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Being better informed FS regulatory, accounting and audit bulletin

PwC FS Regulatory Centre of Excellence

January 2013

In this issue:

EC approves SSM AIFMD delegated acts and consultations OTC reforms closer to implementation Financial Services Bill 2012 2013 regulatory themes

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 1

Welcome to this edition of “Being better informed”, our monthly FS regulatory, accounting and audit bulletin, which aims to keep you up to speed with significant developments and their implications across all the financial services sectors.

Laura Cox Lead Partner FS Regulatory Centre of Excellence

In mid-December, EU regulators cleared their desks for the holiday, issuing a raft of technical standards, consultations and guidelines. They are tying up loose ends on CRD IV, EMIR, AIFMD and other reforms coming into force this year.

The EU’s banking union proposal gained traction as Eurozone leaders agreed to hand over the prudential supervision of large banks to the ECB from early 2014. The UK government won a major voting concession - the EBA’s decisions will need to be supported by majority of Eurozone and non-Eurozone countries. But the political debate on the UK’s long-term role in Europe looks likely to continue through 2013. This merits close monitoring as developments could impact the UK’s competitive position.

On OTC derivatives, the EC adopted the first batch of EMIR technical standards setting out most of the operational requirements for firms, CCPs and TRs. For UK firms, the FSA issued the first set of rules to conform the CASS sourcebook to EMIR’s client money rules. In the US, the CFTC issued a second wave of no-action and interpretation letters. An interim final rule release further delayed

some rules due to come into force on 1 January 2013.

Asset managers have a busy year ahead implementing AIFMD. In December, the EC adopted its AIFMD Delegated Regulation, which sets out requirements for fund managers. ESMA published draft AIFMD RTS, setting out the criteria for AIFMs and draft guidelines clarifying some key AIFMD concepts.

Other important asset management developments last month included: ESMA’s publication of the official translations of its UCITS guidelines, which kick-starts a two month period for Member States to ‘comply or explain’. The EP and Council also agreed on the texts of European Social Entrepreneurship Funds and European Venture Capital Funds regulations, which will come into force with AIFMD in July.

In the UK, the FS Bill 2012 received Royal Assent in December – putting the new regulatory framework on track to launch on 1 April. The FPC gave us a taste of its intentions when it published its interim minutes which state its views that many banks are underplaying prudential risks to their capital levels.

The FPC calls on the FSA to work with UK banks to improve capital. Outcomes from this work will be published later in the year.

After many years of consultation and some disagreement, the UK’s revised retail rules under RDR came into force on 31 December 2012. Several rules, such as commission bans, precede EU retail proposals so all eyes should look to the UK’s experience as a test case.

Our first 2013 publication wouldn’t be complete without gazing into our crystal ball. In this month’s feature article we share our perspectives on the regulatory reforms likely to affect you.

We wish you a happy, healthy and prosperous New Year.

Laura Cox FS Regulatory Centre of Excellence 020 7212 1579 laura.cox@uk.pwc.com

Executive Summary

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 2

How to read this bulletin?

Review the Table of Contents the relevant Sector sections to identify the news of interest. We recommend you go directly to the topic/article of interest by clicking in the active links within the table of contents.

Contents

Executive Summary 1

Shadow Bank of the Future? 3

Cross Sector Announcements 6

Banking and Capital Markets 24

Asset Management 26

Insurance 28

Monthly Calendar 33

PwC Insights 41

Glossary 42

Contacts 46

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 3

We expect 2013 to be another remarkable year in the development of financial services regulation. Key post-financial crisis reforms will begin to take hold, intensifying implementation pressure on banks, asset managers and other market participants.

This new regulation is designed to make our markets and financial institutions safer, more transparent, and more closely supervised – this year we should start to see if these solutions are working. Below we consider how key regulatory initiatives coming into force this year will impact firms and our markets.

RRPs: extending the resolution framework

Last year the FSB and other international regulators worked on getting RRPs in place for G-SIBs. In 2013 the resolution efforts will extend to other systemically significant institutions. Regulators will develop a more international approach for G-SIBs and other G-SIFIs: producing institution-specific co-supervisory agreements for international firms, information sharing agreements and

frameworks for resolvability assessments.

Investment firms, insurers and financial infrastructure providers such as CCPs, exchanges, payment institutions, and even large investment funds, will come onto the RRP radar. The FSB plans to publish a list of globally significant insurers (G-SIIs) in April 2013, and finalise policy measures 18 months later.

Regulators will extend the RRP framework to domestically significant financial institutions. Canada, Australia, Hong Kong, Singapore and India all plan to require RRPs for both global and domestic firms operating in their jurisdictions.

Regulators’ biggest challenge this year may be resolving the balance between global, regional (e.g. the Liikanen EU proposals) and domestic requirements. Groups operating in multiple jurisdictions need certainty and consistency of international rules to manage their businesses effectively.

OTC derivatives: a higher price for safer markets

In 2013 the full force of Dodd-Frank Act Title VII derivatives rules take hold, before EU and other jurisdictions implement their OTC reforms later this year. The new OTC derivative reforms will fundamentally change the US$650trillion global OTC derivatives market’s trading, operations and culture. Here is how we see this play out in 2013:

Due to tight deadlines, firms will struggle to comply with deadlines for transaction reporting, with some less prepared financial institutions and non-financial firms possibly missing them altogether.

Extra-territorial rules will become clearer and firms are likely to reduce or restructure some of their cross-border trading activity. Platform providers may delay developing new trading models until such time as the extra-territorial rules are fully understood.

International standards for managing CCP risk will evolve, but will not be fully tested until the next bout of market volatility.

The demand for eligible collateral will spike, so collateral optimisation will become more crucial.

From next year onward FMIs will become the dominant force in these markets – designating which trades are cleared and who manages risk in the system.

Shadow banking: more data, please

Policymakers should make significant strides this year to strengthen the oversight and regulation of shadow banking. The FSB proposed many new reforms in securities lending, repos and money market funds in November 2012. These measures will bring many more financial institutions inside the traditional regulatory parameter, substantially increase regulation in some existing regulated sectors, to mitigate potential systemic risks on the financial system and wider-economy.

However, significant challenges remain. Shadow banking reforms must ensure they achieve their primary purpose, and don’t impose unnecessary costs on market players.

2013: a transformative year

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 4

Data is critical to effective supervision because shadow banking, by its very nature, is ever evolving. Shadow banking supervisors will need to closely monitor data to spot the build-up of risks in the non-regulated banking system. The FSB have also emphasised the importance of international coordination and the need for regulators to regularly share information.

The FSB plans to publish final policy recommendations by September 2013. The EC is also expected to issue legislative proposals on shadow banking in early 2013.

Banking restructuring: policy harmonisation – or not?

In September 2011 the ICB recommended ring-fencing retail banking; increasing loss absorption in ring-fenced banks; and improvements to competition. In October 2012, the Government published a draft bill to bring these recommendations into law. But the draft bill delegates much of the definition, including levels for the de-minimis threshold, to secondary legislation that comes later.

In the wider European context, Ekki Liikanen (Governor of Central Bank of Finland) delivered his recommendations for reforming bank

structures in Europe. It echoes the ICB report, calling for trading to be separated from deposit-taking activities, but does not specify how that will be achieved. The Liikanen report proposals are at an early stage than the US and UK measures and it remains to be seen how the EU will take this forward in 2013.

The US Volcker rule, which places limits on banks' proprietary trading abilities, was meant to be finalised by end-2012 but the timetable has slipped to at least Q1 2013. This is due to its complexity and the volume of feedback the SEC received.

These regulators will need to reconcile the restructuring rules they agree this year with RRP requirements, which have similar objectives, and restructuring requirements issued in other jurisdictions. While RRP and restructuring rules will inevitably make groups more local, market infrastructure reforms go the other way, making global markets more interconnected than ever.

Remuneration: finalising CRD IV

If the Council and EP don’t reach political agreement on CRD IV by the end of January, it is unlikely that any bonus cap provisions could be in place ahead of the banks’ 2013 compensation

round. Bonus capping is a major threat to European banks’ competitiveness. Any compromise which includes a relaxation of the strict 1:1 bonus to salary ratio will be welcomed by the industry.

But even if the bonus cap is relaxed, these new regulations will still probably have a major impact on compensation structures in the European banking sector.

