buffers over the last three years.

Based on its current experience, the ESRB

also made changes to its Handbook for

macroprudential authorities.

In addition, it issued a related Opinion to

the EC on how the EU legal framework

could be enhanced to apply the macro

prudential toolkit more effectively.

Nearing finalisation: Pillar 3 disclosure framework

The Basel Committee published consultative

document, Pillar 3 disclosure requirements

– updated framework on 27 February 2018.

This is the third phase of the Committee’s

revisions to Pillar 3 disclosures. It includes

new and revised requirements relating to

the Basel III: Finalising post-crisis reforms

standards published in December 2017 as

well as certain new disclosures. This follows

the January 2015 phase one and March

2017 phase two revisions to Pillar 3. The

finalised post-crisis reform related

changes include:

new requirements to benchmark a

bank’s RWAs as calculated by its

internally modelled approaches, with

RWAs calculated according to the

standardised approaches

revised requirements for credit risk

(including prudential treatment of

problem assets), operational risk, the

leverage ratio and credit valuation

adjustment

revised disclosures that provide an

overview of risk management, key

prudential metrics and RWAs.

The Committee also proposes new

disclosure requirements on asset

encumbrance and capital distribution

constraints. Separately, it seeks feedback on

expanding the scope of application of

disclosures on the composition of regulatory

capital beyond consolidation groups to

resolution groups.

The updated proposed framework

maintains the assurance and governance

provisions from the January 2015 phase

one revision. This requires that disclosures

be subject to at least the same standard of

systems and controls as the management

discussion and analysis component of

annual reports. It also requires attestation

by one or more members of senior

management, at board level or equivalent.

Banking and capital markets

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 14

The new disclosures relating to the

December 2017 finalised standards are due

for implementation from January 2022. But

the asset encumbrance and capital

distribution constraints disclosures are set

to apply from the end of 2019. The

consultation closes on 25 May 2018.

Conduct Certainty in certification

The Banking Standards Board (BSB) issued

guidance on the Certification Regime

(CR) on 20 February 2018.

While not imposing any legal or regulatory

obligations on firms, it illustrates what

good looks like when considering CR

policies and procedures. The Certification

Regime: Fitness and Propriety (F&P)

Assessment Principles and Supporting

Guidance 2: Establishing Pass/Fail Criteria

and Evidencing the F&P

Assessment supplements the BSB’s

February 2017 publication Statement of

Good Practice 1: F&P Assessment

Principles.

The guidance adds more context and depth

to the CR assessment tools in the February

2017 publication. It focuses on:

the F&P factors used in the decision to

certify an individual

options available to firms in making

certification decisions

dealing with certification risks

and issues

good practice in recording the outcome

of an F&P assessment.

The BSB intends to keep the supporting

guidance under review and welcomes

feedback. It plans to issue further guidance

on: assessing the F&P of individuals

working outside the UK or moving to the

UK from overseas, and factors to consider

when sharing information on certified

individuals when they move between firms.

The BSB is set to publish its annual review

later in March 2018. This will provide more

information on the BSB’s work on

implementation of the CR and its proposed

work on regulatory references.

Financial crime and enforcement Protecting payment scam victims

The PSR published its report on Authorised

push payment scams: Outcome of

consultation on the development of a

contingent reimbursement model together

with a Factsheet and Responses to the

Consultation on 28 February 2018.

The PSR identifies authorised push

payment (APP) scams - where consumers

are tricked into sending money to a

fraudster – As crimes with a devastating

effect on victims. Under its contingent

reimbursement model (CRM), PSPs that do

not meet required standards will reimburse

consumers who have acted appropriately.

Stakeholders had a wide range of views on

the introduction of a CRM but the PSR

considers that they are broadly supportive

of a well-designed CRM. It is setting up a

steering group in March 2018 with an

independent head and representatives from

industry and consumer groups. With

oversight and support from the PSR, the

steering group will formalise the CRM into

an industry code for reimbursement of APP

scam victims.

With victims in mind, the PSR is setting the

steering group the ambitious target of

producing an interim code by September

2018. This would allow FOS to take the

interim code into account in determining

new complaints about APP scams. After a

public consultation in Q4 2018, the PSR

aims to have a final code in place by

early 2019.

PSPs wary of the PSR’s ambitious timeline

should heed its warning in the consultation

that, if a suitable model is not agreed by the

end of September 2018, it will consider

using its statutory powers to introduce an

alternative model.

Innovation Exploring FinTech risks and opportunities

The Basel Committee published Sound

Practices – Implications of FinTech

developments for banks and bank

supervisors on 19 February 2018. It

observes that FinTech has the potential to

lower barriers of entry to the financial

services market, elevate the role of data as a

key commodity and lead to the emergence

of new business models. Through an

analysis of a range of scenarios, the

Committee identifies ten key implications

and related considerations. These concern

both banks and banking systems as well as

bank supervisors and regulatory

frameworks. They include risks and

opportunities, as well as supervisory

cooperation and facilitating innovation.

A common theme emerging, the Committee

notes, is that incumbent banks could find it

increasingly difficult to maintain their

current operating models with the

ownership of customer relationships a key

competitive issue. The Committee intends

to keep monitoring FinTech developments

with a view to updating its implications and

considerations, as appropriate.

Retail products Tackling persistent credit card debt

The FCA published PS18/4 Credit card

market study: Persistent debt and earlier

intervention – feedback to CP17/43 and

final rules on 27 February 2018. It

completes the FCA’s work to address

persistent debt, which it defines as when,

over an 18-month period, a credit card

customer pays more in interest, fees and

charges than they repay in principal.

