A new EU Directive, known as the "EU Whistleblowing Directive", that aims to enhance the enforcement of EU law and policies by providing protection for individuals that report breaches has been published in the Official Journal of the European Union. The Directive will apply to whistleblowers working in the private or public sector, whether they are classed as workers, self-employed, shareholders or working under the supervision and direction of contractors, subcontractors and suppliers, as well as those who acquired information in previous employment or through the recruitment process for a job they are yet to begin.

The Directive will come into force on December 16, 2019. Member States must implement the majority of the provisions into their national laws by December 17, 2021.

View the Directive.

The U.K. Financial Conduct Authority has published a Policy Statement incorporating its response to the feedback it received on its proposals for the implementation of the Proxy Advisors (Shareholders' Rights) Regulations 2019, together with the final rules. The final rules make amendments to the FCA's Decision Procedure and Penalties Manual and Enforcement Guide, reflecting the new Regulations that came into force on June 10, 2019.

The Regulations implemented new obligations imposed upon proxy advisors by the revised EU Shareholder Rights Directive into the U.K. statutory regime. The FCA has the power to discipline and investigate proxy advisors under the Proxy Advisors Regulations and changes were therefore required to the FCA's rules to take account of these powers. The following new provisions have been included in the Decision Procedures and Penalties Manual:

• the FCA will publish a statement about a proxy advisor who has breached a relevant requirement; it will impose a public censure in contested cases and allow decision makers to use executive powers to decide on settled cases;
• the FCA will decide when to impose a financial penalty on a proxy advisor; and
• the FCA will decide when to impose a restitution requirement.

The FCA has also included a new section in its Enforcement Guide explaining how it will use its powers under the Regulations. The intended approach will broadly mirror that taken by the FCA in conducting investigations, sanctioning and using its regulatory powers under FSMA.

View the FCA's Feedback and final rules.

The Financial Action Task Force is seeking feedback from private sector stakeholders on its draft guidance on the use of digital identity systems in customer due diligence. The guidance will supplement Recommendation 10 of the FATF's Recommendations regarding customer due diligence and demonstrates how authentication of customer identities in the digital finance and digital ID context supports broader anti-money laundering/counter-terrorism financing efforts. Stakeholders should submit responses to the consultation by November 29, 2019. The FATF intends to make further amendments to its draft guidance at its February 2020 meetings.

Read more.

The U.K. Financial Conduct Authority has published a feedback statement on the discussion paper, “Building a regulatory framework for effective stewardship” that it published in January 2019 together with the Financial Reporting Council. The discussion paper called for input on how best to encourage the capital markets community to engage more actively in “stewardship” of the assets in which they invest. 

Read more.

The European Securities and Markets Authority has published its annual Public Statement on European enforcement priorities for listed companies’ 2019 financial reports. The priorities will guide the areas of focus when ESMA and relevant national enforcement authorities assess the reports. 

Read more.

The U.K. Prudential Regulation Authority has published a Policy Statement and final rules on resolution assessments and reporting amendments under the Senior Managers and Certification Regime. The PRA also published updated versions of "Strengthening individual accountability in banking" (SS28/15) and "Senior Managers Regime form: Statement of Responsibilities". The changes will take effect on December 9, 2019. The PRA has made minor changes to the drafting to take into account feedback and the measures announced on July 31, 2019 on resolvability assessments for all U.K. banks. The changes to the prescribed responsibility for recovery plans and resolution packs will impact U.K. banks and building societies with £50 billion or more in retail deposits. The changes to the Statement of Responsibilities will affect all PRA-regulated firms, unless they will not be subject to resolvability assessments in future.

View the Policy Statement.

View the updated rules and documentation.

View details of the final resolvability assessment framework for all U.K. banks.

The Banking Standards Board has published a statement of good practice for firms when providing and requesting regulatory references in accordance with the Senior Managers and Certification Regime. The SM&CR for banks and building societies was established in 2016 to improve management within banking sector firms. The regime includes a requirement for firms to request references when determining whether a candidate is suitable for a senior management function, certification function or non-executive director function. 

Read more.

The U.K. Financial Conduct Authority has published a letter (dated August 19, 2019) addressed to the chairpersons of the remuneration committees of the boards of banks and large investment firms (investment firms with total assets over £50 billion). The letter sets out the FCA's findings from the 2018/19 remuneration round and informs how the FCA intends to assess remuneration policies and practices of firms in 2019/20.