Moving from regulatory to market transparency

The new FINREP and COREP regimes, Form PF requirements for asset managers, and new derivative transaction reporting requirements under Dodd-Frank and EMIR will give regulators unprecedented views into firm’s risks and business operations.

We’ll see more proposals to support the wider transparency agenda. Policy makers will move to extend risk disclosure requirements made by the largest financial institutions, in line with the FSB’s comments, and new rules for consumer products will lead to greater transparency on pricing and sales incentives.

Firms will be closely watching how consumers, investors and market counterparties react to this information.

Insurance: LTGA decisions, interim Solvency II measures and G-SIIs

Virtually all insurance regulatory developments in Europe are dominated by Solvency II and its progress toward implementation. EIOPA aims to launch its impact assessment of the Solvency II LTG package in January, completing it in March 2013. EIOPA is conducting the LTGA at the request of the EU legislators, in context of the Omnibus II negotiations. The LTGA results should provide legislators with information that will allow them to complete the Omnibus II negotiations and the LTG rules. A report on the LTGA is likely to be published in June 2013.

With delays to the Solvency II implementation date now inevitable, EIOPA issued its opinion on what measures insurers should take during the period between January 2014 and the new implementation date. While EIOPA will likely issue detailed guidelines shortly for national supervisors, EIOPA may require national supervisors to implement certain aspects of Solvency II from 1 January 2014, particularly Pillar 2 and potentially aspects of Pillar 3. Firms may be required to demonstrate an effective risk management framework, system of governance, an ORSA which is both current and forward looking,

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 5

pre-application of internal models and reporting requirements.

The IAIS will publish by Q2 2013 its conclusions about the data it collected from its October 2012 consultation on policy measures for G-SIIs. This followed the IAIS’s earlier consultation proposing a methodology to identify G-SIIs. We expect the IAIS to publish its first list of G-SIIs, but policy measures for (re)insurers designated G-SII will come in until 2014.

Outside of the EU, a number of policy developments are seeking to achieve rules equivalent to Solvency II or simply seek to modernise supervisory regimes. This year could be dominated by EU and US discussions exploring the similarities between the two insurance regimes and a growing mutual recognition of their markets. The US will continue work on the Solvency Modernisation Initiative. This introduces, among other things, rules for the US ORSA as well enhances group company supervisory requirements. A number of insurance regulatory developments are taking place other countries this year as well, in South America, Africa and Asia.

Focus on culture and conduct

Our financial institutions lost ground in 2012 in the fight to regain public trust

after the financial crisis. This year, regulators and institutions will be reflecting on failings that came to light last year – fraud in setting LIBOR and other benchmarks, more mis-selling of financial products and failures to comply with basic AML requirements, to name a few. Financial institutions and their investors are paying a huge price for these conduct failings. In 2013, supervisors will expect firms to improve their conduct risk management significantly, but that alone will not be enough.

In many parts of the industry, institutions have cultures that are not in alignment with regulators’ and the public’s expectations. Recovering from the financial crisis and building trust isn’t just about creating new rules and regulations, and no amount of robust new regulation or more intrusive supervision can ever fully counteract a poor culture. Change must come from within. To achieve better outcomes for financial stability and for individual customers, the industry needs to put building stronger culture at the top of its agenda in 2013.

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 6

In this section:

Regulation 8

AIFMD 8 Swiss funds enter EU market 8 AIFMD Delegated regulations 8 Alternative investment fund definition remains elusive 8 Clarifying open-ended and closed-ended AIFs 8

Capital and liquidity 9 Basel III implementation falls further behind 9 Liquidity and coverage reporting for supervisors 9

CASS 9 See ‘Conforming CASS to EMIR rules’ under Market

Infrastructure 9

Consumer protection 9 Rebuilding trust in capital markets 9 Kay Blair argues disclosure is not enough 10 ESMA ramps up consumer protection 10 EBA holds first ‘Consumer Protection Day’ 10 Arch Cru redress scheme announced 10

Corporate governance 11 Raising the heat on financial institutions’ corporate

governance 11 Corporate governance codes on the uptake 11

Dodd-Frank Act 11 Extraterritoriality guidance tops no-action letters and

guidance 11 EU regulators question Dodd-Frank extraterritoriality 12 More Title VII extensions announced 12 First list of clearing mandatory contracts 12

Recording rules hit execution venues 12 SEC amends clearing submission procedures 12 More of our Dodd-Frank Title VII analysis 12

Enforcement 12 Regulating LIBOR administrators and submitters 12 AML enforcement reshapes holding company role 13

Financial crime 13 The link between culture and market abuse 13 New AML rules for EU e-money providers 13

Financial stability 14 European financial system stabilising 14

LIBOR 14 Removal of LIBOR benchmarks delayed 14

Market infrastructure 14 EC endorses first EMIR technical standards 14 Conforming CASS rules to EMIR 15 First guidelines on CCP interoperability 15 BoE previews FMI supervisory approach 15

Other regulatory 16 Ross gives ESMA 2013 outlook 16 FSA publishes Handbook Notice 125 16 CRA draft guidelines shine light on new regime 17 ESMA stakeholder group reviews accomplishments 17

Pensions 17 EIOPA consults on national pension reporting ITS 17

Product rules 17 New disclosure rules for insurance sold in packaged

accounts 17

RDR 18

RDR adviser complaints webpage goes live 18 FSA issues final RDR guidance 18

Regulatory reform 18 PRA enforcement policies emerge 18 Parliament scrutinises FS Bill proposals on ring-fencing 18 Green light for April start to new regulatory structure 19 FSA publishes more Handbook amendments to bring in

new regime 19

Retail products and conduct 19 FCA develops product intervention powers 19

RRPs 20 ECB gets behind EU Recovery and Resolution regime 20 Moving toward harmonised FMI disclosures 20

Shadow banking 20 Capital rules on securitisation 20

SSM 21 SSM takes a leap forward 21 Moving towards EMU 2.0 21

UCITS 21 New repo guidelines for UCITS 21

Accounting 22

IASB 22 IASB maps out future work programme 22 Eliminating the inconsistencies between IFRS 10 and IAS

28 22 Revenue measurement and recognition issues agreed 22 Methods of depreciation and amortisation (IAS 16 and IAS

38) confirmed 22

Cross Sector Announcements

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 7

Guidance on fair value measurement of unquoted equity

instruments 22 Accounting for acquisitions of interests in joint operations

(IFRS 11) 22 PwC publications 22 Year-end accounting reminders 22 Practical guide to IFRS 10 - Investment entities: Exception

to consolidation 23 Practical guide to IFRS 9 - Limited amendments to the IFRS

9 classification and measurement model 23 Preserving SME’s reduced disclosure regime 23

Audit 23

Internal guidance and FAQs on the audit tendering

provision of the Code 23

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 8

Regulation

AIFMD Swiss funds enter EU market

ESMA and the Swiss Financial Market Supervisory Authority (FINMA) announced terms of a Memorandum of Understanding (MoU) on 3 December 2012, meeting one of the AIFMD requirements for Swiss funds to market in the EU. The MoU establishes the regulators’ respective roles and responsibilities in supervising Swiss alternative AIF and AIFM cross-border activities.

ESMA must conclude cooperation agreements with non-EU country regulators to establish the exchange of information and supervision of cross-border activities regulated under AIFMD. AIFMs and AIFs located in non-EU countries cannot access the EU market after July 2013 unless ESMA has a cooperation agreement place. Also, EU AIFMs cannot delegate activities, such as portfolio management, to firms outside the EU without a cooperation agreement with a firm’s national regulator in place.

The ESMA/FINMA MoU covers the AIFMD technical standards as drafted by ESMA. ESMA finalised the MoU before the publication of the final AIFMD technical standards (published by the Commission on 19 December but

subject to a three month scrutiny period by the European Parliament and the Council). It may need to amend the MoU if EU legislators make any late stage changes to the technical standards.

This MoU is the first AIFMD regulatory cooperation agreement even though AIFMD comes into force in July 2013. EU fund managers with offshore structures may find they face barriers if ESMA does not complete international cooperation agreements with the US and other key jurisdictions soon. Verena Ross, speaking on 4 December 2012 (see ‘Ross gives 2013 outlook’), indicated that ESMA will make completing these agreements a top priority during early 2013.

AIFMD Delegated regulations

After months of speculation, the EC published the AIFMD Delegated Regulation (Level 2 technical standards) on 19 December 2012, finally giving AIFMs certainty about the implementing requirements.

