HM Treasury

FCA Issues Consultation Paper on Proposed Changes to the Senior Managers and Certification Regime

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The FCA has launched a consultation paper setting out a number of technical rule changes to the Senior Managers and Certification Regime (SM&CR). The changes are being made as a result of HM Treasury’s announcement in October 2015 that it would be amending the current SM&CR legislation as it applies to the banking sector. This included the repeal of section 64B(5) of the Financial Services and Markets Act 2000 (FSMA), which required firms to report to the FCA known and suspected breaches of the FCA Rules of Conduct, before the SM&CR regime enters into force on 7 March 2016.

The FCA proposes to remove references to notifications of known and suspected rule breaches in the associated forms, thereby streamlining reporting requirements so that the forms only require firms to inform the FCA of disciplinary action taken against staff as a result of a breach of one or more Rules of Conduct. The pre-existing obligation to report material breaches will, however, remain in place.

The Consultation Paper sets out how the FCA intends to implement the consequential changes to rules and forms that will be required prior to commencement of the regime, as well as examining the likely impact the changes will have on the industry and on consumers.

UK Treasury Announces Policy on New Payment Systems Regulator

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On October 9, the UK Treasury (HM Treasury) published its response to feedback on its March 2013 consultation paper on opening up UK payments, announcing the details of the new Payment Systems Regulator.

In its March 2013 consultation, HM Treasury set out proposals for bringing payment systems under formal economic regulation and establishing a new competition-focused utility-style regulator for retail payment services.  In the response, HM Treasury sets out its policy decisions on the roles, responsibilities and powers of the new regulator, which will be established by the Financial Services (Banking Reform) Bill 2013-14. 

HM Treasury intends for the Regulator’s powers to come into force in late 2014, with the Payments System Regulator fully operational by spring 2015.  Response.

The AIFMD Developments

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HM Treasury Responds to Consultation on Transposing AIFM Directive

On May 13, HM Treasury published its response to its January 2013 consultation on transposing the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFM Directive or AIFMD).  HM Treasury also published a revised draft version of the Alternative Investment Fund Managers Regulations.  The response mainly provides information about HM Treasury’s approach to sub-threshold managers and transitional arrangements.  Response.

FSA Second Consultation Paper on Implementing AIFM Directive: Consultation Period Ends

On May 10, the consultation period ended for the FSA’s second consultation paper on the implementation of the Alternative Investment Funds Managers Directive (2011/61/EU) (AIFM Directive) (CP13/9, also known as CP2).  Final rules will not be published until June, but the Financial Conduct Authority is meant to confirm some of its final policy positions before then to give firms marginally more time to factor these positions into their implementation plans.  The key policy question is whether the FCA will accept AIFM and depositary authorisation or variation applications before July 22.

AIFM Directive Implementing Regulations Published in OJ

On May 16, the texts of two European Commission Implementing Regulations required under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFM Directive or AIFMD) were published in the Official Journal of the European Union (OJ).  Text One.  Text Two.

Banking Reform Bill Completes Committee Stage in House of Commons

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On April 16, the Financial Services (Banking Reform) Bill 2012-13 completed its committee stage in the House of Commons.  A revised version of the Bill, as amended in the committee stage, has been published.

The main aim of the Bill is to give HM Treasury and the relevant regulators powers to implement the recommendations of the Independent Commission on Banking (ICB) on ring-fencing requirements for the banking sector.  The Bill is intended to make the banking sector safer, more resilient and more resolvable. The Bill will now pass to the report stage in the House of Commons.  Banking Reform Bill.

Consultation on Draft Secondary Legislation to Regulate LIBOR

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On November 28, HM Treasury published a consultation paper on draft secondary legislation to regulate LIBOR and make its manipulation a criminal offence.

The draft Financial Services and Markets Act (Regulated Activities) (Amendment) Order 2013 proposes two new regulated activities:

  • providing information in relation to a regulated benchmark (currently LIBOR is the only proposed regulated benchmark, although there is provision to add others); and
  • administering a regulated benchmark.