The final rules confirm the FCA’s proposals

in CP 17/43, with the exception of a new

carve out for business credit cards used by

sole traders, small partnerships and

unincorporated bodies. The new rules apply

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 15

from 1 March 2018 but firms have until

1 September 2018 to comply.

Over the next six months, firms will need to:

put in place processes to identify and

contact customers in persistent debt at

key milestones of 18, 27 and 36 months

develop a communications strategy

tailored to the circumstances of the

individual customer and in the medium

preferred by the customer

have a policy for identifying and dealing

with customers showing signs of actual

or possible financial difficulties even if

they have not missed a payment

define the parameters at 36 months for

sustainable repayment plans and/or

forbearance

ensure staff are trained to respond to

customers’ circumstances appropriately.

The FCA plans to monitor its remedies

during the implementation period and

assess the effectiveness of industry

voluntary remedies. It expects to undertake

a full review of the effectiveness of the

new rules in 2022 or 2023, once they've

been in force long enough to assess

consumer outcomes.

Also this month

CMA

The CMA announced that all banks with

more than 150,000 active current

accounts must issue overdraft alerts from

2 February 2018. The alerts via text or

banking app apply to new customers from

the start date with a roll-out to existing

customers over the coming month.

It represents part of the CMA’s package

of remedies under its retail banking

market investigation.

Committee on Payments and Market Infrastructures

The Committee on Payments and Market

Infrastructures reported on Cross-border

retail payments on 16 February 2018. It

identifies issues and challenges in the

market, drawing on a survey of almost 100

providers and workshops with stakeholders

from both supply and demand sides.

EBA

The EBA published its presentation

from the public hearing on its

Discussion Paper on the

Implementation in the EU of the

revised market risk and counterparty

credit risk frameworks held on

5 February 2018. The consultation

closes on 15 March 2018.

The EBA published the Guidelines

compliance table: Guidelines on

procedures for complaints of alleged

infringements of Directive (EU)

2015/2366 (PSD2) on 12 February 2018.

The EBA updated its Methodological

guide – risk indicators and detailed risk

analysis tools on 8 February 2018. The

EBA uses the indicators and analysis

tools in its risk assessment reports and

for its risk dashboard.

ECJ

The ECJ confirmed on 8 February 2018 that

a co-branding or agent arrangement with a

three party payment card scheme is subject

to interchange fee caps and three party

payment card schemes must grant access

to its scheme to agents but not to co-

branding partners.

ECON

ECON published four amendments to a

draft report on the proposal for a regulation

to relocate the EBA on 23 February 2018.

The key amendment seeks to ensure that

the new premises for the EBA are ready and

fit for purpose when the UK exits the EU.

House of Commons

The House of Commons Library published a

briefing paper on High cost consumer

credit: the new regulatory regime (CBP-

07978) on 15 February 2018. It reviews

changes in the HCSTC regulatory regime

and compares recent reports by the FCA,

the Consumer Finance Association and the

Social Market Foundation.

PRA

The PRA published a Direction and

Modification by consent of Fitness and

Propriety 2.7 on 7 February 2018.

The modification exempts firms from

requesting regulatory references (under

SMR) in relation to employees being

transferred as part of a ring-fencing

transfer. The modification is available

until 31 August 2018.s

PSR

The PSR published its Specific direction 7

relating to Direct Debit Facilities

Management: Switching Providers with a

commencement date of 30 January 2018 on

16 February 2018. It directs Bacs Payment

Schemes Limited to devise and deliver a

solution to the issues with switching

facilities management provider as identified

by the PSR in PS17/3.

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 16

In this section:

Regulation 16 Liquidity 16 Trading 17

Accounting 17 Our publications 17

Also this month 17 A brief round up of other regulatory

developments

Regulation

Liquidity IOSCO addresses fund liquidity management

IOSCO published recommendations and

good practices for investment fund liquidity

management on 1 February 2018.

While many of these recommendations have

already been implemented in the UK and

EU, IOSCO underscores many of the points

the FCA raised in a 2017 Discussion Paper

about the importance of sophisticated stress

testing and improved disclosure around the

use of liquidity fees and redemption gates.

This makes a future FCA consultation paper

on these topics more likely.

IOSCO's concerns about open-ended funds

holding illiquid assets and the use of

emergency liquidity measures in certain

circumstances may also signal further

regulatory activity. They may mean that the

FCA will look at the appropriateness of

investment fund approaches in these areas

as part of future thematic reviews and

enforcement actions.

Addressing fund liquidity and leverage risk

The ESRB published a Recommendation on

liquidity and leverage risk in investment

funds on 14 February 2018, to strengthen

the macroprudential framework of EU

investment fund regulation.

The ESRB recommends that the EU

establish a common legislative framework

to govern liquidity management tools, so

that fund managers would be equally

empowered across the EU to incorporate

these measures into their funds'

constitutional documents. The ESRB also

suggests increased stress testing, uniformity

of UCITS reporting and that ESMA develops

the design, calibration and implementation

of leverage limits.

While the ESRB's findings will not

immediately result in changes to EU

legislation, they do build on previous

findings by IOSCO and the FSB, and will

provide important context when the FCA

tackles this issue.

Asset management

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 17

Trading A closer look at last look

The IA issued a Position Paper on Last Look

on 22 February 2018, recommending

transparency standards on the use of last

look for liquidity providers, trading venues

and its own buy-side members.

Under the practice of last look, liquidity

providers accept or reject a foreign

exchange (FX) trade at the quoted price

before execution. Its use was the subject of

much debate during the drafting of the

Global FX Code of Conduct. The IA

recommends that liquidity providers:

provide each client with a definition of

last look

publish their last look procedures

annually

provide real-time notification when and

why the procedure is applied,

using standardised reason codes.

