UK: FIG Bulletin, 16 August 2019

Last Updated: 22 August 2019
Article by Hogan Lovells


Protocols for independent reviews of regulatory action concerning IRHPs redress scheme and Connaught Income Fund Series 1

The Financial Conduct Authority (FCA) has published the protocols for the conduct of the "lessons learned" reviews, commissioned by the non-executive directors of the FCA, for:

  • the handling of the Connaught Income Fund Series 1; and
  • the redress scheme for interest rate hedging products (IRHPs).

The reviews will look at the approach, judgements and processes of the Financial Services Authority and, subsequently, the FCA. The protocols set out the procedures under which the reviews will be carried out, including the reviewers' access to documents and information, legal privilege and confidentiality, and the representations process to be followed where the report intends to criticise individuals.

SMCR: BSB blog on identifying overseas roles requiring certification

The Banking Standards Board (BSB) has published a blog post written by James Ewing, Head of Assurance and Risk and Planning, and Maximilian Weidlich, Policy Associate, at the BSB. The authors share their learnings from working with the BSB Certification Regime Working Group, specifically on the challenges of the certification regime for UK firms operating overseas and overseas firms with an operation in the UK.

This is a mini-series of blogs on the international challenges of certification. This edition focusses on identifying which overseas roles actually require certification. In the next edition, the authors intend to explore some of the practical challenges in assessing fitness and propriety across a global group.

FOS funding: trade associations urge FOS to reconsider proposals

The Building Societies Association (BSA) has published a press release in which it urges the Financial Ombudsman Service (FOS) to reconsider its funding proposals contained in its "Our future funding consultation". The proposals, the BSA argues, will see costs for firms with fewer complaints soar, while firms with substantial volumes of complaints will experience a drop in what they pay of around £70m a year.

The BSA suggests several alternatives which, it says, may help the FOS's funding situation, without resorting to the measures outlined in the FOS's current proposals.

The Personal Investment Management & Financial Advice Association (PIMFA) has also responded to the FOS's proposals and has taken a similar view to that of the BSA. PIMFA "strongly" disagrees that the FOS's levy and case fee income should be rebalanced to a 50:50 split.


Brexit preparations: ECB article

On 14 August 2019, the European Central Bank (ECB) published a newsletter article titled "Brexit: stepping up preparations". In its article, the ECB considers the preparation of banks for the "very real possibility" of a no-deal Brexit on 1 November 2019.

The ECB states that, so far, banks have transferred significantly fewer activities, critical functions and staff to euro area entities than originally anticipated. The ECB now expects banks to speed up the implementation of their plans. In particular:

  • where contingency plans for a no-deal scenario are not yet fully implemented, banks should step up their preparations;
  • banks should address operational challenges associated with transferring staff and clients and setting up the necessary internal processes and systems;
  • banks should comply with time commitments agreed with their supervisors, in particular regarding the build-up of local risk management capabilities and governance structures;
  • banks must be prepared for differences in the application of the Capital Requirements Regulation and Directive prudential provisions to UK entities and UK-linked exposures or assets post-Brexit;
  • in relation to the continuity of un-cleared cross-border derivatives contracts, the ECB encourages market participants, where necessary, to implement effective mitigating actions, including novations, as soon as possible;
  • banks are reminded to continue to engage with their customers on Brexit-related matters and provide them with adequate information on the risks of a no-deal scenario and on the mitigating measures being taken;
  • regarding access to third country financial market infrastructures (FMIs), banks in the euro area should have sufficient onshore capacity (which would exclude group entities or branches in third countries) to originate business and access key FMIs on a continuous basis. They should also consider which alternative FMIs would be available if their access to existing FMIs is impeded or the finality of their instruments/settlements can no longer be guaranteed.

The ECB states that some eurozone banks must make further adjustments to their business and booking models. In particular, it expects banks to adjust the practice of "back-branching" (that is, servicing EU clients from UK branches after Brexit, even when there is no local business need for them to do so). It also states that some banks have not yet aligned their remote booking practices and back-to-back hedging strategies with supervisory expectations.

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