The technical standards include:

general operating conditions – the risk management, valuation, fair treatment and liquidity requirements for AIFMs

scope of delegation – what AIFMs can delegate without becoming a ‘letter-box’ entity

depositary provisions – defining assets depositaries must take into custody and their oversight of AIFMs

third country requirements – the details of the cooperation agreements that need to be signed with non-EU countries before they can access the EU market after the AIFMD is implemented

leverage rules – setting out that AIFMs must calculate leverage using the gross and commitment methods

transparency requirements – setting out the frequency and detail of information that AIFMs must submit to their national competent authority.

The technical standards are now subject to a three month scrutiny period by the EP and Council, but we don’t expect significant changes.

More details on the technical standards and our AIFMD information for firms can be found here.

Alternative investment fund definition remains elusive

ESMA also published Consultation paper: guidelines on key concepts of the AIFMD (the guidelines) on 19 December 2012, which follows its February 2012 discussion paper.

ESMA is seeking to clarify the characteristics of an AIF under AIFMD. In particular, ESMA provides guidance on the following terms used in the AIF definition:

raising capital

collective investment undertaking

number of investors

defined investment policy.

However, this guidance does not provide definite answers as to the structures and activities which are in the scope of an AIF. Each Member State is required to develop its own statutory definition of an AIF.

The consultation closes on 1 February 2013.

Clarifying open-ended and closed-ended AIFs

ESMA published Consultation paper: draft regulatory technical standards on types of AIFMs on 19 December 2012, the same day on which it published guidelines on the key concepts of the AIFMD and that the EC adopted the AIFMD delegated acts.

The draft RTS set out that an AIFM can be either an AIFM of open-ended AIF(s) or an AIFM of closed-ended AIF(s) and subject each type of AIF to different rules.

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2013: a

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Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 9

To qualify as an open-ended AIF, a fund’s unitholders should have the right to redeem under the following conditions:

unitholders can exercise redemption at least once a year

redemptions are carried out at a price that does not significantly vary from the NAV

there is no restriction in the AIF’s rules or instrument of incorporation to apply special arrangements, such as side pockets, gates, suspensions and lock-up periods.

Any AIF that does not meet these criteria will be considered a closed-ended AIF under AIFMD.

Other issues raised in ESMA’s preceding February 2012 discussion paper - such as the interaction of AIFMD with the UCITS Directive, MiFID and the range of activities an AIFM must perform and can delegate - may form part of later guidelines or a Q&A.

The consultation closes on 1 February 2013.

Capital and liquidity Basel III implementation falls further behind

The Basel Committee discussed at its meeting on 13-14 December progress on the implementation of Basel III. 11

countries have finalised regulations: Australia, Canada, China, Hong Kong SAR, India, Japan, Mexico, Saudi Arabia, Singapore, South Africa and Switzerland.

Seven other jurisdictions have issued draft regulations and are working towards completing these as quickly as possible: Argentina, Brazil, EU, Indonesia, Korea, Russia and the US. Turkey plans to issue draft regulations early in 2013.

The Cypriot Presidency didn’t manage to finalise the CRD IV trialogue negotiations (given other priorities) before the end of December. However, the negotiations are expected to wrap up by the end of January 2013 under the Irish Presidency. Othmar Karas, the EP rapporteur, recently said that the prolonged negotiations are likely to require a 1 January 2014 launch date for the new regime, with the transitional implementation period contracted from 10 to 9 years.

Liquidity and coverage reporting for supervisors

The EBA published an update on supervisory reporting requirements for liquidity and leverage ratio on 20 December 2012. The EBA consulted on these issues in June 2012 but is unable to finalise ITS recommendations until legislators complete the CRR.

In the interim, this update provides:

a draft feedback statement on the ITS consultation on supervisory reporting requirements for liquidity coverage and stable funding

draft templates and related instructions for supervisory reporting requirements for liquidity coverage and stable funding

a draft feedback statement on the ITS consultation on supervisory reporting requirements for leverage ratio

draft templates and related instructions regarding supervisory reporting requirements for leverage ratio.

Under the CRR proposal, the EBA is required to report to the EC on the impact of the liquidity coverage requirement by September 2013 and annually thereafter. The EBA plans to consult on the data point model for leverage and liquidity reporting in Q1 2013.

The EBA says that the new reporting provisions are likely to be implemented within a year of CRR’s completion.

CASS See ‘Conforming CASS to EMIR rules’ under Market Infrastructure

Consumer protection Rebuilding trust in capital markets

Steven Maijoor, ESMA Chairman, spoke on ESMA’s initiatives on Rebuilding investors trust in EU capital markets on 4 December 2012.

Maijoor supports the EC’s MiFID II proposals to ban inducements, stating that at a minimum they should be banned for advisers providing discretionary portfolio management and those classified as ‘independent’. Maijoor hopes EU legislators will follow the example of some Member States that have already banned inducements but also that legislators will give stakeholders reasonable time to implement the ban.

Maijoor believes that it is necessary to review banks’ remuneration practices to determine if their policies bias advisers towards in-house products. The MiFID II inducement requirements will be key to ensuring that pay structures do not create false incentives.

To regain the trust of more sophisticated investors, Maijoor believes that they must have access to appropriate and reliable information. ESMA sees enforcement of IFRS as

Executive

Summary

2013: a

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year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 10

crucial - it recently published a set of common IFRS enforcement priorities.

Regarding forbearance, Maijoor said that lenders need to clearly state in their financial statements the credit risk they are exposed to in relation to forbearance. They should disclose their forbearance practices when the exposure is material, and evaluate the need for potential impairments.

ESMA is also focused on corporate governance practices. It will push proxy advisors to come up with a code of conduct built on key principles, as an alternative to regulatory rules. ESMA is also likely to seek to strengthen convergence of the rules with regards to the Takeover Bids Directive (2004/25/EC) during 2013.

Kay Blair argues disclosure is not enough

Kay Blair, Vice Chair of the Financial Services Consumer Panel, discussed the dangers of over-reliance on the new Key Investor Information Document (KIID) at EIOPA’s Consumer Strategy day in Frankfurt on 4 December 2012. Blair welcomed the KIID’s potential to improve disclosure to consumers, but stressed that the KIID should be seen as only one part of a wider consumer protection framework.

Blair highlighted the unequal relationship between highly knowledgeable providers of financial

products and consumers who frequently have a limited understanding of products and markets. The KIID provides information that enables consumers to compare similar products. But firms must ensure that consumers are provided suitable products for comparison purposes. Firms need to be aware that consumers may still find it difficult to evaluate disclosures on complex products’ features.

Blair’s reference to suitability and the duties that firms owe to consumers goes beyond compliance with regulatory requirements but is consistent with the FCA’s new supervisory approach. From April 2013 the FCA will consider firms’ business models, requiring firms to demonstrate that they are considering consumer’s needs when designing their marketing strategies.

ESMA ramps up consumer protection

At the ESMA Investor Day in Paris on 12 December 2012, Steven Maijoor, ESMA Chairman, discussed how ESMA is working to enhance investor protection (a core ESMA responsibility), set standards and provide technical advice to the EC.

While Maijoor observed that the MiFID II proposals will further strengthen investor protection, he believes that in the meantime existing protections can

be reinforced if MiFID I rules are fully implemented, effectively supervised and consistently enforced.

Maijoor supports banning inducements, particularly when used in discretionary portfolio management and independent advisory services. ESMA will use all of its powers to regulate inducements, which are a factor in many unsuitable product sales.

ESMA is not against complex financial products and recognises that in some instances complex features may render a product more suitable to an investor. ESMA’s current initiatives to regulate complex products stem from their sale through mainstream channels, which created unnecessary risks for some retail investors.

Maijoor foresees a growing international role for ESMA. Recent G20 regulatory initiatives require enhanced co-ordination between regional and national legislators, regulators and standard setters.

EBA holds first ‘Consumer Protection Day’

The EBA held its first Day on ‘Consumer Protection’ on 25 October 2012, and published the outcomes from the day on 17 December 2012. The event drew 135 participants spanning regulators, consumer groups, academia and industry. The EBA organised the

event around three key consumer protection topics.

Consumer indebtedness, including the causes and role of financial literacy, formed the first panel topic. The EBA expects to consult on guidelines for responsible lending and the treatment of borrowers in difficulties during the second half of 2013.