Importantly, the IA also establishes

unacceptable practices to prevent the

misuse of client information. It

recommends that liquidity providers state

in their terms of business that they will not

engage in pre-hedging during a last look

window, or execute trades based on

information in rejected trades or based on

information derived from lost requests for

quotes which are in progress or those that

are not won.

Accounting

Our publications Financial instruments accounting for asset management

IFRS 9 – Financial Instruments is effective

for annual periods beginning on or after 1

January 2018, subject to endorsement in

certain territories. It replaces most of the

guidance in IAS 39.

Our publication IFRS 9 What’s new in

financial instruments accounting for asset

management focuses on the new guidance

in IFRS 9 and the questions that might arise

when applying it to financial instruments

held by investment funds, private equity

funds and real estate funds, as well as to

investments in an investment fund held by

an investor. The main areas covered in this

publication relate to the classification and

measurement of financial assets.

Also this month

CMA

The CMA published Investment

Consultants Market Investigation:

Progress Report on 21 February 2018,

outlining its existing activity, the schedule

of working papers to be published and the

overall timeline of the investigation.

EC

The EC published its online survey of the

effectiveness of AIFMD on 9 February

2018, to gather stakeholder feedback ahead

of its review of the Directive. The survey

questions address the effectiveness of

disclosure.

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 18

In this section:

Regulation 18 Actuarial risk 18 Capital and liquidity 18 Conduct 18 Consumer issues 19 Disclosure and distribution 19 Financial stability 19 Retail products 20 Solvency II 20 Supervision 21

Accounting 21 IFRS 17 21

Also this month 22 A brief round up of other regulatory

developments

Regulation

Actuarial risk JFAR identifies actuarial risk ‘hotspots’

The Joint Forum on Actuarial Regulation

(JFAR) published its Risk Perspective: 2017

Update on 8 February 2018. It highlights

current risks to high quality actuarial work

and identifies nine ‘hotspots’ where there is

a perceived increase in risk to the public

interest where actuarial work is central.

These include political and legislative risk,

market performance and uncertainty,

climate-related risk and technological

change. The JFAR also recognises common

themes that cut across the hotspots such as

professionalism, intergenerational fairness

and Brexit.

Capital and liquidity Market/credit risk – EIOPA outlines study

EIOPA published the Decision of the Board

of Supervisors on the annual market and

credit risk modelling comparative study on

12 February 2018. It formally defines the

scope, features, process, format and

frequency of EIOPA’s annual market and

credit risk modelling comparative study to

ensure consistency.

EIOPA intends to undertake this study to

review aspects of risk associated with

interest rates, credit spread, equity and real

estate. It also wants to compare the

calibrations of different aspects of market

and credit risks of undertakings with

internal models that include market and

credit risks.

Conduct PRA develops SM&CR for insurers

The PRA published PS 1/18 Strengthening

individual accountability in insurance:

optimisations to the SIMR on 7 February

2018. It gives feedback on its proposed

improvements to the SIMR (CP 8/17 –

chapter 2) and proposals for diversity on the

boards of insurers (CP 8/17 – chapter 3).

The PRA also includes final rules amending

the SIMR and updates SS 35/15

‘Strengthening individual accountability

in insurance’.

The PRA has not made any significant

changes to the draft rules proposed in

CP8/17. But the updated supervisory

statement incorporates the changes

proposed in CP14/17 to remove gender-

based language and terminology, as none of

the respondents included comments on

those proposals.

Insurance

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 19

The rule requiring insurers to have a

diversity policy for their boards will become

effective on 9 April 2018. The rules to

implement the optimisations to the SIMR

are due to take effect from 10 December 2018,

the date set by HMT for the commencement

of the SM&CR for insurers. The PRA

expects insurers to submit the forms for the

approval of individuals who will perform the

Chief Operations function (SIMF24) or the

Head of Large Business Area function

(SIMF6) from 10 December 2018.

The PRA intends to publish a further policy

statement in the summer of 2018 to provide

feedback to the responses to CP14/17 and

CP28/17, along with final rules, forms and a

further update to SS35/15.

Consumer issues IAIS outlines digital technology guidance

The IAIS published a Draft Application

Paper on the Use of Digital Technology in

Inclusive Insurance on 15 February 2018. It

builds on its Issues Paper on Conduct of

Business in Inclusive Insurance which deals

with the fair treatment of customers within

inclusive insurance markets.

The IAIS defines inclusive insurance

broadly as all insurance products aimed at

the excluded or underserved market. It aims

to help policymakers, regulators and

supervisors implementing regulatory

regimes address the issue of digital

technology in inclusive insurance. In

particular it considers mobile phone

insurance – any insurance sold or

subscribed to through a mobile phone

and/or in partnership with a mobile

network operator. The IAIS also examines

aspects of FinTech and InsurTech relating

to inclusive insurance.

The IAIS further considers how its

Insurance Core Principles should be

applied, focusing on supervision, licensing,

corporate governance and risk

management, conduct of business and

financial integrity.

The comment period ends on

16 March 2018.

Disclosure and distribution UK regulators confirm IDD implementation plans

HMT intends to lay the Insurance

Distribution (Regulated Activities and

Miscellaneous Amendments) Order 2018

before Parliament once the process to delay

the IDD application date to 1 October 2018

is formally complete. Meanwhile, the FCA

published an Update to proposed delay on

the IDD on 5 February 2018. It plans to

make its final rules once the IDD is

transposed into UK law, but does not

expect the final rules to differ greatly from

those published in near-final form on

19 January 2018.

The PRA published an updated version of

PS31/17 on 22 February 2018 following a

one-week consultation on the change to the

commencement date (CP4/18). It updates

the effective date of its near-final rules in

line with the new application date of the

IDD of 1 October 2018. It makes no changes

to policy.