A further draft order, relating to “misleading statements” specifies the investments, activities and benchmarks in relation to three new criminal offences dealing with making misleading statements and conducting misleading practices.  These offences will be created by draft amendments to the Financial Services Bill 2012-2013 and will result in the repeal of section 397 of the Financial Services and Markets Act 2000.

It is intended that the Financial Services Bill will receive royal assent before the end of 2012 and that the draft secondary legislation will be considered by Parliament in early 2013.  Comments on the consultation must be submitted before December 24.

Responses to Consultation on Non-Bank Resolution Regime

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On October 17, HM Treasury published a summary of responses in relation to its August consultation on broadening the financial sector resolution regime to systemically important non-banks.  Indicative draft legislation was also published alongside the consultation, to provide a resolution regime for entities such as investment firms, central counterparties and parent undertakings.

The UK government is considering developing the UK’s domestic regime in this area ahead of European legislation being introduced.  Following the consultation, it has amended the draft legislation and is making amendments to the Financial Services Bill 2012 – 2013.  The core changes include:

  • o    narrowing the definition of investment firms through secondary legislation;
  • o    extending stabilization powers to group companies to aid the resolution of a failing entity (subject to certain conditions);
  • o    adding an objective for intervention in a failing central counterparty in order to maintain critical services; and
  • o    excluding the initial proposal to make the members of a central counterparty liable for losses above and beyond provisions already in place (although such loss allocation rules may become part of the operational requirements that a central counterparty must have in order to operate as a clearing house in the UK).

HM Treasury Consultation Paper on the Macroprudential Directive Tools of the FPC

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HM Treasury has published a consultation paper on the tools available to the Financial Policy Committee (FPC) to address systemic risks to the stability of the financial system entitled ‘The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools’ (the “Consultation Paper”).

The Financial Service Bill provides the FPC with two primary powers.  The first of these is the power to make recommendations (which can be made on a comply-or-explain basis) to the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), the Treasury and the Bank of England.  The second is the power to direct the PRA and FCA to take action, and the tools that the PRA should have under this power (the “directive tools”) are the subject of the Consultation Paper.

In December 2011, the Bank of England published a discussion paper entitled ‘Instruments of Macroprudential Policy’.  The Consultation Paper builds on the responses to the discussion paper and proposes directive tools that the FPC should have, including:

  • o    control over the level of the UK’s counter-cyclical capital buffer;
  • o    a direction-making power to impose sectoral capital requirements; and
  • o    once international standards are in place, the power to set, and vary over time, a leverage ratio cap.

HM Treasury invites responses to its Consultation Paper by December 11.

Wheatley Review Discussion Paper Outlines Initial Thoughts on LIBOR Reform

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On August 10, HM Treasury published a discussion paper outlining initial thinking on the review of the London Interbank Offered Rate (LIBOR) being undertaken by Martin Wheatley, Chief Executive-designate of the Financial Conduct Authority (FCA). Discussion Paper. 

The Discussion Paper states that the review of LIBOR will consider and consult on two options:

  • Strengthening LIBOR. The issues identified could be tackled through significant reform of the existing system. Preserving the LIBOR system would limit the costs of transferring existing contracts, whilst reforms could address failings in the system.
  • Finding an alternative to LIBOR. If the problems with LIBOR cannot be resolved, new benchmarks could be recommended to replace some or all of LIBOR’s role in financial markets.

Comments on the discussion paper are requested by September 7 with Mr. Wheatley aiming to present his findings and recommendations by the end of September. 

Letter Published Detailing How OFAC’s Iran Sanctions Regulations Apply to Foreign Banks Operating in the U.S.

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On August 13, HM Treasury published a letter that it received from the U.S. Department of the Treasury relating to the Office of Foreign Assets Control’s (OFAC) Iran sanctions regulations.  Letter. 

The letter was sent in response to a request by HM Treasury for clarification about the sanctions regulations and how they apply to international payments, specifically the obligations of foreign banks operating in the US before and after 2008 in respect of transactions involving Iranian counterparties.