Trouble viewing this email? Read it online

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

European Commission communication on strengthening AML supervision and revised legislative proposal on EBA AML mandate

The EC published a communication on strengthening the EU framework for prudential and AML supervision for financial institutions. In the communication, the Commission sets out a strategy for seamless supervisory co-operation between prudential and AML supervisors. A key aspect of this strategy is the proposal that the EBA should be given an enhanced mandate concerning AML supervision. Among other things, this will give the EBA an increased role in the investigation of breaches of AML rules and will enable it, as a last resort, to address enforcement decisions directly to individual financial sector operators. The Commission's strategy also consists of:

  • Revisions to the proposed CRD V Directive on improved information exchange and a duty of cooperation between AML and prudential supervisors.
  • Short-term non-legislative initiatives to be carried out by ESMA, EIOPA and the EBA and the ECB.
  • Long-term initiatives to be considered in the Commission's review of the AML legislative framework.


FCA annual public meeting 2018

On 11 September 2018, the FCA published a speech made by Andrew Bailey, FCA Chief Executive, at its annual public meeting.

Points of interest in the speech include the following:

  • The FCA's guiding principles on Brexit include cross-border market access, support for consistent global standards and co-operation between regulatory authorities.
  • Mr Bailey considers that operational risks represent a new source of risk to the FCA's objectives. He highlights issues relating to operational resilience, technological change and innovation (particularly cryptoassets), financial crime and data.
  • The FCA intends to publish a fuller account of its findings concerning the Royal Bank of Scotland's (RBS) Global Restructuring Group (GRG) as soon as it can.
  • The FCA cannot reach any conclusions on the investigation into the conduct of certain former senior managers at HBOS concerning the failure of the bank until the evidence review process is complete. The FCA is obtaining and reviewing a number of further potentially relevant documents as a matter of priority.
  • The FCA is near the end of its investigative review of HBOS' Reading-based impaired assets team and is considering what action is appropriate.
  • The FCA has not yet started the lessons-learnt exercise concerning interest rate hedging products (IRHPs) as relevant legal proceedings have not yet concluded.


Joint Committees of ESAs recommend action to address risks and uncertainties in EU financial system

On 11 September 2018, the Joint Committee of the European Supervisory Authorities published a report on the risks and vulnerabilities in the EU financial system, which sets out recommendations for policy action. The ESAs advise the following policy actions by financial institutions and by EU and national competent authorities:

  • Stress tests. Stress test exercises should continue to be conducted and developed further across all sectors, especially given rising interest rates and the potential for sudden risk premia reversals, which should be factored into the scenarios.
  • Risk appetite. Supervisory authorities need to pay continued attention to the risk appetite of all market participants. Banks should accelerate addressing their stocks of non-performing loans (NPLs) and adapt business models to sustainably improve profitability, and financial institutions need to carefully manage their interest rate risk.
  • Contagion risks. Macro and micro prudential authorities should contribute to addressing possible contagion risks, including continuing their efforts in monitoring lending standards.
  • Brexit. It is crucial that EU financial institutions and their counterparties, as well as investors and retail consumers, plan appropriate mitigating actions to prepare for the UK's withdrawal from the EU in a timely manner, including the risks associated with a no-deal scenario.


Joint Committee of ESAs report on automation in financial advice

On 5 September 2018, the Joint Committee of the European Supervisory Authorities published a report setting out the results of its second monitoring exercise on the evolution of automation in financial advice in the securities, banking and insurance sectors over the past two years. In the light of their work, the ESAs conclude the following:

  • Analysis shows that while automation in financial advice seems to be slowly growing, the overall number of firms and customers involved still seems to be quite limited.
  • The risks and benefits of automation in financial advice, which were originally identified by the ESAs in their original discussion paper and related report, have largely been confirmed by national competent authorities and seem to be still valid.
  • In terms of emerging business models, it appears that automated services are being offered through partnerships, by established financial intermediaries, rather than by pure FinTech firms.
  • While some new trends seem to have emerged (such as the use of Big Data, chatbots and extension to a broader range of products), there seems to have been no substantial change to the overall market since the publication of the ESA report on automation in financial advice in December 2016.