The second panel considered retail sales of complex financial products. The debate focused on the interaction between innovation and regulation, and competition. The EBA and ESMA plan to publish a joint warning on contracts for differences and a good practice note on ETFs.

The final topic was consumer trends in retail banking. This session considered the role of regulation, consumer representation and culture. The EBA will be collecting and analysing consumer trends (as per the 2011 consumer trends report) and plans to publish the 2012 report in early in 2013.

Arch Cru redress scheme announced

The FSA has published Consumer redress scheme in respect of unsuitable advice to invest in Arch Cru funds (PS12/24 ) on 17 December 2012.

The FSA consulted on the consumer redress scheme in April 2012. Industry, consumer groups and politicians all

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significantly engaged and raised diverse opinions and issues. Respondents questioned whether the FSA’s legal tests had been met and noted the disproportionate burden likely to be placed on all firms through increased FSCS levies.

A number of amendments change the focus of the scheme. Significantly, the FSA modified the scheme to require consumers to ‘opt-in’ to the review, rather than requiring firms to proactively review all sales. It is delaying the scheme’s start date has from 1 January 2013 to 1 April 2013 in order to accommodate these amendments.

The FSA estimate that 15-30% of consumers will opt-in, resulting in an anticipated redress of £20-40 million, in addition to the £54 million in voluntary settlements already made between four entities and consumers.

Corporate governance Raising the heat on financial institutions’ corporate governance

The EP’s resolution on Corporate Governance in Financial Institutions was published in the Official Journal on 7 December 2012. The resolution is the EP’s response to the EC's June 2010 green paper on corporate governance and was adopted in May 2011.

The resolution calls for:

financial institutions to establish effective governance systems, with adequate risk management, compliance, internal audit functions, strategies, policies, processes and procedures

financial institutions to implement fit and proper persons criteria and processes for senior officers and all material risk takers (and for national regulators to ensure compliance with these criteria)

economically significant financial institutions to establish risk committees or equivalent arrangements at board level and at parent company board level for all economically significant financial groups.

the EC to develop legislation requiring boards of large financial institutions to subject to regular external evaluation

financial institutions to publish the number of staff receiving total remuneration greater than EUR1 million

the EC to develop legislation requiring those authorised to manage investments on behalf of third parties in the EU to state publicly whether adhere to a stewardship code.

The EP also encourages institutional shareholders to take a more active role.

Corporate governance codes on the uptake

The FRC published Developments in Corporate Governance 2012 on 19 December 2012. The FRC found that Stewardship Code was a catalyst for greater engagement between companies and their shareholders in 2012. Since its introduction in 2010, over 250 parties have signed up to the Code, including most major institutional investors.

Similarly, the FRC noted that the UK Corporate Governance Code enjoyed a strong year in 2012. 96% of FTSE 350 companies now put all directors up for re-election every year. The majority of those companies will have the effectiveness of their boards reviewed at least every three years.

Both codes were amended in September 2012 to increase accountability and engagement throughout the investment chain. Among the changes this year to the UK Corporate Governance was a new requirement for FTSE 350 companies to put external audit contracts out to tender no less than every ten years. This aims to ensure high quality and effective audits.

Changes to the Stewardship Code during 2012 included an amendment

which clarifies the respective responsibilities of asset managers and asset owners for stewardship and for stewardship activities that they outsource.

Dodd-Frank Act Extraterritoriality guidance tops no-action letters and guidance

The CFTC published 21 Dodd-Frank title VII related no-action and interpretive letters and additional guidance.

The no-action letters address:

calculations

chief compliance officer requirements

reporting

external business conduct

reporting

registration

Relevant for non-US firms are:

U.S. Bank Wholly Owned by Foreign Entity May Calculate De Minimis Threshold Without Including Activity From Its Foreign Affiliates (12/62)

U.S. Bank Wholly Owned by Foreign Entity May Calculate De Minimis Threshold Without Including Activity From Its Foreign Affiliates

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2013: a

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See our Certain foreign-owned US banks may avoid registration under swap dealer aggregation rules.

Also, the CFTC published on 21 December 2012 additional guidance on the cross-border application of the Title VII rules. See our Cross Border clarity – the CFTC provides guidance and additional time for the industry to address cross border swaps.

The CFTC also published an updated FAQ on swap entities on 10 December 2012.

EU regulators question Dodd-Frank extraterritoriality

Steven Maijoor, ESMA Chairman, issued a written statement on the Dodd-Frank Act to the Agriculture Committee of the U.S. House of Representatives on 13 December 2012. Maijoor outlines ESMA’s role in drafting secondary legislation, drawing a parallel with the CFTC’s role.

He summarised the efforts of international regulatory authorities aimed at achieving regulatory convergence and at recognizing different but equivalent regulatory approaches. This work has identified a number of “conflicting, duplicative and inconsistent” requirements in approaches to derivatives regulation and international regulators have agreed to work together to resolve inconsistencies.

However, he raised specific concerns about how the Dodd-Frank Title VII rules treat foreign firms operating in the US, which the CFTC seems unwilling to address. Maijoor is particularly worried about the end-2012 deadline for the registration of non-US swap dealers under the Dodd-Frank Act:

Non-US swap dealers must register in the US before the CFTC has completed the full range of Dodd-Frank Act rules applicable to these entities

Registration will give US supervisors and the US Department of Justice direct access to the books and records of registered firms. This requirement is inconsistent with some jurisdictions’ privacy laws and contradicts established international practice.

International discussions on convergence and regulatory recognition are ongoing. Requiring registration before regulators have completed international agreements may undermine international cooperation.

The statement, published on the ESMA website, demonstrates that ESMA is willing to stand up to international pressure when US extraterritorial regulatory impacts could damage European markets and firms.

More Title VII extensions announced

The CFTC announced on 18 December 2012 that it was extending certain external business conduct and transactional requirements due to come into force on 1 January 2013. The Interim Final Rule regarding Conduct and Documentation Requirements extends the compliance date for documentation provisions, portfolio reconciliation, and swap trading relationship documentation for swap dealers and major swap participants.

The interim rule will come into force on the date of publication in the Federal Register, but the CFTC will consider any comments received it receives within 30 days of publication. See our CFTC delivers holiday gift to Wall Street -- Delays EBC and Documentation Requirements for more information.

First list of clearing mandatory contracts

The CFTC issued its Final Rule regarding Clearing Determinations on 13 December 2012. The clearing obligation comes into effect on 11 February 2013.

Recording rules hit execution venues

The CFTC also published a Final Rule adopting its Final Rule Adopting Regulations for Recording of Swaps Transactions. This rule requires CFTC registrants who are members of

designated contract markets or swap execution facilities to record all oral and written swap transaction communications and archive for five years. The rule comes into effect on 19 February 2013.

SEC amends clearing submission procedures

The SEC published its Amendment to the Final Rule on Procedures for Reviewing Clearing Submissions under the Dodd-Frank Act, which came into effect on 10 December 2012.

More of our Dodd-Frank Title VII analysis

Proposed US/UK resolution strategy – more questions than answers: We are a long way from a global resolution regime

Is Your Counterparty Documented? ISDA Protocol adherence slower than expected

Enforcement Regulating LIBOR administrators and submitters

The FSA published The regulation and supervision of benchmarks (CP 12/36) on 5 December 2012, incorporating recommendations of the Wheatley Review of LIBOR and HMT’s subsequent proposed legislative measures: Implementing the Wheatley Review: draft secondary legislation. The first regulated UK benchmark will

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be LIBOR. However, the regulatory framework can be extended to cover additional benchmarks.

The FSA indicated that new approach will be stated in clear and unambiguous rules in the Market Conduct (or MAR) section of its Handbook.

FSA is planning to require individuals managing LIBOR administration and submission to become FCA Approved Persons under the controlled functions regime.

The FSA is also proposing that benchmark administrators must corroborate submissions and monitor for any suspicious activity. Individual banks submitting to benchmarks must have in place a clear conflicts of interest policy, and appropriate systems and controls governing their relevant functions.

The consultation period on Chapters 1-3 closes on 16 January 2013. Chapter 4 of the consultation paper is a discussion paper on how best to broaden participation in the LIBOR benchmark, advocating that increasing the number of firms submitting rates will enhance competition and liquidity in the rates. The consultation period on this Chapter closes on 13 February 2013.