The FCA observes that firms continue to address conduct issues in their remuneration policies and practices. It reminds the chairpersons of remuneration committees of their accountability as senior managers under the Senior Managers Regime. Noting that firms continue to adjust awards for material poor performance and misconduct, but that some firms still find it difficult to provide appropriate justification for some adjustments, the FCA states that it will work with firms this year on their approach to ex post facto risk adjustment.

The FCA letter also states that the annual review of submitted Remuneration Policy Statements will again be coordinated with the Prudential Regulation Authority. Firms are asked to submit a short summary addressing the key points raised in the statement, including the key changes made last year and an explanation of how the chairperson has assured himself or herself that the firm's overall remuneration policies drive behavior that reduces potential harm.

Finally, the FCA invites chairpersons of remuneration committees to engage in the FCA's work on transforming culture in financial services.

View the letter.

The U.K. Financial Conduct Authority has published the findings of its review into the implementation of the Senior Managers and Certification Regime for the banking sector. The SM&CR came into force for banking firms in March 2016 with the aim of making individuals in the banking sector more accountable for their conduct. The FCA conducted the review to determine how the SM&CR has been implemented in the three years since its introduction. The review is intended to aid understanding of the impact of the regime and the FCA does not intend to make any policy changes on the basis of its findings. The FCA's review focuses on the implementation of the existing banking SM&CR, but an expanded SM&CR regime will come into force for all FCA solo-regulated firms from December 9, 2019. Firms falling within scope of the expanded regime should, where appropriate, also take the findings of the FCA's review into account in their implementation of the SM&CR.

Read more.

The Bank of England and Financial Services Act 2016 (Commencement No. 6 and Transitional Provisions) Regulations 2019 have been made. The Regulations bring into force, from December 9, 2019, the expanded Senior Managers and Certification Regimes for all Financial Conduct Authority solo-regulated firms authorized under the Financial Services and Markets Act 2000, which include asset managers and investment firms carrying out certain activities. These firms need to complete their initial certification assessments for existing certified staff and new hires by December 9, 2020, although they must have identified certification staff by December 9, 2019. A transitional provision states that the regime will only apply to Claims Management Companies that are authorized by the FCA by December 9, 2019 and to other CMCs on the date that they obtain their authorization.

Read more.

The U.K. Financial Conduct Authority has launched a consultation proposing to restrict the sale, marketing and distribution of derivatives and exchange-traded notes that reference certain types of unregulated, transferable crypto-asset to all retail clients by firms in, or from, the U.K. The FCA consultation follows the final report of the U.K. Crypto-Assets Task Force in October 2018. The FCA's view is that although the U.K.'s market in crypto-assets is relatively small, there is still a consumer protection issue that needs to be addressed.

Read more.

The European Securities and Markets Authority is seeking responses to its survey examining short-term pressure on corporations from the financial sector. The survey forms part of an investigation prompted by the European Commission into how short-termism in market practices may be inhibiting the EU’s progress towards a sustainable economy. ESMA’s survey is aimed at investors, issuers, management companies of undertakings for the collective investment in transferable securities, self-managed UCITS investment companies, alternative investment fund managers and the trade associations of financial market participants. Responses to the questionnaire must be submitted by July 29, 2019.

Read more.

The European Commission has published new, non-binding Guidelines on reporting climate-related information. The new Guidelines are supplementary to the guidelines issued by the Commission in 2017 on reporting non-financial information. The new Guidelines are intended to assist large public entities (with over 500 employees) to report climate-related information under the EU Non-Financial Reporting Directive. The new Guidelines incorporate the recommendations of the Financial Stability Board's taskforce on climate-related financial disclosures, taking into account the EU's forthcoming taxonomy on sustainable activities. The new Guidelines include guidance on reporting of climate-related information related to business models, key performance indicators, risks and their management. Further guidelines for banks and insurance companies are set out in the annex.

Read more.

The U.K. Prudential Regulation Authority has opened a consultation on resolution assessments and reporting amendments under the Senior Managers and Certification Regime. The PRA is proposing to amend the prescribed responsibility for recovery plans and resolution packs that are a part of the SM&CR. Related changes are also being proposed to "Strengthening individual accountability in banking" (SS28/15) and "Senior Managers Regime form: Statement of Responsibilities". The changes to the prescribed responsibility will impact U.K. banks and building societies with £50 billion or more in retail deposits. The changes to the Statement of Responsibilities will affect all PRA-regulated firms. The consultation closes on August 7, 2019. The PRA intends to publish its final amendments in Q4 2019.