Considering the results of its analysis, and in terms of the limited growth of automated financial advice and lack of materialisation of the identified risks, the report states that no immediate action by the ESAs appears to be necessary. The ESAs will carry out a new monitoring exercise if and when the development of the market and market risks warrant it.

FCA quarterly consultation 22

On 7 September 2018, the FCA published its 22nd quarterly consultation paper which invites comments on proposed # its rules and guidance as outlined below:

  • Changes to reporting requirement in the Supervision manual (SUP). The FCA proposes (in chapter 2 of CP18/24) to make changes to chapter 16 of SUP (SUP16) to update the Gabriel validation rule and FCA guidance on form FSA056 (capital adequacy for authorised payment institutions (APIs)) for element 32B (own funds requirement). The changes clarify how to calculate element 32B. The proposed text of the amendments is set out in the draft Supervision Manual (Reporting No X) Instrument 2018, which is in Appendix 2 to CP18/24. The deadline for responses to these proposals is 7 November 2018.
  • Change to the FCA's supervisory principles. The FCA proposes (in chapter 3 of CP18/24) to make changes to its existing supervisory principles in SUP 1A.3.2G, to replace those principles with the supervisory principles detailed in chapter 2 of the FCA's Approach to Supervision, which the FCA published for consultation in March 2018 (see Legal update, FCA consults on mission document setting out its approach to supervision). This will provide clarity for firms and individuals about how the supervisory principles guide its supervisory work. The proposed text of the amendments is set out in the draft Supervision Manual (Supervisory Principles Amendment) Instrument 2018 in Appendix 3 to CP18/24. The deadline for responses to these proposals is 7 October 2018.

You regularly receive communications from Cummings Law Ltd ("Cummings") relating to legal updates, invitations to events and other information that may be of interest to you. We believe that we have a legitimate interest in sending these to you and in order to do so we hold your personal data on our database. It is our responsibility to provide you with our privacy policy, which governs the communications that we send to you. In our privacy policy, you will find details about how we use your personal data and how you can exercise your rights in relation to it. If you would prefer not to receive our emails please unsubscribe here or below or at any time by clicking the unsubscribe link which is located at the bottom of every email we send to you.

We have taken great care to ensure the accuracy of this version of Legal Shorts. However, Legal Shorts is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from, action taken or refrained from on the basis of this publication. If you would like to be removed from the mailing list of this publication please click unsubscribe below. Nothing within this communication may be copied, re-printed or similar without prior written consent from Cummings.

Authorised and regulated by the Solicitors Regulation Authority. Please contact us if you would like to arrange a meeting. This message (including any attachments) from the law firm of Cummings is confidential and may contain information which is proprietary, privileged or otherwise legally protected against unauthorised use or disclosure. If you are not the intended recipient, please do not read, copy, distribute, disclose or otherwise use or place any reliance on any information in this message or any attachments; and please alert the sender by return e-mail, delete this message and any attachments from your system and destroy any hard copies. Neither Cummings nor the sender accepts liability for any corruption, interception or unauthorized amendment of messages or attachments transmitted by e-mail. It is your responsibility to scan this message and any attachments for computer viruses in accordance with good working practice. The firm is not authorised by the Financial Conduct Authority, but is authorised and regulated by the Solicitors Regulation Authority (for the code of conduct please see and undertakes certain activities in relation to investments which are limited in scope and incidental to its legal services or which may reasonably be regarded as a necessary part of its legal services.


Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Fisher
Devonshire House 1 Mayfair Place
London Greater London W1J 8AJ
United Kingdom

25 05 2019

Subscribe a friend | Unsubscribe

email sent by multimail