On the EU side, the Council approved the

EC’s proposed delay to the application date

of the IDD on 14 February 2018, with the

following amendments:

in order to ensure legal certainty and

avoid potential market disruption, it is

necessary that this Directive enters into

force as a matter of urgency and that it

applies, with retroactive effect, from 23

February 2018

by 1 July 2018, Member States shall

adopt and publish the measures

necessary to comply with the IDD

Member States shall apply the measures

from 1 October 2018 at the latest.

The EP adopted the amended text in

plenary on 1 March 2018.

EIOPA plans base PII increase

The IDD requires intermediaries to hold

professional indemnity insurance (PII) or a

comparable guarantee against liability

arising from professional

negligence. EIOPA published a CP on the

proposal for RTSs adapting the base euro

amounts for PII and for financial capacity

of intermediaries under the IDD on 1

February 2018. It proposes increasing

minimum PII requirements following

changes in Eurostat’s European index of

consumer prices.

EIOPA intends to increase the minimum

level of cover for each claim from €1.25m to

€1.3m and the aggregate cover from €1.85m

to €1.92m per year. It also plans to increase

minimum intermediary financial capacity

from €18,750 to €19,510.

EIOPA aims to finalise the draft RTS for

submission to the EC by 30 June 2018.

Financial stability EIOPA considers lessons from financial crisis

EIOPA published Systemic risk and

macroprudential policy in insurance on

6 February 2018. This is the first in a series

of papers aimed at contributing to the

debate on systemic risk and

macroprudential policy. In the report,

EIOPA considers the lessons learnt from the

financial crisis and the banking sector

affecting the insurance sector, as well as the

current status of debate within the industry.

It identifies and analyses the sources of

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Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 20

systemic risk in insurance, outlining three

potential sources: entity-based, activity-

based and behaviour-based.

The paper also includes a proposal for a

macroprudential framework for insurance,

and defines specific operational objectives

based on the previously-identified sources

of systemic risk.

Retail products EP identifies driverless vehicle legislation benefits

The EP published A common EU approach

to liability rules and insurance for

connected and autonomous vehicles on

28 February 2018. It recommends revising

the EU's current legislative framework for

liability rules and insurance for connected

and autonomous vehicles. The EP believes

that revising the requirements should lead

to greater legal certainty and secure

effective consumer protection.

But it also expects to see economic benefits

based on reduced costs for car

manufacturers and public administrations

arising from differences in national liability

rules and systems for the determination and

calculation of damages. It notes that

potentially accelerating the adoption curve

of driverless or autonomous vehicles by five

years has the potential to generate European

added value worth approximately €148bn.

Solvency II EIOPA publishes quarterly reporting statistics

EIOPA issued a new set of Solvency II

statistics on 13 February 2018. It is part of

EIOPA’s series of quarterly insurance

statistics derived from quantitative

Solvency II reporting for insurance

undertakings and groups in the EU

and EEA.

It includes statistics by country relating to

the balance sheet, own funds and

premiums, claims and expenses. These

statistics are based on reporting by solo

insurance and reinsurance undertakings for

Q3 2016 to Q2 2017.

Standard Formula – EIOPA advises on changes

EIOPA published its second set of advice to

the EC on specific items in the Solvency II

Delegated items in Regulation and Review

of the SCR Standard Formula Frequently

Asked Questions on 28 February 2018. It

recommends further ways of simplifying

and improving the Solvency II capital

requirements calculations, following its first

set of Advice in October 2017.

In the latest advice, EIOPA addresses the

remaining items from the EC’s calls for

technical advice.

EIOPA proposes changes to the design of

the interest rate risk module aimed at

making it more effective in a low interest

rate environment. It intends to introduce

these changes gradually over a three-year

period as they may result in an increase to

capital charges. EIOPA also proposes new

key principles for calculating the loss-

absorbing capacity of deferred taxes aimed

at increasing supervisory convergence, but

these could reduce the credit that insurers

can take for this item. EIOPA plans to

introduce criteria for certain items of

unrated debt and unlisted equity to be

treated the same as rated debt and

listed equity.

In addition, EIOPA proposes to update the

standard formula calibrations in some areas

(e.g. premium and reserve risk, natural

catastrophe risk) and make changes

intended to lead to greater simplicity and/or

proportionality in a number of areas. The

EC intends to finalise its SCR review by the

end of 2018.

Regarding the risk margin, despite

stakeholder discontent, EIOPA does not

recommend any change to the current cost

of capital calculation methods. Other

components of the risk margin will not be

assessed until the overall review of the

Solvency II regime, due in 2021.

For more information see our At a Glance

publication.

PRA submits final response to TC

The PRA published its response to the TC’s

inquiry into Solvency II on 27 February

2018. It sets out its views on the TC’s

recommendations in the Report on the

Solvency II Directive and its impact on the

UK Insurance Industry. It builds on the

areas discussed in its interim response of 3

January 2018 (see our publication The PRA

responds to TC report on Solvency II for

further details).

The PRA includes an overview of the UK

insurance industry and sets out the

rationale for the prudential regulation of

insurers. It also considers the design and

impact of Solvency II in the UK, including

a comparison to the previous

prudential regime.

The PRA intends to set up a new, insurance-

focused sub-committee of its Practitioner

Panel to enhance its engagement with

industry and re-orient it towards

the strategic challenges facing life and non-

life sectors.

The PRA highlights that, whilst it's

committed to making improvements to

Solvency II implementation in the UK, it is

restricted by the detailed, rules-based

nature of the requirements. It then

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discusses the TC’s recommendations in

detail covering the MA, the Volatility

Adjustment, reporting requirements, the

TMTP, internal models and contractual

continuity after Brexit. It also looks at other

policy issues raised by the ABI during the

inquiry, such as the external audit of the

Solvency and Financial Condition Report,

longevity transfer and hedge arrangements

and LEIs.