The FSA plans to publish a policy statement and the final Handbook text in March 2013.

AML enforcement reshapes holding company role

On 11 December 2012, the FSA announced that it is taking action against HSBC for breaches of AML rules and US sanctions requirements. The FSA is coordinating its action with US authorities’ enforcement actions for AML deficiencies.

HSBC will have to ensure that ll its group companies are compliant with their AML legal and regulatory requirements. The FSA is also requiring HSBC Holdings to:

establish a board level committee to oversee anti-money laundering, sanctions, terrorist financing and proliferation financing compliance

ensure that all group company policy and procedures are subject to standards equivalent to UK requirements

appoint an FSA approved person to act as Group Money Laundering Reporting Officer (MLRO) to supervise all group company compliance

employ an independent firm to monitor efforts and report to the HSBC board committee and regulators.

The FSA will monitor HSBC’s compliance with these requirements.

Financial crime The link between culture and market abuse

Jamie Syminton, FSA Head of Wholesale Enforcement, spoke on Challenging the culture of market behaviour at the City and Financial Market Abuse Conference in London on 4 December 2012.

Syminton explained that, while market abuse is a result of the conduct of an individual or group, what makes that conduct possible is the culture of firms, the industry and the regulatory environment. The best way to tackle market abuse is to change the culture which enables and supports it.

The FSA is working to change culture by:

visibly prosecuting perpetrators of market abuse

taking action against firms and individuals who have not done enough to prevent market abuse

using the lessons learned to educate the industry on how best to prevent abuse going forward.

Syminton gave evidence of increased action by the FSA under each limb of this approach since the financial crisis. Criminal and civil prosecutions for

market abuse have increased, as have the levels of fines. The FSA has undertaken thematic visits to firms engaged in activities such as High Frequency Trading (HFT) where the FSA sees high risks of market abuse.

The FCA has an explicit conduct supervision remit, and will look at both retail and wholesale market conduct. Firms should expect the FCA to maintain the current FSA attitude towards the role of culture in preventing market abuse, restoring investor confidence and ensuring the long-term stability of the financial system. Symington notes that this is further evidence of a joined-up approach to regulation, supervision and enforcement under the new regulatory framework.

New AML rules for EU e-money providers

The Joint Committee of the ESAs (JCESA) published a report on the application of AML/CTF obligations to, and the AML/CTF supervision of e-money issuers, agents and distributors in Europe on 7 December 2012.

The report describes e-money as a comparatively new retail payment product, though its use is growing rapidly. The strong demand for new payment solutions, particularly with regards to online purchase of goods and services, is driving its growth. E-money

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does not constitute a deposit; therefore e-money issuers do not need to be authorised as credit institutions.

The report includes:

an overview of Member States’ implementation of EU AML and CTF requirements in relation to the issuance, distribution and redemption of electronic money

a description of Member States’ approaches to AML and CTF supervision of e-money issuers, their agents and distributors

identification of differences in the Member State implementation legislation which could affect the integrity of the AML/CTF regime

The report reveals that significant differences exist in the national implementation of the 2nd E-Money Directive (2nd EMD) and in the application of AML/CTF legislation to e-money issuers, their agents and distributors.

These differences are caused by inadequate or ambiguous provisions in the 2nd EMD and the 3rd AML Directive), including issues such as the:

definition of the point in time where e-money is issued

definition of e-money agents and distributors

application of passporting rules and guidelines to e-money entities

distribution of powers between home and host AML/CTF supervisors.

The EC recommends that the 2nd EMD and 3rd AML Directive are amended to remove these inconsistencies.

Financial stability European financial system stabilising

The ESRB released its second risk dashboard on 20 December 2012. The dashboard seeks to draw conclusions on data monitoring for systemic risk, macroeconomic risk, credit risk, liquidity and funding risk, market risk, and solvency and profitability risk.

Since the last update, systemic risk measures have fallen from their peaks, in line with a positive market response to policy measures. Risk measures are at levels comparable to those in early 2001-2003, following the burst of the dot-com bubble in the US.

Since the last update:

banks have continued their deleveraging process, albeit at a slower pace than the prior period

banks’ earnings outlook remains generally weak with profitability continuing to fall

overall credit standards in the eurozone continue to tighten

the insurance sector appears resilient to the adverse macroeconomic environment.

The dashboard provides a useful snapshot of the current state of the European financial system. It should help to identify and measure systemic risk in the EU financial system and provide important information for the ESRB’s discussions on risks and vulnerabilities.

LIBOR Removal of LIBOR benchmarks delayed

The BBA published a feedback statement to its November consultation: Strengthening LIBOR – proposal to implement recommendation number 6 of ‘The Wheatley Review of LIBOR’ on 14 December 2012. The Final Report of the Wheatley Review of LIBOR called on the BBA to reduce the number of currencies and maturities for which it produced LIBOR.

The BBA is removing the GBP Repo benchmark, as well as LIBOR for AUD, NZD, CAD, DKK and SEK. The BBA will also discontinue certain less frequently used maturity intervals from May 2013 (rather than January 2013 as originally proposed.

Market infrastructure EC endorses first EMIR technical standards

On 19 December 2012 the EC endorsed the first batch of EMIR technical standards, a milestone toward the legislative completion. The technical standards include details for:

derivative counterparties: indirect clearing arrangements, the clearing obligation procedure, the public register, access to a trading venue, non-financial counterparties, and risk mitigation techniques for OTC derivatives contracts not cleared by a CCP.

CCPs: requirements for CCPs, as well as the capital, retained earnings and reserves of a CCP and CCP record keeping requirements.

TRs: minimum details of data to be reported to TRs, the details of TR registration applications, data that TRs must publish and make available and operational standards for aggregating, comparing and accessing the data.

While the majority of the technical standards were endorsed by the EC without modification, the EC rejected the technical standards for CCP colleges (which will approve CCP authorisation applications). However, the EC advises that the rejection of this set does not

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jeopardise compliance dates in the remainder of the technical standards.

On 21 December the ITS portion of these technical standards were published in the Official Journal:

transaction reporting format and frequency

CCP record keeping

TR registration requirements

The EC requested that the ITS come into force when the corresponding EMIR RTS come into force. The RTS will now pass to the Council and EP for endorsement and are expected to come into force in late March 2013.

Conforming CASS rules to EMIR

The FSA published Client Assets Regime: changes following EMIR (PS12/23 on 14 December, changing CASS rules to reflect certain EMIR segregation requirements. The new rules apply to UK regulated clearing houses and clearing house member firms.

The FSA does not anticipate that the amendments will cause significant problems for firms. The final rules:

confirm that client money held by a clearing member firm in a client transaction account at a CCP is excluded from the pooling and

distribution triggered by a 'primary pooling event'

clarify rules on return of funds (pages 20-25)

prohibit porting of client positions until a CCP is EMIR authorised

indicate that the FSA will allow netting in CCP client omnibus accounts (see page 10)

confirm that full title transfer clients must be offered separate accounts at the CCP, but their funds will not be protected by EMIR or CASS on the member firm's insolvency (page 11-14)

confirm that pre-funding of positions is to be treated as protected client money in CCP client money accounts.

The FSA states that it will implement the rules on segregation, portability of positions and margin 'when the first CCP is authorised'. The FSA expects to publish more draft rules to amend CASS after EU legislators publish final EMIR technical standards.

First guidelines on CCP interoperability

ESMA published draft guidelines for establishing and assessing interoperability arrangements between central counterparties (CCPs) 20 December 2012. Supervisors will use

the Guidelines when reviewing CCP applications for interlinking CCP arrangements.

EMIR requires ESMA to ensure that national competent authorities’ (NCAs) assessments of interoperability arrangements are consistent, efficient and effective. ESMA can only approve interoperability arrangements after the relevant CCPs have been authorised for at least three years under national regimes, EMIR or equivalent third country regimes. Therefore, it will only be able to assess existing CCPs 3-4 years from now, afterthe NCAs have made the relevant equivalence assessments.

In making their assessments, NCAs should consider:

legal risk: the rights and obligations of each CCP should be clearly stated, and the arrangements should contain coherent, enforceable legal provisions

fair and open access: a request for interoperability from another CCP can be rejected only on risk grounds

risk identification, monitoring and management of arrangements: to ensure that risk is prudently managed

deposit of collateral: to ensure availability of collateral in all circumstances

co-operation between NCAs: to adequately supervise interlinking CCP arrangements.

