As the sun slips back into hibernation, schools reopen and autumn looms, regulators, lawyers, risk specialists, change managers and compliance professionals are returning to their desks. Here at JWG we have been busy tabulating the enormous level of movement in the regulatory space during the summer. For those of you lucky enough to get away, we will provide a summary of what you may have missed during the holiday period, to help make sense of the stacks of paper piling up on desks throughout the industry.
As we previously reported, regulatory pressure ratcheted up in July with an unprecedented 39 new consultation papers published in the EU and UK alone. At the time we were astounded by the volume, but now we know that things did not end there. Since the end of July, there has been further movement in the UK with the PRA issuing a whopping 251-page consultation on the transposition of Solvency II. The most important part of this consultation concerns the long-term guarantees (LTG) package, which is a set of new measures designed to make sure the regime is sufficient for insurance products offering an element of guaranteed return. Section 4 of the paper includes a cost benefit analysis of the LTG. Responses are due by 7 November and further changes to the PRA’s Rulebook are expected after that, perhaps most notably covering third country branches.
The FCA have also been getting in on the act with a 28-page, 6 question consultation paper on early implementation of the Transparency Directive. This directive was recently amended to include several new changes, most importantly on new country-by-country reporting requirements which will mean that firms will have expand their reporting capabilities to incorporate reporting on payments made to governments in the countries in which they operate. The closing date for industry responses is 7 October, after which firms should get a clearer idea of how early the UK is likely to go ahead with implementation.
These are clearly two important documents that require significant attention in isolation. But few will have the time to do this given the summer’s total of 2,836 pages, 370 questions for the industry to answer and due dates stretching as far as 7 November. This means that, for the EU and UK alone, the industry must contemplate consultations on REMIT, CRD IV, SSM, SRM, FICOD, UCITS, investor protection, remuneration, accountability, clawbacks, pensions and more.
To contextualise this, we can break the consultations down by regulatory area. A total of 1,051 pages are focused on trading, including 174 questions. Arguably the most important documents in the area of trading are ESMA’s MAR consultation papers, published in late July. The two papers comprise 236 pages, with 89 questions, and responses due by 15 October. The first paper is on draft technical standards and focuses on insider trading, buy-backs and stabilisation and market soundings. The second paper covers draft technical advice on Commission delegated acts and deals with clarifying what constitutes indicators of market manipulation.
A total of 967 pages and 132 questions can be categorised as structural regulation. One of the most significant documents in this area has been the FCA’s guidance consultation on social media and customer communications, which is – a relatively concise – 15 pages and 2 questions. The most interesting point here for firms will be how this guidance plays into the new KYC rules in MiFID II, with regard to firms only being authorised to market products to clients with ‘suitable and appropriate’ knowledge. The consultation period for the FCA paper ends on 6 November.
A total of 793 pages and 60 questions are devoted to risk regulation, with the EBA’s consultation paper on common procedures and methodologies for the supervisory review and evaluation process, which primarily deals with CRD IV, amongst the highest priority documents. The guidelines set a common approach for the supervision of risk in banks’ business models with a focus on solvency and liquidity. The implications of this setting of an EU-wide minimum standard may well cause problems for many – both smaller banks not currently subject to the standards that larger firms are, and those operating in jurisdictions with less well established supervisory authorities.
The bottom line is if you want to have your say on some fundamental industry issues, you can’t afford to get lost in budgets and planning for next year. This recap is only indicative of the ‘new normal’ volume levels. We are seeing an average of 45 new documents worthy of middle and back-office input every week, and the only direction we expect this number to go is up …