View the consultation paper.

The Growth and Emerging Markets Committee, a committee of the International Organization of Securities Commissions that aims to promote the development and efficiency of emerging securities and futures markets, has published a series of recommendations on the development of sustainable finance in emerging markets and the role that securities regulators play in this arena. The report also contains an overview of sustainability-related regulatory initiatives in emerging markets and market trends arising in the sustainability sector.

Read more.

The Task Force on Climate-Related Financial Disclosures has issued its 2019 status report outlining progress on adoption of the TCFD disclosure recommendations for improved climate-related financial disclosures by companies. The TCFD was established by the Financial Stability Board in 2015 with the aim of managing climate-related risk in markets. In 2017, it published a set of voluntary disclosure recommendations for companies to provide information on their climate-related financial risks. The recommendations are structured around four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.

Read more.

The Financial Conduct Authority has published a Policy Statement containing final Handbook text and guidance on new rules to improve shareholder engagement and increase transparency around stewardship. The FCA consulted on the rules from January to March 2019. The final rules will come into effect on June 10, 2019.

Read more.

The European Securities and Markets Authority has published its final report and technical advice to the European Commission on incorporating sustainability risks and factors into European regulation. The European Commission sought advice from ESMA and the European Insurance and Occupational Pensions Authority in July 2018 on the introduction of environmental, social and governance considerations into the Markets in Financial Instruments Directive II, the Insurance Distribution Directive, the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Solvency II Directive. The introduction of sustainability considerations into European regulation sits against the backdrop of the European Commission's Sustainability Action Plan, which aims to encourage sustainable investment and mitigate climate change risk in line with the 2016 Paris Agreement and UN 2030 Agenda for Sustainable Development. In response, ESMA opened consultations seeking input from stakeholders, which closed on February 19, 2019.

Read more.

The Financial Conduct Authority has published a "Dear CEO" letter addressed to wholesale market broking firms highlighting its view of the key risks of harm that such brokerage firms pose for their clients and markets and the FCA's strategy for mitigating those risks. Firms are expected to consider the issues raised and take steps to mitigate risks where applicable.

The key drivers of harm have been identified as commission-based compensation packages (the "eat what you kill" model), inadequate governance arrangements, potential conflict of interest or compliance issues arising from the variety of workflows performed by such brokerages and risks of market abuse and financial crime, all of which may be linked to cultural issues. In the FCA's view, certain brokers in wholesale markets have failed to keep pace with legislative and regulatory developments and lag behind other sectors in embedding a culture of good conduct.

Read more.

The Financial Conduct Authority has launched a consultation on proposed revisions to the Handbook to implement changes made to the EU Revised Shareholder Rights Directive. The Directive aims to promote shareholder engagement, effective stewardship and long-term investment decision-making through enhancing the transparency of engagement policies and investment strategies across the institutional investment community.

Read more.

The Financial Conduct Authority and the Financial Reporting Council have published a discussion paper which calls for input on how best to encourage the capital markets community to engage more actively in stewardship of the assets in which they invest. The aim of the paper is to advance debate about what is meant by effective stewardship, what minimum expectations investors have of the financial services firms which invest on their behalf and what higher standards the U.K. should aspire to.

Read more.

The U.K. Financial Conduct Authority has published the outcome of its review of firms' whistleblowing arrangements. The FCA has reviewed how retail and wholesale banks have implemented its whistleblowing rules by looking at firms' policies and procedures, the role of the whistleblowers' champion, firms' whistleblowing annual reports and the relevant training arrangements.

Both the FCA and the Prudential Regulation Authority published their whistleblowing rules in 2015 and the FCA extended certain of the requirements to U.K. branches of overseas banks in early 2017.

The FCA has published its findings, including areas of good practices, areas for improvement and the FCA's expectations of firms' whistleblowing arrangements. The FCA urges firms to consider its findings and whether they need to take action to improve their whistleblowing arrangements.

View the FCA's review webpage.