The PRA plans to provide a further update

in due course on any outstanding issues,

including the risk margin.

In addition, the PRA published Looking out

for the policyholder, a speech by Sam

Woods, Deputy Governor for Prudential

Regulation and CEO of the PRA, on 27

February 2018. Woods discussed the PRA’s

reforms to make Solvency II work better in

the UK and noted that the PRA intends to

tackle the acknowledged problems with the

risk margin. He also highlighted the need to

remember the policyholder and maintain

high standards of safety and soundness for

UK insurers

PRA highlights importance of AFRs

The PRA published a letter to Chief

Actuaries on General insurance Actuarial

Function Reports (AFRs) on 5 February

2018. It gives feedback from its review of

AFRs, including: areas where Solvency II

requirements are not always being met,

emerging good practice in AFRs, and areas

where actuarial functions can be more

engaged with boards and risk management.

The PRA especially stresses that boards

should view the AFR as an important tool,

rather than merely a Solvency II compliance

exercise. It comments that the better AFRs

clearly identify the key issues and

recommendations for the board analysed at

an appropriate level of materiality and

complexity. It also finds that the more

effective actuarial function processes

demonstrate good board engagement and a

feedback loop where recommendations to

remedy deficiencies are followed up.

Overall, the PRA concludes it has seen some

good examples of analysis being discussed

with boards. But it says many firms need to

make enhancements to be fully compliant

with Solvency II and to ensure the actuarial

function work drives improvements across

all relevant areas.

Supervision Progressing EU-US deal on prudential measures

The EP published its Recommendation on

the draft Council decision on the conclusion

of the Bilateral Agreement between the EU

and the USA on prudential measures

regarding insurance and reinsurance on

14 February 2018. It consents to the

conclusion of the Bilateral Agreement and

instructs its President to forward its

position to the Council, the EC and the

governments and parliaments of the

Member States and of the US.

The EP voted in favour of the Bilateral

Agreement on 1 March 2018 and the EU-US

Joint Committee met for the first time on 6-

7 March 2018.

The group supervision element of the

agreement is effective, so firms

headquartered in the US should consider its

impact. For further information see our At a

Glance publication.

Accounting

IFRS 17 IFRS 17 implementation – TRG holds initial discussions

The first Transition Resource Group for

IFRS 17 Insurance Contracts (TRG) meeting

was held on 6 February 2018. The issues

discussed relate to: separation of insurance

contracts, contract boundary of insurance

contracts and reinsurance contracts held,

quantity of benefits for identifying coverage

units, and the accounting for and

presentation of insurance acquisition cash

flows. Our In transition – The latest on

IFRS 17 implementation looks at the details.

IFRS 17 – EFRAG discusses Level of Aggregation

The European Financial Reporting Advisory

Group (EFRAG) issued a briefing paper

considering IFRS 17 Insurance Contracts

and Level of Aggregation on 23 February

2018. It aims to provide simplified

information on controversial areas of IFRS

17 to enable users to understand the issues

and be in a position to comment on its draft

endorsement advice. The comment period

ends on 30 April 2018.

EFRAG plans to issue further background

briefing papers on the release of the

contractual service margin and

transition requirements.

FRC asks for IFRS 17 insight

The European Financial Reporting Advisory

Group (EFRAG) launched an IFRS 17

simplified case study on 7 February 2018. It

aims to collect additional insight on the

impact of IFRS 17 from European insurers

that apply IFRS, and that are not

completing the full, more detailed, case

study commenced in November 2017. The

response period ends on 31 May 2018.

The FRC encourages insurers to participate

in the EFRAG case study and published

details of a Panel Discussion: Assessing the

benefits and barriers to implementing

IFRS 17 to be held on 24 April 2018.

Executive summary Regulators hone in on

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Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

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Also this month

EIOPA

In February 2018, EIOPA updated its

questions and answers on:

Commission Delegated Regulation (EU)

2015/35 supplementing Directive

2009/138

(EU) No 2015-2450 templates for the

submission of information to the

supervisory authorities

(EU) No 2015-2452 with regard to the

procedures, formats and templates of

the SFCR

(EU) No 2015-2011 with regard to the

lists of regional governments and

local authorities

Guidelines on system of governance

Symmetric adjustment of the

equity capital

Risk-Free Interest Rate – Volatility

Adjustment calculations.

IAIS

The IAIS released the IAIS Global

Insurance Market Report 2017 on 27

February 2018. It discusses the global

insurance sector from a supervisory

perspective, focusing on recent sector

performance and key risks. For 2017 it finds

the insurance sector stable with clear signs

of growth, as evidenced by high capital

levels, positive profitability and a persistent

inflow of additional reinsurance capital.

Lloyd’s Market Association

The Lloyd’s Market Association published

guidance for consumers on 16 February

2018 explaining how personal data may be

processed by data controllers. This includes

factors relevant to classifying a market

participant as either a data controller or

data processor as defined by the GDPR.