The consultation closes on 31 January 2013. ESMA intends to issue the final guidelines by 31 March 2012. CCPs can apply to NCAs for EMIR authorisation from the date that the relevant RTS governing authorisation come into force, around March 2013.

BoE previews FMI supervisory approach

The BoE published its Approach to the supervision of financial market infrastructures on 18 December 2012. The new UK regulatory structure, commencing on 1 April 2013, cedes supervision of FMIs to the BoE. Although this paper isn’t a formal consultation, the BoE has invited stakeholders to provide feedback..

The BoE will require all FMIs to meet minimum standards outlined in the CPSS-IOSCO principles, EMIR and relevant UK rules (FSMA 2000 and the Banking Act 2009). The BoE will prioritise supervisory efforts where it identifies the greatest risks to financial stability. In assessing risk, the BoE will consider both the nature of risk and the consequences of failure, and seek to mitigate risks with a range of controls and capital requirements.

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The paper outlines the high level approach to day to day operational issues, such as: supervisory assessment and intervention, data collection, internal audit, risk and compliance, enforcement and fees. The paper also previews the BoE’s views on its accountability and transparency as a supervisor.

The BoE intends to publish further information on its processes for issuing warning and decision notices, penalties, powers relating to holding companies, the appointment of key individuals and the application of FSMA s166 powers in early 2013.

Other regulatory Ross gives ESMA 2013 outlook

ESMA Executive Director Verena Ross spoke on ESMA’s role in markets reform on 4 December 2012. She gave an overview of ESMA’s progress, its priorities for 2013 and some insight into its work to develop trading and market infrastructure rules.

On EMIR, Ross noted that ESMA has delayed the final batch of consultations on technical standards on collateral for non-cleared OTC trades to ensure international consistency. The Basel Committee’s International Working Group on Margins is currently proposing a two-way system for margins on uncleared derivative transactions, under which the

obligation to exchange collateral lies with both counterparties, or ‘universal two-way margining’. ESMA supports this approach and encourages the buy-side community to also support this system, because it would improve the management of credit risk. In addition, ESMA is developing a set of communications to raise understanding of EMIR, including the development of a dedicated EMIR webpage and a set of Frequently Asked Questions.

Discussing the MiFID II proposals, Ross encouraged the buy-side to give its views on high-frequency trading; ESMA’s previous attempts to get the buy-side input on this topic have not been particularly successful. Ross said that technological innovation has a positive impact on market efficiency but that trading systems (and firms) need also to effectively contribute to fair and orderly trading. Ross also reassured stakeholders in that, in extending the transparency framework to non-equities, ESMA will review each asset class to ensure that transparency does not harm liquidity.

ESMA’s guidelines on ETFs are now close to completion: ESMA has drafted rules that recognise the horizontal nature of many activities. For example, the new ETF guidelines strengthen rules on securities lending, rather than limiting the rules to ETFs. Ross noted

that these guidelines are relevant to the debate on shadow banking.

On AIFMD, Ross said that ESMA will finalise the remuneration guidelines at the beginning of next year. ESMA plans to publish a discussion paper in February on the types of AIFMs which will be followed shortly by a consultation on draft rules. Ross said ESMA is making progress on negotiating MoUs with non-EU national authorities, and is treating these as a top priority for ESMA.

FSA publishes Handbook Notice 125

The FSA published Handbook Notice 125 on 14 December 2012 (effective dates in brackets) including:

Handbook Administration (No 28) Instrument 2012 (FSA 2012/69) - makes minor administrative changes to correct or clarify existing provisions (31/12/12, 01/01/13, 31/12/13)

Retail Distribution Review (Holloway Sickness Policies) (Amendment) Instrument 2012 (FSA 2012/70) - exempts some Holloway sickness policies from the RDR adviser charging and professionalism requirements (31/12/13)

Senior Management Arrangements,

Systems and Controls (Remuneration Code) (No 5)

Instrument 2012 (FSA 2012/71) –firms subject to the voiding and recovery rules will now be determined by reference to their relevant total assets instead of capital resources (14/12/12)

Training and Competence Sourcebook (Qualifications Amendments No 7) Instrument 2012 (FSA 2012/72) – adds new adviser qualifications, specifies that some existing qualifications allow an adviser to carry out additional activities and changes the layout of how qualifications are presented (31/12/12).

Fees (Miscellaneous Amendments) (No 5) Instrument 2012 (FSA 2012/73) - changes the fee basis for investment advisers, arrangers, corporate finance advisers, dealers and brokers from headcount to income (14/12/12)

Retail Distribution Review (Adviser Charging No 6) Instrument 2012 (FSA 2012/74) - clarifies that advisers should not be remunerated by discretionary fund managers for referrals (31/12/12).

Packaged Bank Accounts (Amendment) Instrument 2012 (FSA 2012/75) - changes ICOB to amend rules for the insurance provided as part of a packaged bank

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account; see PS12/22 (01/01/13 and 3/03/13).

Client Assets Sourcebook (European Markets Infrastructure Regulation Instrument 2012 (FSA 2012/76) – conforms CASS to EMIR requirements. PS12/23 (01/01/13).

CRA draft guidelines shine light on new regime

ESMA published draft Guidelines and recommendations on the scope of the CRA Regulation on 20 December 2012.

The guidelines seek to clarify requirements relating to:

registration

the scope of regulated credit rating activities and exemptions, including the status of private credit ratings

establishing branches outside the EU

best practices for disclosure relating to credit scoring firms and export credit agencies

the scope of CRA based enforcement powers.

The consultation closes on 20 February 2013.

In a separate development, ESMA published Guidelines on cooperation including delegation between ESMA, the competent authorities and the sectoral competent authorities under

Regulation (EU) No 513/2011 on credit rating agencies. The Guidelines, which came into force on 6 October 2011, were published on 17 December 2012 (dated 10 January 2012). No explanation was given for the delay in publication.

The Guidelines set out procedures under which ESMA may delegate certain CRA supervisory duties to national supervisors and procedures on carrying out joint investigations.

ESMA stakeholder group reviews accomplishments

The ESMA Securities and Markets Stakeholder Group (SMSG) published its Annual Activity Report 2011-2012. The SMSG, which was initiated under the ESMA’s founding regulation, was established in April 2011 and consists of representatives from stock exchanges, firms, associations and academia.

This first full Annual Report summarises the SMSG’s achievements since inception. The Group has produced 14 public opinions and delivered advice, reports and a number of informal feedback documents to ESMA.

The SMSG Chair has also initiated contact with the heads of the EIOPA and EBA stakeholder groups to work toward consistency in their respective advice, particularly on issues involving investor protection and SME financing.

In addition to its advisory work, the group has started work on a number of initiatives outside of ESMA’s Annual Work Programme. It set up working groups to examine the impact of regulation on SMEs’ access to capital markets, investor protection issues and CRA issues.

The report includes the 2013 Work Programme. The group envisages that the bulk of its work will be advising ESMA on implementing key legislative proposals, the creation of an EU single rule book and supervisory issues.

Pensions EIOPA consults on national pension reporting ITS

EIOPA published draft ITS on reporting of national provisions of prudential nature relevant to the field of occupational pension schemes on 10 December 2012. The consultation closes on 10 March 2013 and the final report is due by 30 June 2013. EIOPA expects to submit the draft ITS to the EC by 1 January 2014.

Product rules New disclosure rules for insurance sold in packaged accounts

The FSA published Packaged bank accounts - New ICOBS rules for the sale of non-investment insurance contracts Feedback to CP12/17 including final rules (PS12/22) on 14

December 2012. The new rules address the annual eligibility statement (AES) and premium disclosure for insurance sold as part of a packaged account.

The new rules confirm that providers should issue the AES in a separate mailing to avoid any confusion with marketing information. The FSA decided not to change rules which separate the AES from the annual charges summary. The FSA confirmed that the AES must be provided ‘in writing’, which includes email distribution.

The FSA had proposed that the AES should be personalised to all family members covered under a policy. This would have required firms to notify customers when any person entitled to claim benefits under the travel policy exceeds the policy’s age limit. Responding to industry concerns about maintaining multiple individuals’ age information, the final rules only require the policy to be personalised only to the account holder. However, firms will have to issue a reminder to the account holder to check that family members are still within policy parameters.