The U.K. Financial Conduct Authority has published a letter (dated August 20, 2018) addressed to the Chair of the Remuneration Committee of banks and large investment firms (investment firms with total assets over £50 billion). The letter informs the Chair of how the FCA intends to assess the remuneration policies and practices of firms in 2018/19. Moreover, it sets out the impact of that approach for the Chair of the Remuneration Committee as a Senior Manager under the Senior Managers and Certification Regimes. The Chair of the Remuneration Committee of in-scope firms holds FCA Senior Manager Function 12. The FCA notes that its supervisors will be interacting with the Chair of the Remuneration Committee to ascertain how the Chair has determined that their firm's policies and practices promote the right behavior. The discussions will include an assessment of how any issues from the 2017/18 remuneration round have been addressed. The FCA also highlights that a Chair of the Remuneration Committee should be satisfied that the level of ex post adjustments are appropriate and be capable of providing reasons for these adjustments. In addition, the FCA is adopting the same approach as the Prudential Regulation Authority and will no longer provide a non-objection statement to the proposed communication or distribution of variable remuneration awards by banks and large investment firms.

View the letter.

View details of the PRA's approach to the latest remuneration round.

The European Banking Authority has published its Work Programme for 2019, setting out details of, and planned main outputs from, 37 separate work streams across the following five key strategic priorities:
 

1. Leading the Basel III implementation in the EU.
2. Understanding risks and opportunities arising from financial innovation.
3. Collecting, disseminating and analyzing banking data.
4. Ensuring a smooth relocation of the EBA to Paris.
5. Fostering the increase of the loss-absorbing capacity of the EU banking system.

The EBA also confirms that work related to Brexit will remain a horizontal priority for the EBA in 2019 and explains that the EBA's other activities may be affected in the future by Brexit-related developments. Should that be the case, any substantial change in the work programme will be communicated in due time, in order to seek steering and approval from its Management Board and Board of Supervisors.

View the EBA's 2019 Work Programme.

The U.K. Prudential Regulation Authority has published a "Dear Remuneration Committee Chair" letter that it has sent to Remuneration Committee Chairs of proportionality Level One firms (that is, banks, building societies and PRA-designated investment firms with relevant total assets exceeding £50 billion as at the relevant date) ahead of its annual review of remuneration policies and practices.

In the letter, the PRA explains that, with effect from the 2018/19 remuneration review, the PRA will no longer provide a non-objection statement to the proposed communication or distribution of variable remuneration awards by Level One firms. The PRA states that its oversight of Level One firms' remuneration practices will increasingly draw on the principles for governance set out in the Senior Managers and Certification Regime, placing more emphasis on how the Chairs of firms Remuneration Committees discharge their responsibilities under the SM&CR and on how Remuneration Committees carry out their role of oversight and independent challenge under the PRA's Remuneration Rules.

Going forward, Level One firms can continue to expect engagement throughout the year from their PRA supervisors on their remuneration policies, practices and processes and, where needed, feedback on issues the firm should address. Level One firms should submit a remuneration policy statement and quantitative data tables three months ahead of the firm's preferred final feedback date (that is, the date previously referred to as the "non-objection date"), and an update to the figures at least two weeks before the final feedback date.

View the Letter.

The U.K. Financial Conduct Authority has published a Discussion Paper on climate change and green finance in which it calls for comment on potential changes to its regulatory approach in these areas. The Discussion Paper sets out specific action that the FCA intends to take in the short term in four focus areas - capital markets disclosures, public reporting requirements, green finance and pensions.

First, the FCA is considering whether the regulatory approach to disclosures by issuers in the capital markets should be amended. In particular, the FCA is asking for comments on: (i) the difficulties that issuers may have in determining materiality of climate-related issues such that a specific disclosure would be warranted; (ii) whether investors would benefit from greater comparability of disclosures; (iii) whether further prescribed requirements on climate-related disclosures should be introduced to facilitate more consistent disclosures by issuers. This final point includes whether the introduction of a "comply or explain" approach to the Task Force on Climate-related Disclosures would facilitate more effective markets.

Read more.

The Financial Conduct Authority has published a consultation paper on proposed guidance on the Statement of Responsibilities (SoR) and Responsibilities Maps required under the Senior Managers and Certification regimes. The extended SM&CR will apply to all firms authorized under the Financial Services and Markets Act 2000 and regulated by the FCA, as well as EEA and third-country (non-EEA) branches. SM&CR will be extended to FCA solo-regulated firms from December 9, 2019.

Read more.