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

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Open consultations

Closing date for responses

Paper Institution

12/03/18 FCA Mission: Our Approach to Authorisation FCA

12/03/18 FCA Mission: Our Approach to Competition FCA

14/03/18 Fitness check on supervisory reporting EC

15/03/18 Draft RTS on the homogeneity of the underlying exposures in securitisation under Art. 20(14) and 24(21) of the Securitisation Regulation

EBA

15/03/18 Draft RTS specifying the requirements for originators, sponsors and original lenders relating to risk retention pursuant to Article [6(7)] of the Securitisation Regulation

EBA

16/03/18 Draft Application Paper on the Use of Digital Technology in Inclusive Insurance IAIS

19/03/18 Draft technical standards on content and format of the STS notification under the Securitisation Regulation ESMA

19/03/18 Draft technical standards on disclosure requirements, operational standards, and access conditions under the Securitisation Regulation

ESMA

19/03/18 Draft technical standards on third-party firms providing STS verification services under the Securitisation Regulation ESMA

20/03/18 CP27/17: Solvency II: Internal models update PRA

23/03/18 Stress testing principles Basel Committee

23/03/18 CP18/4: The European Money Market Funds Regulation FCA

27/03/18 Report on retail OTC leveraged products IOSCO

31/03/18 ECB Guide on assessment methodology: Assessment methodology for the IMM and A-CVA ECB

Monthly calendar

Executive summary Regulators hone in on

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Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 24

Closing date for responses

Paper Institution

03/04/18 Consultation on a new rule for Central Counterparties relating to incident reporting BoE

04/04/18 Conflicts of interest and associated conduct risks during the equity capital raising process IOSCO

09/04/18 CP1/18 Resolution planning: MREL reporting PRA

13/04/18 CP2/18 Changes in insurance reporting requirements PRA

22/04/18 CP18/3: Consultation on SME access to the FOS and Feedback to DP15/7: SMEs as Users of Financial Services FCA

27/04/18 Proposal for RTS adapting the base euro amounts for professional indemnity insurance and for financial capacity of intermediaries under the IDD

EIOPA

07/05/18 CP5/18: Algorithmic trading PRA

16/05/18 CP6/18 Credit risk mitigation: Eligibility of guarantees as unfunded credit protection PRA

25/05/18 Pillar 3 disclosure requirements – updated framework Basel Committee

Executive summary Regulators hone in on

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Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

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Forthcoming publications in 2018

Date Topic Type Institution

Accounting

TBD 2018 RTS on methods of prudential consolidation Technical standards EBA

Asset management

TBD 2018 UCITS V Level 2 Regulation, SFTR and consequential changes to the Handbook – PS to CP16/14

Policy statement FCA

Conduct

March 2018 Potential benefits and risks of Big Data and consumer information Report EBA

Spring 2018 Mortgage market study interim report Report FCA

May 2018 Results of high cost credit review and consultation on remedies Report and consultation FCA

Q4 2018 Mortgage market study final report Report FCA

Financial crime, security and market abuse

TBD 2018 RTS on central contract points under AMLD4 Technical standards EBA

Insurance

March 2018 PRA response to TC Solvency II review Report PRA

Innovation

March 2018 Conclusions from the EBA’s consultation on its approach to FinTech Report EBA

Pensions

TBD 2018 Secondary annuity market – PS to CP16/13 Policy statement FCA

Prudential

March 2018 Report on review of credit risk mitigation framework Report EBA

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Cross sector announcements

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Date Topic Type Institution

Securities and markets

TBD 2018 Technical standards on Securitisation Regulation Technical standards ESMA

TBD 2018 Technical advice and standards on Prospectus Regulation Technical standards ESMA

TBD 2018 Technical standards under EuSEF, EuVECA, ELTIF and SFTR Technical standards ESMA

TBD 2018 Technical standards on revised Short Selling Regulation Technical standards ESMA

Supervision, governance and reporting

March 2018 Recovering the costs of the Office for Professional Body AML Supervision: fees proposals – PS to CP17/35

Policy statement FCA

April 2018 Regulatory fees and levies: policy proposals for 2018/19 – PS to CP17/38

Policy statement FCA

April 2018 FCA regulated fees and levies: rates proposals 2018/19 Consultation FCA

Q2/Q3 2018 Reviewing the funding of the FSCS – PS to CP17/36 Policy statement FCA

Main sources: ESMA work programme; EBA work programme; EC work programme; FCA policy development updates.

Executive summary Regulators hone in on

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Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

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ABC Anti-Bribery and Corruption

ABI Association of British Insurers

ABS Asset Backed Security

AIF Alternative Investment Fund

AIFM Alternative Investment Fund Manager

AIFMD Alternative Investment Fund Managers Directive 2011/61/EU

AML Anti-Money Laundering

AMLD3 3rd Money Laundering Directive 2005/60/EC

AMLD4 4th Money Laundering Directive 2015/849/EU

AMLD5 5th Money Laundering Directive

AQR Asset Quality Review

ASB UK Accounting Standards Board

Banking Reform Act (2013)

Financial Services (Banking Reform) Act 2013

Basel II Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework

Basel III Basel III: International Regulatory Framework for Banks

Basel Committee

Basel Committee of Banking Supervision (of the BIS)

BBA British Bankers’ Association

BCR Basic capital requirement (for insurers)

BIS Bank for International Settlements

BoE Bank of England

BMR EU Benchmarks Regulation

BRRD Bank Recovery and Resolution Directive 2014/59/EU

CASS Client Assets sourcebook

CCA Consumer Credit Act 1974 (as amended)

CCB Countercyclical capital buffer

CCD Consumer Credit Directive 2008/48/EC

CCPs Central Counterparties

CDS Credit Default Swaps

CEBS Committee of European Banking Supervisors (predecessor of EBA)

CESR Committee of European Securities Regulators (predecessor of ESMA)

CET1 Common Equity Tier 1

CFTC Commodities Futures Trading Commission (US)

CGFS Committee on the Global Financial System (of the BIS)

CIS Collective Investment Schemes

CMA Competition and Markets Authority

CMU Capital markets union

COBS FCA conduct of business sourcebook

COCON FCA code of conduct sourcebook

CoCos Contingent convertible securities

COREP Standardised European common reporting

Council Generic term representing all ten configurations of the Council of the European Union

CRA1 Regulation on Credit Rating Agencies (EC) No 1060/2009

CRA2 Regulation amending the Credit Rating Agencies Regulation (EU) No 513/2011

CRA3 Proposal to amend the Credit Rating Agencies Regulation and directives related to credit rating agencies COM(2011) 746 final