Firms will no longer have to comply with premium disclosure requirements for insurance policies sold with packaged bank accounts. This change took effect from 1 January 2013.

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The FSA’s next step in improving product transparency will be to raise disclosures standards in financial promotions. Customers should be able to easily understand the costs and benefits of a packaged bank account compared to those of non-packaged accounts.

RDR RDR adviser complaints webpage goes live

The FSA launched a new webpage on 7 December 2012 which allows firms to electronically file retail investment adviser complaints data. In its November 2011 policy statement on data collection in relation to RMAR and complaints data (PS11/13), the FSA has required firms to provide additional complaints reporting notifications for individual retail investment advisers. This data will allow the FSA to monitor their behaviour and competence and to analyse trends.

Complaints notifications must be submitted within 20 working days; whenever three complaints are upheld relating to an individual investment advisor; or where a complaint is upheld and the redress paid exceeds £50,000. The webpage explains how firms should submit the data and links to a form for this purpose. The webpage also contains a link to a set of FAQs on complaints notification.

After firms have notified the FSA of the complaint, firms must also report the complaints in their regular GABRIEL six-monthly return and include them within the firm level and individual adviser level complaints reports.

FSA issues final RDR guidance

The FSA published Retail Distribution Review Newsletter, Issue 8 on 5 December 2012. It includes reminders that:

advisers who have not achieved qualifications by 31 December 2012 and who do not qualify under the 30 month rule or who have not received an FSA waiver must cease providing advice and arrange for de-authorisation

firms planning to apply for waivers to submit an application as soon as possible.

The FSA has contacted a number of vertically integrated firms to discuss remedial action where it believes the firms have taken too narrow a view of what services should be included in the cost of the advice.

The FSA is concerned that some providers or platforms that have opted to facilitate an adviser charge will not meet the requirement to obtain and validate instructions from their clients (the instruction must come from the retail client, not solely from the

adviser). Firms should not assume that they can continue arrangements – they must check that their arrangements comply with the new RDR rules and guidance.

The FSA has written to all firms that plan to facilitate adviser charging. It is requiring each firm to confirm that it is comfortable that its approach will comply with the rules and that it has designed accompanying controls.

Regulatory reform PRA enforcement policies emerge

The BoE and FSA published PRA’s approach to enforcement: consultation on proposed statutory statements of policy and procedure (CP12/39) on 20 December 2012. This paper, relevant to deposit takers, insurance companies and PRA-regulated investment firms, consults on the new agency’s statutory enforcement policies and procedures under FSMA.

While FSMA will grant the PRA a range of statutory supervisory and enforcement powers, it also specifies that the PRA must make clear its policies or procedure relating to its statutory disciplinary and other enforcement powers.

CP12/39 states PRA policies and procedures regarding:

decisions that require statutory notice under FSMA

imposition of financial penalties

imposition of suspensions and restrictions

settlement of cases involving the imposition of financial penalties, suspensions and restrictions

publication of disciplinary and enforcement actions

interviews at the request of overseas regulators.

These policies and procedures will replace the policies and procedures in the FSA Decision Procedure and Penalties Manual. The consultation closes on 28 February 2013.

Parliament scrutinises FS Bill proposals on ring-fencing

The Parliamentary Commission on Banking Standards (PCBS) published its First Report on 21 December 2012, expressing its views on the Government’s proposals to implement the ICB’s recommendations on ring-fencing in the draft FS Reform Bill.

Parliament appointed the PCBS to report and make recommendations on professional standards of the UK banking sector in the wake of the LIBOR scandal. Overall, the PCBS welcomed the Government’s proposals on ring-fencing but highlighted some concerns about its long-term viability.

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The ring-fencing rules must withstand pressure from banks and politicians. To mitigate the risk that the rules will be diluted over time, the regulator should have powers to impose full-separation of banking groups. The regulators should also conduct periodic independent reviews of ring-fencing arrangements for all banks. The PCBS also notes that the Government appears to have too much power to redefine ring-fencing arbitrarily, and that the draft FS Reform Bill delegates too many rules to secondary legislation that has not yet been published.

The PCBS believes that the FS Reform Bill should ensure that ring-fenced banks maintain independence from other parts of their groups. The legislation should also impose a legal duty on a banking group’s directors to preserve the integrity of the ring-fence.

The report makes other suggestions, including giving the FPC the responsibility for setting the leverage ratio from 2013 onward, ensuring that an adequate definition of ‘simple’ derivatives permitted within the ring-fence is drafted, and designing a bail-in regime that works.

During 2013, the PCBS plans to examine a number of issues raised in the report further: restrictions on proprietary trading, the impact of structural changes over time, how to

prevent mis-selling of derivatives and wider issues of competition and transparency.

Green light for April start to new regulatory structure

HM Treasury announced that the FS Bill 2012 received Royal Assent on 19 December 2012. The FS Act 2012 will come into force on 1 April 2013, abolishing the FSA, creating a new regulatory architecture consisting of the FPC, the PRA and the FCA and substantially enhancing financial services regulators’ powers. Within the new framework the BoE will have overall responsibility for protecting and enhancing financial stability, bringing together macro and micro prudential regulation.

During parliamentary scrutiny, the Government amended the Bill to bring benchmark setting activities and use within the scope of FSMA 2000. The rules create a new criminal offence for issuing misleading statements in relation to benchmarks. The Government will now develop secondary legislation setting out the details of regulated activities and offences related to benchmark setting.

FSA publishes more Handbook amendments to bring in new regime

The FSA published implementing markets powers, decision making procedures and penalties policies

(CP12/37), detailing amendments to the FSA Handbook required to implement FCA and PRA policies and powers, on 18 December 2012.

The consultation only covers changes to certain parts of the new FCA handbook. The FSA plans to publish a separate consultation setting out the proposed PRA enforcements policies and procedures.

When the FCA and PRA commence operations on 1 April 2013, FSA Handbook rules will be adopted or ‘designated’ by the FCA, the PRA or by both regulators, to form the basis for the new rulebooks. But more substantive amendments to the Handbook are needed to align the new rulebooks with the new regulatory bodies’ statutory objectives and functions.

The Listing Rules sourcebook (LR) is being amended to reflect the FCA’s new supervisory and disciplinary powers over listing sponsors. The consultation also explains proposed amendments to LR regarding suspensions or cancellations of an issuer’s securities at the request of an issuer. The FS Act 2012 affords the FCA new statutory rights which impact firms’ notification requirements.

The Disclosure and Transparency Rules sourcebook (DTR) must be

amended to reflect changes affecting primary information providers.

The Recognised Investment Exchanges and Recognised Clearing Houses sourcebook (REC) will be amended to reflect supervisory changes.

The Decision Making Procedures and Penalties Policies sourcebook (DEPP) will be amended to reflect statutory changes.

The consultation closes on 1 February 2013. Further FCA and PRA Handbook consultations are expected early in 2013.

Retail products and conduct FCA develops product intervention powers

The FS Act 2012 grants the FCA the power to make temporary product interventions. The FSA issued The FCA’s use of temporary product intervention rules (CP12/35) on 3 December 2012 consulting on the associated policy. The consultation:

outlines the general circumstances in which the FCA might use temporary intervention

clarifies the FCA’s notification process

provides a draft Statement of Policy which formally reiterates when and

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how temporary product intervention might be used.

The consultation suggests that the FCA may use temporary intervention powers when there is an immediate risk to its consumer protection or competition objectives. It can only use them to support market stability when instructed by HMT. In all cases, the FCA Board must approve use of temporary intervention powers. The FCA will post notification of any temporary intervention on its website but does not intend to contact individual firms.

Simple interventions may be limited to consumer or industry warnings. But the FCA will have the power to restrict the sale of certain products to competent advisors or to reduce the range of consumers to whom a product may be sold. The FCA may also require providers to amend marketing material. The FCA may ban or mandate certain features of a product but intends to use this power only in rare cases.

Firms should consider the FCA’s policy, and evaluate the likelihood and consequences of possible intervention for their business model. After the FCA makes a decision to intervene, it will be difficult for a firm to challenge that decision and the reputational damage will be done. So firms need to ensure that their products and services are

consistent with FCA objectives and not vulnerable to intervention.

The consultation closes on 4 February 2013.

