RegTech Intelligence

Ready for the ‘summer of 39’ aftermath?

JWG analysis.

This summer, regulatory pressure on financial services firms has ratcheted up to unprecedented levels.  Many may have breathed a sigh of relief as Dodd-Frank rule-making slowed … but the respite was only fleeting.  Since July, the industry has been bombarded with 39 new consultation papers (in the EU and UK alone) just as the EU returned its 584 responses to the MiFID II consultation in August.

JWG research has picked up consultations on REMIT, CRD IV, SSM, SRM, FICOD, UCITS, investor protection, remuneration, accountability, clawbacks, pensions and more.  In short, the EU financial services industry has 2,357 pages to read and 331 questions to answer by Q3.  Welcome back – if you start now you have a fighting chance to finalise the 19 that are due in October.

Beware though, some of the answers could rock, not only the front-office, but middle and back as well.  We’ve pulled out a few of the highlights below.

Key consultations in the UK include remuneration, clawbacks and accountability in financial services.  Core changes being consulted upon include a new approval regime for the most senior individuals and new rules on remuneration to strengthen the alignment between long-term risk and reward in the banking sector.

The PRA and FCA proposals include a new senior managers’ regime, which is designed to clarify the lines of responsibility at the top of banks, enhance the regulators’ ability to hold senior individuals in banks to account and will require banks to regularly vet their senior managers for fitness and propriety … oh, my!

A  new set of conduct rules, which take the form of brief statements of high level principles, set out the standards of behaviour for bank employees, as well as rules on “delayed variable remuneration” (i.e., bonuses) for a minimum of five or seven years, depending on seniority.  These ‘clawback’ rules grant firms much more power to recover money given to senior managers (even if already paid out or vested) if risk management or conduct failings come to light at a later date – dear, dear!

Four consultations on market abuse are now open; two from the Agency for the Cooperation of Energy Regulators (ACER) and two from the European Securities and Markets Authority (ESMA).  These are as a result of the two key market abuse rule-sets being introduced in 2014/15 – The Regulation on Energy Market Integrity and Transparency (REMIT) and the Market Abuse Directive (MAD) and Regulation (MAR).

ESMA’s draft RTS/ITS and TA detail the application of MAR to new products, venues and trading techniques and address transparency and governance issues.  Both consultation papers are open for feedback until 15 October 2014.

REMIT’s primary focuses are market abuse and market manipulation in the commodities market.  As a result, new transparency requirements are asked for, in the form of transaction reports, to enable monitoring.  These consultations on the Transaction Reporting User Manual (TRUM) and reporting mechanisms are vital in determining the precise standards by which REMIT will be implemented.  The deadline for its two documents is 2 September – ouch!

Potentially one of the most important consultations out at the moment, the EBA consultation on the criteria for intervention on structured deposits under MiFIR, lays out the criteria by which the EBA can “temporarily prohibit” the sale of structured deposits.

MiFIR establishes an identical framework for the intervention powers of ESMA (they consulted on this in May) on financial instruments.  The EBA has based its own work on the criteria identified by ESMA.  However, the EBA considered that some of the criteria used for financial instruments were not applicable to structured deposits, while others needed to be adapted and, in some cases, new guidelines had to be introduced to take into account characteristics specific to structured deposits.

In the consultation paper, the EBA proposes a set of 12 high-level criteria (with a subset of 68), by which they, and banks, can assess the risk of structured deposits to market stability, investor protection or market abuse.  These range from “the type and transparency of the underlying” to the “degree of innovation” to the financial crime risk of the product.  Deadline for the submission of comments is 5 October 2014.  Data managers, start your engines …

If you’re feeling overwhelmed by the current consultation agenda (and we don’t blame you!), have no fear.  JWG’s Capital Markets Forum on 23 September will provide a holistic overview of the entirety of the summer consultation period, as well as in-depth analysis on the major issues facing financial services in the years to come from a number of industry and regulatory leaders.

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