Glossary

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Asset management Insurance Monthly calendar Glossary

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CRAs Credit Rating Agencies

CRD ‘Capital Requirements Directive’: collectively refers to Directive 2006/48/EC and Directive 2006/49/EC

CRD II Amending Directive 2009/111/EC

CRD III Amending Directive 2010/76/EU

CRD IV Capital Requirements Directive 2013/36/EU

CRR Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms

CSD Central Securities Depository

CSDR Central Securities Depositories Regulation (EU) 909/2014

CSMAD Criminal Sanctions Market Abuse Directive 2014/57/EU

CTF Counter Terrorist Financing

DEPP The FCA’s Decision Procedure and Penalties Manual

DG FISMA Directorate-General for Financial Stability, Financial Services and Capital Markets Union

DG MARKT Internal Market and Services Directorate General of the European Commission

DGS Deposit Guarantee Scheme

DGSD Deposit Guarantee Schemes Directive 2014/49/EU

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act (US)

D-SIBs Domestic Systemically Important Banks

EBA European Banking Authority

EC European Commission

ECB European Central Bank

ECJ European Court of Justice

ECOFIN Economic and Financial Affairs Council (configuration of the Council of the European Union dealing with financial and fiscal and competition issues)

ECON Economic and Monetary Affairs Committee of the European Parliament

ECP Eligible counterparty

EDIS European Deposit Insurance Scheme

EEA European Economic Area

EEC European Economic Community

EIOPA European Insurance and Occupations Pension Authority

ELTIF European long-term investment fund

EMIR Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (EU) No 648/2012

EP European Parliament

EPC European Payments Council

ESA European Supervisory Authority (i.e. generic term for EBA, EIOPA and ESMA)

ESCB European System of Central Banks

ESEF European Single Electronic Format

ESMA European Securities and Markets Authority

ESRB European Systemic Risk Board

EU European Union

EURIBOR Euro Interbank Offered Rate

Eurosystem System of central banks in the euro area, including the ECB

EuVECA European Venture Capital Funds Regulation (EU) 345/2014

FAMR Financial Advice Market Review

FASB Financial Accounting Standards Board (US)

FATCA Foreign Account Tax Compliance Act (US)

FATF Financial Action Task Force

FC Financial counterparty under EMIR

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 29

FCA Financial Conduct Authority

FICC Fixed income, currencies and commodities

FiCOD Financial Conglomerates Directive 2002/87/EC

Fiat currency Currency whose value is underpinned by the strength of the issuing government, e.g. USD, GBP, euro and other major world currencies

FiCOD1 Amending Directive 2011/89/EU of 16 November 2011

FMI Financial Market Infrastructure

FMLC Financial Markets Law Committee

FOS Financial Ombudsman Service

FPC Financial Policy Committee

FRC Financial Reporting Council

FSA Financial Services Authority

FSB Financial Stability Board

FSBRA Financial Services (Banking Reform) Act 2013

FS Act 2012 Financial Services Act 2012

FSCP Financial Services Consumer Panel

FSCS Financial Services Compensation Scheme

FSI Financial Stability Institute (of the BIS)

FSMA Financial Services and Markets Act 2000

FSOC Financial Stability Oversight Council

FTT Financial Transaction Tax

G30 Group of 30

GAAP Generally Accepted Accounting Principles

GDPR General Data Protection Regulation

G-SIBs Global Systemically Important Banks

G-SIFIs Global Systemically Important Financial Institutions

G-SIIs Global Systemically Important Institutions

HCSTC High Cost Short Term Credit

HMRC Her Majesty’s Revenue and Customs

HMT Her Majesty’s Treasury

IA Investment Association

IAIS International Association of Insurance Supervisors

IASB International Accounting Standards Board

IBA ICE Benchmark Administration

ICAAP Internal Capital Adequacy Assessment Process

ICAS Individual Capital Adequacy Standards

ICOBS Insurance: Conduct of Business Sourcebook

IDD The Insurance Distribution Directive (EU) 2016/97

IFRS International Financial Reporting Standards

ILAA Internal Liquidity Adequacy Assessment

ILAAP Internal Liquidity Adequacy Assessment Process

ILS Insurance-Linked Securities

IMAP Internal Model Approval Process

IMCO The European Parliament’s Committee on Internal Market and Consumer Protection

IMD Insurance Mediation Directive 2002/92/EC

IMF International Monetary Fund

IORP Institutions for Occupational Retirement Provision

IOSCO International Organisations of Securities Commissions

IRB Internal Ratings Based

ISDA International Swaps and Derivatives Association

ITS Implementing Technical Standards

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 30

JCESA Joint Committee of the European Supervisory Authorities

JMLSG Joint Money Laundering Steering Committee

KID Key Information Document

KYC Know your client

LCR Liquidity coverage ratio

LEI Legal Entity Identifier

LIBOR London Interbank Offered Rate

MA Matching Adjustment

MAD Market Abuse Directive 2003/6/EC

MAR Market Abuse Regulation (EU) 596/2014

Material Risk Takers Regulation

Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the EP and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile

MCD Mortgage Credit Directive 2014/17/EU

MCOB Mortgages and Home Finance: Conduct of Business sourcebook

MCR Minimum Capital Requirement

Member States Countries which are members of the European Union

MiFID Markets in Financial Instruments Directive 2004/39/EC

MiFID II Markets in Financial Instruments Directive (recast) 2014/65/EU – also used to refer to the regime under both this directive and MiFIR

