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Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.


Claire Cummings

020 7585 1406


FCA guidance consultation on financial crime systems and controls: insider dealing and market manipulation

The FCA recently published a guidance consultation on amending its Financial Crime guide for firms. The guide consolidates the FCA's guidance on financial crime. Although it is not binding on firms, the guidance is intended to enhance firms' understanding of the FCA's expectations, and firms are expected to take note of it and use it to inform their own financial crime systems and controls. The proposed changes include, among others, updating the guide with an additional chapter on insider dealing and market manipulation which will outline the FCA's observations of good and bad market practice around the requirement to detect, report and counter the risk of financial crime, as it relates to insider dealing and market manipulation. The FCA also points out that where firms separate their surveillance function from their financial crime or money laundering reporting officer teams, it is important that they ensure that there is adequate communication between the two areas such that the firm can effectively counter the risk of insider dealing and market manipulation.


Insurance Europe publishes final template for data breach notifications under GDPR

Insurance Europe has published its final template for data breach notifications under GDPR, which will apply as of 25 May 2018. GDPR will require companies processing personal data to comply with new and more stringent data protection rules. One obligation will be for companies to notify breaches of personal data to the competent supervisory authority. Companies will have to submit the relevant information without undue delay and, where feasible, no later than 72 hours after having become aware of the breach. Such information includes the nature of the breach, categories and approximate number of data subjects and of personal data records concerned, likely consequences and measures taken to address and mitigate the breach. The template is designed so that the information gathered can be shared without the need to be anonymised or aggregated, thereby enhancing the available information and data on cyber risks and so increasing society's cyber resilience.


High Court considers 2002 ISDA Master Agreement close-out provisions.

The High Court has held that a party determining a Close-out Amount for a swap was not entitled to withdraw its original determination of that amount served under Section 6(d)(i) of the 2002 ISDA Master Agreement and replace it with a revised calculation. In making this determination it had to use procedures that are, objectively, commercially reasonable to produce, objectively, a commercially reasonable result. This is a higher standard than a rational determination, which is effectively what is required under the 1992 ISDA Master Agreement.


BOE speech on internal FinTech initiatives

The BoE recently published a speech, by Dave Ramsden, BoE Deputy Governor for Markets and Banking on the BoE's open approach to FinTech. Items of interest from the speech include: (i) the BoE has set up a new Fintech hub that will sit "at the heart of the Bank" and will consider both how the BoE understands and applies FinTech relevant to its mission. The Hub will be a central point of contact for the FinTech sector to engage with the BoE, and will play an active role in the new joint BoE, HM Treasury and FCA cryptoassets task force; (ii) the BoE is using its FinTech accelerator proof-of-concept approach with a small cohort of firms to consider how its renewed service could interface with innovative settlement systems, such as those built on distributed ledger technology; and (iii) the BoE has initiated work to understand how machine readable technology could be applied to the next iteration of the PRA Rulebook.


ESMA final report on guidelines for position calculation by trade repositories under EMIR

ESMA recently published a final report containing guidelines for position calculation by trade repositories (TRs) under ESMA. The guidelines apply to TRs registered or recognised by ESMA and they create a framework for TRs to calculate positions in derivatives in accordance with EMIR. They aim to provide regulatory authorities with consistent and harmonised position data, focusing on the time of calculations, the scope of the data used in calculations, and calculation methodologies. ESMA proposes that four separate datasets of calculations are used (position sets, collateral position sets, currency position sets, and currency collateral position sets). The guidelines provide specific instructions on the aggregation of certain data fields and how those should be calculated by TRs before the data is provided to regulatory authorities. The guidelines will start to apply on 3 December 2018 and require an annual assessment of compliance.


ESMA final report on amendments to MiFIR RTS on systematic internalisers' quote obligations

ESMA was required under MiFIR to draft regulatory technical standards (RTS) to specify, in the context of the quoting obligation for systematic internalisers, "the determination of whether prices reflect prevailing market conditions". ESMA's draft RTS were endorsed by the EC and published in the Official Journal of the EU in March 2017. In November 2017, ESMA consulted on revisions to RTS 1 to clarify the concept of "prices reflecting prevailing market conditions" as well as other amendments intended to allow for more consistent and unambiguous application of its provisions. In the final report, ESMA sets out the final version of a draft Delegated Regulation which has been submitted to the Commission. The Commission has three months to decide whether to endorse the proposed amendments to the RTS.


DExEU sets out UK position on Regulation on European crowdfunding services providers

The Department for Exiting the European Union (DExEU) recently published an explanatory memorandum on the European Commission's legislative proposals for a Regulation on European crowdfunding services providers (ECSPs) and a Directive making consequential amendments to MiFID II. In the memorandum, DExEU sets out the UK government's concerns with the Commission's proposals: (i) the proposed Regulation does not distinguish between investment-based crowdfunding and peer-to-peer lending and contains a common definition of crowdfunding that encompasses both activities. The government's view is that the differences between these types of crowdfunding mean that they require different regulatory regimes; (ii) it would prefer national competent authorities, such as the FCA, to be responsible for supervising crowdfunding firms, particularly in the light of the FCA's experience in this area; (iii) an ESMA-supervised regime means that firms could operate domestically with no cross-border activity, but be regulated by ESMA under the European crowdfunding passport (ECP) rather than by the FCA; (iv) the Regulation does not introduce prudential standards for crowdfunding platforms. The UK government believes that platforms should hold appropriate levels of regulatory capital; and (v) the specific disclosure requirements for ECSPs and their investors could be burdensome for platforms, borrowers and investors.


ECB finalises guides on bank and FinTech bank licensing

The ECB recently published the final version of it’s (i) Guide to assessments of license applications; and (ii) Guide to assessments of FinTech credit institution license applications. The guides are not legally binding. Instead, their aim is to support applicants and all entities involved in the process of authorisation to ensure a smooth and effective procedure and assessment. The goal is to achieve maximum transparency in the license application process and raise greater awareness of the procedure followed and criteria applied by the ECB in its assessment of license applications. With respect to the guide relating to FinTech credit institutions, ECB's aims to uphold the same supervisory standards for all credit institutions and ensure a technology-neutral approach to assessing license applications.


ESMA temporary product intervention measures on CFDs and binary options

ESMA recently published a report setting out temporary product intervention measures which prohibit the provision of binary options and restrict the provision of CFDs to retail investors. The report sets out additional information on the measures that have been agreed under ESMA's product intervention power under MiFIR. The measures are considered necessary by ESMA and NCAs to address significant investor protection concerns relating to CFDs and binary options offered to retail investors that arise from issues such as their complexity and lack of transparency and particular product characteristics. The agreed measures for binary options include a prohibition on the marketing, distribution or sale of binary options to retail investors. For CFDs, the measures include a restriction on the marketing, distribution or sale of CFDs to retail investors. Among other things, the CFD restriction will limit the use of leverage and incentives, provide a risk warning for investors and ensure that investors cannot lose more money than they put in. The measures will be published in the OJ and will start to apply one month (for binary options) and two months (for CFDs) after their publication in the OJ.


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25 05 2019

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