The Commodity Futures Trading Commission has unanimously approved final amendments to clarify and simplify its regulations governing the duties and annual reporting requirements for chief compliance officers at futures commission merchants, swap dealers and major swap participants. The amendments, first proposed in May 2017, are designed to clarify certain requirements (including as to the annual CCO report) as well as harmonize the CFTC's requirements with similar Securities and Exchange Commission rules that will be applicable to security-based swap dealers.

Read more.

The U.K. Financial Authority has published Policy Statements confirming the rule changes it will apply to extend the application of the Senior Managers & Certification Regimes to all FCA solo-regulated firms (that is, firms for which the FCA is both conduct and prudential regulator). At this stage, the rules are near-final as they are subject to commencement regulations that will be made by HM Treasury and they may also be amended by subsequent changes related to, for example, Brexit or SM&CR optimizations. The FCA also plans to consult separately on rules for benchmark-related activities.

The extended SM&CR will apply to all firms authorized under the Financial Services and Markets Act 2000 and regulated by the FCA, as well as EEA and third country (non-EEA) branches. SM&CR will be extended to FCA solo-regulated firms from December 9, 2019.

While insurance intermediaries, which are solo-regulated by the FCA, will fall within the FCA's new rules, the FCA and the Prudential Regulation Authority have separately published policy statements on the extension of the SM&CR to insurers.

Read more.

The U.K. Financial Conduct Authority and Prudential Regulation Authority have published Policy Statements confirming the near-final and final rule changes they will apply to extend the application of the Senior Managers & Certification Regimes to insurers. The Policy Statements do not make an changes to the prudential rules implementing Solvency II or to the wider U.K. regulatory framework for insurers.

The extended SM&CR will apply from December 10, 2018, subject to commencement regulations being made by HM Treasury. The SM&CR will apply to all insurers and reinsurers regulated by the FCA and the PRA. The Policy Statements will be of specific interest to Solvency II firms (that is, all firms within the scope of the U.K. rules implementing the Solvency II Directive), insurance special purpose vehicles (undertakings with permission to carry on the regulated activity of insurance risk transformation), insurers outside the scope of the Solvency II Directive (so-called Non-Directive Firms) and small run-off firms (all insurers with less than £25 million technical provisions that no longer have permission to write or acquire new business).

Read more.

The European Banking Authority has launched a consultation on draft Guidelines on outsourcing arrangements. The proposed Guidelines are intended to update and replace the outsourcing guidelines issued in 2006 (by the EBA's predecessor, the Committee of European Banking Supervisors) that applied to outsourcing by credit institutions. The proposed Guidelines will have a wider scope, applying to all financial institutions that are within the scope of the EBA's mandate, namely credit institutions and investment firms subject to the Capital Requirements Directive, payment institutions and electronic money institutions. The proposed Guidelines also integrate the recommendation on outsourcing to cloud service providers that was published by the EBA in December 2017.

The proposed Guidelines set out a definition of outsourcing in line with delegated legislation under the revised Markets in Financial Instruments Directive. They cover: (i) proportionality and group application; (ii) the nature of outsourcing arrangements; (iii) the applicable governance framework; (iv) the outsourcing process; and (v) guidelines on outsourcing addressed to competent authorities. A separate Annex provides an illustrative template that could be used for complying with the requirement in the proposed Guidelines to maintain a register of all outsourcing arrangements at institution and group level where applicable.

Read more.

The European Central Bank has published an updated Guide to Fit and Proper assessments for the suitability of members of the management body and key function holders in significant institutions. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. The ECB Guide covers fit and proper assessments of members of management bodies, both in their management function (executives) and supervisory function (non-executives). It applies to all institutions under the direct supervision of the ECB, namely in-scope credit institutions, financial holding companies and mixed financial holding companies. In the context of licensing or qualifying holdings, the ECB Guide will also apply to less significant institutions.

The ECB Guide has been updated following the publication of the joint European Banking Authority and European Securities and Markets Authority Guidelines on the suitability of management body members and key function holders, which will apply from June 30, 2018, and the EBA Guidelines on Internal Governance.

Read more.

The Financial Stability Board has published a report, "Strengthening Governance Frameworks to Mitigate Misconduct Risk: A Toolkit for Firms and Supervisors." The report is part of the FSB's work on measures to reduce misconduct in the financial sector and follows the FSB's stocktake of endeavors by international bodies, national authorities, industry associations and firms.