MiFIR Markets in Financial Instruments Regulation (EU) No 600/2014

MLRO Money Laundering Reporting Officer

MMF Money Market Fund

MoJ Ministry of Justice

MoU Memorandum of Understanding

MPC Monetary Policy Committee

MREL Minimum requirements for own funds and eligible liabilities

MTF Multilateral Trading Facility

NBNI G-SIFI Non-bank non-insurer global systemically important financial institution

NCA National competent authority

NDF Non-Directive Firms – firms that do not fall within Solvency II

NFC Non-financial counterparty under EMIR

NIS Directive Proposal for a directive of the EP and Council concerning measures to ensure a high common level of network and information security across the EU

NSFR Net Stable Funding Ratio

NST National specific template

NURS Non-UCITS Retail Scheme

OECD Organisation for Economic Cooperation and Development

Official Journal Official Journal of the European Union

OFT Office of Fair Trading

Omnibus II Second Directive amending existing legislation to reflect Lisbon Treaty and new supervisory infrastructure (2014/51/EU). Amends the Prospectus Directive (Directive 2003/71/EC) and Solvency II (Directive 2009/138/EC)

ORSA Own Risk Solvency Assessment

O-SIIs Other systemically important institutions

OTC Over-The-Counter

OTF Organised trading facility

PAD Payment Accounts Directive 2014/92/EU

PIFs Personal investment firms

PPI Payment Protection Insurance

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 31

P2P Peer to Peer

PERG Perimeter Guidance Manual

PRA Prudential Regulation Authority

Presidency Member State which takes the leadership for negotiations in the Council: rotates on 6 monthly basis

PRIIPs Packaged retail and insurance-based investment products

PSD2 The revised Payment Services Directive (EU) 2015/2366

PSP Payment service provider

PSR Payment Systems Regulator

QIS Quantitative Impact Study

QRT Quantitative Reporting Template

RAO Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544)

RDR Retail Distribution Review

REMIT Regulation on wholesale energy markets integrity and transparency (EU) 1227/2011

RFB Ring-fenced bank

RFQ Request for quote

RONIA Repurchase Overnight Index Average

RRPs Recovery and Resolution Plans

RTS Regulatory Technical Standards

RWA Risk-weighted assets

SCR Solvency Capital Requirement (under Solvency II)

SCV Single customer view

SEC Securities and Exchange Commission (US)

Securitisation Regulation

Proposal for a Regulation of the EP and Council laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation and

amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (COM(2015)472/F1)

SEPA Single Euro Payments Area

SFT Securities financing transaction

SFTR Securities Financing Transactions Regulation (EU) 2015/2365

SFO Serious Fraud Office

SIMF Senior Insurer Manager Function

SIMR Senior Insurer Managers Regime

SM&CR Senior Managers and Certification Regime

SME Small and Medium sized Enterprises

SMF Senior Manager Function

SOCA Serious Organised Crime Agency

Solvency II Directive 2009/138/EC

SONIA Sterling Overnight Index Average

SPV Special purpose vehicle

SREP Supervisory Review and Evaluation Process

SRB Single Resolution Board

SRF Single Resolution Fund

SRM Single Resolution Mechanism

SSM Single Supervisory Mechanism

SSR Short Selling Regulation (EU) 236/2012

SUP FCA supervision manual

T2S TARGET2-Securities

TC Treasury Committee

TLAC Total Loss Absorbing Capacity

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – January 2018 PwC 32

TMTP Transitional Measure on Technical Provisions

TR Trade Repository

TPR The Pensions Regulator

UCITS Undertakings for Collective Investments in Transferable Securities

UCITS V UCITS V Directive 2014/91/EU

UKLA UK Listing Authority

UTI Unique Trade Identifier

XBRL eXtensible Business Reporting Language

Executive summary Regulators hone in on

algorithmic trading

Cross sector announcements

Banking and capital markets

Asset management Insurance Monthly calendar Glossary

At PwC, our purpose is to build trust in society and solve important problems. PwC is a network of firms in 158 countries with more than 236,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com/UK. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. © 2018 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 180220-151656-TN-OS

Contacts

Laura Cox 020 7212 1579

laura.cox@pwc.com

Hortense Huez

020 7213 3869

hortense.huez@pwc.com Prudential regulation, Basel III, liquidity and funding

Andrew Strange

020 7804 6669

andrew.p.strange@pwc.com

Retail distribution, SM&CR, upcoming regulatory change

Mike Vickery

0117 309 2403

mike.p.vickery@pwc.com

Insurance, Solvency II

Hannah Swain 020 7212 2433

swain.hannah@pwc.com

Operational resilience and financial crime

David Brewin 020 7212 5274

david.r.brewin@pwc.com

Client assets and prudential regulation

Penny Bruce

020 7212 1629

penny.a.bruce@pwc.com

Recovery and resolution, consumer credit, structural reform

Luke Nelson

020 7213 4631

luke.a.nelson@pwc.com MiFID II, conduct risk and benchmark reform

Tania Lee 07976 687547

tania.a.lee@pwc.com

Insurance, Solvency II

Sharon-Marie Fernando 020 7804 3062

sharon-marie.fernando@pwc.com Investment funds, insurance

Dominic Muller 020 7213 2905

dominic.b.muller@pwc.com

Derivatives reform, asset management, US and cross border, structured products

Megan P Charles 020 7804 0904

megan.p.charles@pwc.com

Consumer credit, payments, mortgages

Cheryl Wallace 020 7212 6983

cheryl.m.wallace@pwc.com

MiFID II, US and cross-border regulation and benchmarks

Suddankumar Subbaroyan

020 7212 6003 suddankumar.subbaroyan@pwc.com Basel III, liquidity and funding

Tessa Norman

020 7213 2508

tessa.norman@pwc.com Publications and retail distribution

Conor MacManus

020 7213 8555 conor.macmanus@pwc.com Prudential regulation