The Toolkit is designed to provide firms and authorities with a set of tools that can be used, taking into account the applicable legislative, judicial and regulatory frameworks. Rather than creating an international standard or adopting a prescriptive approach, the FSB's Toolkit allows firms and supervisors to decide whether and how to use the Toolkit to address misconduct risk. The FSB also states that firms and their supervisors can use individual tools separately or in combination.

The Toolkit comprises 19 tools, divided into three categories and assigned between firms and national authorities.

Read more. 

The Prudential Regulation Authority has published its Business Plan for 2018/19 which sets out its strategic goals and workplan to deliver those goals. The PRA also published a consultation paper on its fees and levies for 2018/19 alongside the Business Plan as well as a report to the Prudential Regulation Committee on the adequacy of PRA resources and independence of PRA functions.

Read a summary of the PRA's goals and workplan.

The Financial Conduct Authority has published a Policy Statement and final rules relating to strengthening the governance arrangements of U.K. authorized fund managers. The need to enhance these arrangements was identified by the FCA in the Asset Management Market Study launched in 2015. The final AMMS report was published in June 2017 and set out remedies the FCA intended to implement to address identified issues. At the same time, the FCA published a consultation paper on the first set of proposals.

The Policy Statement sets out the FCA's response to the feedback on its proposals and the final rules and guidance. The new rules and guidance applies to U.K. AFMs in relation to their management of authorized funds (that is, authorized open-ended collective investment schemes). The rules will apply either on April 1, 2019 or on September 30, 2019, depending on the lead time that the FCA considers the industry needs to implement the required changes.

Read more for a summary of the FCA's decision on the various consultation points. 

The Financial Conduct Authority has published a second consultation paper on remedies arising out of the Asset Management Market Study. This consultation concerns improving disclosure by authorized fund managers to their investors and should be read with the Policy Statement, final rules and revised guidance on enhanced governance arrangements for U.K. AFMs, which were published alongside the consultation paper. The FCA is proposing:

• new guidance on how AFMs should make fund objectives and investment policies clear and more useful for investors;
• new rules requiring managers to be clear about why (or why not) a benchmark has been used and how investors should assess the performance of the fund;
• new rules requiring AFMs that use benchmarks to use and reference them consistently across marketing materials;
• new rules requiring that where managers present past performance they must do so in an appropriate and consistent manner; and
• amending the performance fee rules to require that performance fees be calculated on performance net of other fees.

The proposed rules would apply to AFMs in respect of their management of authorized funds. Responses to the consultation should be submitted by July 5, 2018.

View the second consultation on remedies arising from the AMMS.

View details of the Policy Statement and final rules.

View the AMMS final report and the first consultation paper.

The European Central Bank has published finalized versions of its guides “Guide to Assessments of Licence Applications” and “Guide to Assessments of FinTech Credit Institution Licence Applications”, following consideration of the responses to consultations on draft versions of the guides, which the ECB ran between September and November 2017.

The ECB has been exclusively competent, since November 2013, to authorize all Eurozone credit institutions and credit institutions established in any other EU Member States that participate in the Single Supervisory Mechanism via close cooperation arrangements.

The ECB exercises its competence in close cooperation with the relevant national regulators. The ECB has developed the Guides, which are not legally binding, to promote awareness and enhance the transparency of the assessment criteria and processes for establishing a credit institution within the SSM. These should serve as practical tools to support applicants and all other entities involved in the process of bank authorization to ensure a smooth and effective procedure and assessment.

Read more.

The European Banking Authority has published a compliance notification form on its website, seeking confirmation, by May 21, 2018, of compliance (or intention to comply) with the Final Guidelines on Internal Governance it published in September 2017.

The EBA was mandated under the Capital Requirements Directive to provide guidelines on the corporate governance arrangements, processes and mechanisms required under that Directive. CRD IV requires that institutions must have robust governance arrangements, which include a clear organizational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks they are or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures and remuneration policies and practices that are consistent with and promote sound and effective risk management. The EBA consulted in October 2016 on proposed updates to its previous guidelines on internal governance, which were published in September 2011.

Read more.

Following consultation in late 2017, the European Securities and Markets Authority and European Banking Authority have jointly published final Guidelines on the assessment of the suitability of members of management bodies and key function holders in credit institutions, investment firms, financial holding companies and mixed financial holding companies. These assessments are required under the Capital Requirements Directive and the revised Markets in Financial Instruments Directive.

Under the CRD and MiFID II, an assessment of the suitability of members of a management body should take into account factors such as sufficiency of time commitment, honesty, integrity and independence of mind of a member of the management body. The management body must have adequate collective knowledge, skills and experience among its members.  Firms should devote adequate human and financial resources to the induction and training of such members. Diversity is also to be taken into account when selecting members of the management body. In the case of key function holders, the Guidelines also specify requirements regarding the suitability of the heads of internal control functions and the chief financial officer of credit institutions and certain investment firms. The Guidelines apply to any other persons assessed as key function holders under the firm's risk-based approach. An Annex is provided as a template for firms to record the results of relevant assessments.

Read more.

The Banking Standards Board has published the "BSB Statement of Principles for Strengthening Professionalism - The role of the firm", which is a guiding statement of principles intended to assist banks and building societies to strengthen professionalism in the banking sector. The BSB has defined professionalism in UK banking as "attitudes, judgement and high standards of behaviour, knowledge and skill expected of individuals working in banking". The Statement consists of six principles, each of which is supported by action points on how the principle can be achieved.

The Statement does not impose any legal or regulatory obligations on firms or replace any regulation. It is intended to assist firms in structuring their own practices and to build on regulatory initiatives, such as the Senior Managers and Certification Regimes.

View the BSB Statement.

The Financial Conduct Authority has announced that it will be putting forward proposals for aligning the Financial Services Register with the expanded Senior Managers & Certification Regimes. The SM&CR has been in place for banks, building societies, credit unions and PRA-designated investment firms since March 2016, whilst certain insurers have been subject to the separate Senior Insurance Managers Regime. The remainder of authorized firms have continued to be subject to the Approved Persons Regime. The FCA recently consulted on expanding the existing SM&CR to all other authorized firms.

Under the SM&CR, the FCA only approves Senior Managers and it is only these individuals that appear in the FS Register. The Certification Regime requires firms to certify that all individuals in roles which pose a risk of significant harm are "fit and proper".

Feedback on the proposals to extend the SM&CR indicated that there would be public value in including details of certification of employees and other important individuals at firms in the FS Register. The FCA intends to consult in the Summer on implementing that feedback. If these proposals are implemented, non-executive directors, financial advisers, traders and portfolio managers would appear in the revised FS Register.

View the FCA's statement.

View the proposals to extend the SM&CR.

The U.K. Banking Standards Board has published further Supporting Guidance to its Statement of Good Practice on the Certification Regime: Fitness and Propriety Assessment Principles (known as Statement of Good Practice 1). The new Supporting Guidance, "Establishing Pass/Fail Criteria and Evidencing the F&P Assessment" (known as Supporting Guidance 2), aims to assist firms and other persons assessing fitness and propriety in making certification decisions, particularly in borderline cases. The Certification Regime is part of the regulatory reforms introduced in the U.K. to strengthen individual accountability (namely, the Senior Managers Regime, the Certification Regime and the Conduct Rules). It requires firms to certify that all individuals in roles which pose a risk of significant harm are "fit and proper." The U.K. regulators are proposing to extend the Certification Regime to all other regulated firms. The BSB was launched in April 2015 as an industry initiative to help raise standards of behavior and competence in the banking sector.

Read more. 

The US Board of Governors of the Federal Reserve System issued proposed guidance for comment that would clarify supervisory expectations related to risk management for large financial institutions. This proposed guidance would complement the Federal Reserve Board's proposed rating system for large financial institutions and proposed guidance regarding supervisory expectations for bank boards of directors that were released in August of 2017. The proposed guidance provides core principles applicable to senior management, management of business lines, and independent risk management and controls. Under the proposed guidance, senior management is tasked with the management of the day-to-day operations of the institution, ensuring its safety and soundness and overseeing compliance with laws, regulations and internal policies and procedures.

Read more.

The Financial Conduct Authority has published a consultation paper on its proposed rule changes to implement the extension of the Senior Managers& Certification Regime (SM&CR) to all firms that are authorized under the Financial Services and Markets Act 2000 and solo-regulated by the FCA. The SM&CR has been in place for banks, building societies, credit unions and PRA-designated investment firms since March 2016, whilst certain insurers have been subject to the separate Senior Insurance Managers Regime. The remainder of authorized firms have continued to be subject to the Approved Persons Regime, which will be replaced when the extended application of SM&CR takes effect.

Given that the extension of SM&CR will capture a very wide range of firms, the FCA has tailored the principles and tools used for the banking regime to fit the different risks, impact and complexity of the firms that will be affected by the extended SM&CR. The rules proposed by the FCA comprise (i) a "core regime" consisting of a standard set of requirements that will apply to all FCA solo-regulated firms; (ii) an "enhanced regime" which will apply extra requirements to the very small number of solo-regulated firms whose size, complexity and potential impact on consumers warrant more attention; and (iii) a reduced set of requirements which will apply to firms the FCA has categorized as "limited scope" firms.

Read more. 

The G20 Leaders met in Hamburg, Germany on July 7-8, 2017 and have published a Leaders' Declaration and an Action Plan setting out the G20's strategy for achieving strong, sustainable, balanced and inclusive growth. The Action Plan includes ongoing and planned work on financial sector regulation and development.

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The Financial Conduct Authority has published the final report of the Asset Management Market Study it launched in November 2015. The object of the AMMS was to investigate three core areas: (i) how asset managers compete to deliver value; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. Furthermore, the FCA wanted to look at whether there are any barriers to innovation that prevent investors from obtaining better results. The FCA published an interim AMMS report in November 2016 which set out the FCA's provisional assessment of the way competition works for asset management services, the consequences for investors and the FCA's proposed remedies to tackle the issues.

The final AMMS report confirms the FCA's interim findings and proposes a package of remedies. The FCA has divided the remedies into three buckets: (i) remedies on which it has published a consultation alongside the final report; (ii) final remedies; and (iii) remedies on which it intends to consult later.

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The Prudential Regulation Authority has published a Policy Statement on strengthening individual accountability in banking. The Policy Statement provides the PRA's final policy on a number of issues. Among other things, the PRA has made modifications to the final rules, such as simplifying the draft definition of the new Chief Operations Senior Management Function and narrowing the new Prescribed Responsibility accompanying the Chief Operations SMF to focus on responsibility for the firm's performance of its obligations relating to outsourcing.

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The Financial Conduct Authority has published a Policy Statement introducing final rules on whistleblowing requirements for UK branches of overseas (EEA and third country) banks. The Policy Statement follows a consultation in September 2016 on a proposed approach for extending aspects of the Prudential Regulation Authority and FCA regime to require banks and insurers to introduce whistleblowing procedures internally. The proposals are broadly being implemented as consulted upon, with one minor change being the introduction of guidance reminding branches they may continue to have concurrent reporting obligations to their home state regulators. The rules will come into force on September 7, 2017.

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The Financial Conduct Authority has published a Policy Statement on applying conduct rules in the Code of Conduct sourcebook to non-executive directors in the banking and insurance sectors. In-scope NEDs are those who do not hold Senior Management Functions and therefore are not subject to regulatory pre-approval under the Senior Managers & Certification Regime, the Prudential Regulation Authority's Senior Insurance Managers Regime, or the FCA's revised Approved Persons Regime.

The Policy Statement follows a Consultation in September 2016, which proposed that NEDs would be subject to the five FCA Individual Conduct rules on acting with integrity, acting with due skill, care and diligence, cooperating with the FCA and other regulators, having regard for customer interests and observing proper standards of market conduct. In addition, NEDs would be subject to the Senior Conduct rule requiring individuals to disclose any information of which the FCA or PRA would reasonably expect notice. The remaining Senior Conduct rules will not apply to a NED unless they are also a senior conduct rules staff member. The new rules will come into force on July 3, 2017.

View the Policy Statement.

The Financial Conduct Authority has published a Policy Statement containing final Handbook text and guidance on the requirements for remuneration policies that apply to firms subject to the Capital Requirements Directive IV. Such firms are required to comply with the FCA's Remuneration Code. The FCA consulted on these from September to November 2016. The final rules are broadly as consulted upon, with minor changes to clarify the status of "retention awards" as being different from "guaranteed variable remuneration".

The FCA has aligned its Handbook provisions to comply with the European Banking Authority Guidelines on Sound Remuneration Policies, which came into force on January 1, 2017. The FCA has also published new non-Handbook guidance to address frequently asked questions on remuneration. The Prudential Regulation Authority further published a Policy Statement and final consolidated Supervisory Statement on its expectations on remuneration on April 12, 2017, which aims to bring its approach in line with the EBA Guidelines.

View the Policy Statement.

View the FCA Guidance.

View the EBA Guidance.