RRPs ECB gets behind EU Recovery and Resolution regime

The ECB published its Opinion of 29 November 2012 on a proposal for a directive establishing a framework for recovery and resolution of credit institutions and investment firms on 5 December 2012.

The ECB fully supports the development of a common recovery and resolution framework for EU banks and large investment firms as outlined in the EC’s June 2012 RRP proposal.

The ECB suggests that a resolution framework needs to promote not only financial stability across EU financial markets but must also ensure the functioning of the single market. Within the single market, a set of common resolution tools is essential. The ECB is particularly keen on requirements for robust RRPs for banks and investment firms, as well as the use of a bridge bank, bail-in debt, sale of business and other asset separation tools.

The ECB believes the proposed RRP directive is a “very important step towards an integrated resolution

framework” for the EU. It will form another key facet of the EU ‘banking union’ and should be “adopted rapidly”.

The ECB wants to press ahead with the next steps to form an EU resolution scheme. It urged the EC to present a separate proposal for an independent European Resolution Mechanism, including the foundations of a common European Resolution Fund financed by EU financial institutions.

Moving toward harmonised FMI disclosures

CPSS and IOSCO published their final Principles for financial market infrastructures: Disclosure framework and assessment methodology on 18 December 2012. Global standards on FMI disclosure should make it easier for authorities, investors and customers to understand FMI business and risk profiles.

The disclosure framework outlines the form and content of an FMI’s disclosure of its activities, risk profile and risk management practices.

International assessors (principally the IMF and World Bank) will use the assessment methodology to evaluate the 24 principles and five responsibilities set out in the Principles for financial market infrastructures. It will also act as a reference for national supervisors when assessing their own

FMI oversight and supervision functions.

Shadow banking Capital rules on securitisation

The Basel Committee issued a consultation paper on Revisions to the Securitisation Framework (BCBS236) on 18 December 2012. The proposed changes to the framework are intended to make capital requirements more prudent and risk sensitive, mitigate reliance on external credit ratings and reduce cliff effects (i.e. a change to a factor used to assign regulatory capital requirements that causes a significant increase in capital requirements).

Key proposals include:

introducing new hierarchies of approaches in the securitisation framework

enhancing the current ratings-based approaches and the supervisory formula approach

introducing new approaches, such as a simplified formula approach and different applications of the concentration ratio based approach

extending the 20% risk-weight floor in the standardised approach securitisation framework to banks that use internal-ratings based approaches.

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2013: a

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Asset

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 21

This consultation follows on from a fundamental review of the Basel securitisation framework that the Basel Committee has undertaken since it completed the Basel 2.5 reforms in 2009.

The Basel Committee will consider responses to the consultation and conduct a quantitative impact study before deciding on next steps. The consultation closes on 15 March 2013.

SSM SSM takes a leap forward

EU finance ministers agreed their approach to SSM proposals in the early hours of 12 December 2012. The EC proposals are set out under two draft regulations: one conferring supervisory tasks on the ECB, the other modifying voting rights under regulation 1093/2010 establishing the EBA.

The ECB will be responsible for directly supervising all eurozone banks with assets of more than €30 billion, estimated to be around 180 banks representing 90% of eurozone bank assets. However the ECB will have the legal right to step in to supervise any credit institution in the eurozone.

The UK and other non-eurozone countries won a major concession on agreeing “double majority” voting

rights at the EBA. This provision ensures that EBA decisions must be approved by a majority of both eurozone and non-eurozone countries to take effect. While non-eurozone countries are free to participate in the SSM, it’s unlikely that many will take part at this stage.

The SSM should be up and running by March 2014, giving the ECB some time to mobilise its supervisory infrastructure, recruit personnel and establish its modus operandi. Ministers agreed in December that in the interim the ECB should be able take over direct supervision of any failing bank in the eurozone.

Although the Council only needs only the EP’s consent to adopt the regulation conferring supervisory tasks on the ECB, it has agreed to adopt the two proposals as a ‘package’ and so the trilogue negotiations are key. All parties want the negotiations to be completed promptly and the Irish Presidency has made this a priority. However, the EP’s proposed modifications to the EBA Regulation are substantial, so the trilogue negotiations may be not be as straightforward as some may hope.

Moving towards EMU 2.0

The Council’s conclusions on completing European monetary union, issued on 14 December 2012, set the

following priorities for the Irish Presidency in 2013:

adopting CRD IV as soon as possible, to provide the 'single rule book' underpinning the new SSM approach

adopting the RRD and Deposit Guarantee Schemes proposals

issuing a proposal for a European Resolution Mechanism

designing an operational framework to enable the ESM to directly recapitalise banks

developing proposals for bank structural reforms building on Liikanen’s High Level Expert Group recommendations.

In addition to financial services initiatives, the Council set out views on corporate governance, safeguarding the Single Market as a whole and ensuring democratic legitimacy.

The Council’s priorities suggest that other pieces of legislation in various stages of negotiation, such as the ‘retail package’ tabled last July, may be delayed until these priorities are addressed.

UCITS New repo guidelines for UCITS

ESMA published guidelines on repurchase and reverse repurchase

agreements for UCITS funds on 4 December 2012.

ESMA consulted in July 2012 on UCITS’ use of repo arrangements and proposed restricting the amount of UCITS’ assets which could be sold under non-recallable repo or reverse repo agreements. ESMA has moved away from this idea and instead is requiring all assets sold under repo agreements to be recallable within seven days. UCITS will also have to structure reverse repo arrangements to allow cash to be recalled on either an accrued or mark-to-market basis, which gives fund mangers the ability to unwind positions.

ESMA will amalgamate these guidelines with its July 2012 guidelines on ETFs and other UCITS issues. After the official translations of the guidelines are published, Member State regulators will have two months to comply with the guidelines or explain why not. Some regulators have indicated that they may not comply with these guidelines at this stage but will wait to see if new repo legislation is introduced under UCITS VI.

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2013: a

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Announcements

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 22

Accounting1

IASB IASB maps out future work programme

The IASB published Feedback Statement: Agenda Consultation 2011. In July 2011, the IASB launched its first agenda consultation on its future workplan, which led to a feedback statement published on 18 December 2012. The feedback statement outlines three IASB initiatives to address the responses. See our Straight away 106 publication.

Eliminating the inconsistencies between IFRS 10 and IAS 28

The IASB issued an ED on 13 December 2012 proposing amendments to IFRS 10 ‘Consolidated financial statements’ and IAS 28 (2011) ‘Investments in associates and joint ventures’. The ED eliminates some of the existing inconsistency between the consolidation and joint arrangements standards. The ED amendments will only apply when an investor sells or

1 This section includes accounting developments

with a direct or potential impact on the financial

services industry only. For a complete update on

accounting developments in the UK visit

http://www.pwc.co.uk/eng/services/ifrs_services

.html

contributes assets to its associate or joint venture.

The comment period closes on 23 April 2013. See our publication Straight Away 103.

Revenue measurement and recognition issues agreed

This IASB and the FASB boards’ timeline indicates that they will issue a final IFRS - Revenue Recognition standard in the first half of 2013, with an effective date no earlier than 2015.

The IASB and FASB agreed in December on rules which:

allocate the transaction price to separate performance obligations

apply the proposed model to bundled arrangements

constrain the cumulative amount of revenue recognised on licences and accounting for contract acquisition costs.

The boards’ decisions are tentative and subject to change. Other issues for re-deliberation include scope, disclosures, transition and certain industry specific matters. See Straight away 105 for further details.

Methods of depreciation and amortisation (IAS 16 and IAS 38) confirmed

The IASB published ‘Clarification of Acceptable Methods of Depreciation

and Amortisation - Proposed amendments to IAS 16 and IAS 38’ ED/2012/5. The ED clarifies that a revenue-based method should not be used to calculate the charge for depreciation or amortisation. The consultation closes on 2 April 2013. See our press release and Straight away 102 for further details.

Guidance on fair value measurement of unquoted equity instruments

The IASB published information to assist preparers in applying IFRS 13, ‘Fair value measurement’, when measuring the fair value of unquoted equity instruments within the scope of IFRS 9, ‘Financial instruments’, or IAS 39, ‘Financial instruments: Recognition and measurement’.

The material is for information only and is non-binding, but it will help investors measure unquoted equity instruments at fair value. See our Straight Away 107.

Accounting for acquisitions of interests in joint operations (IFRS 11)

The IASB published an ED addressing accounting for the acquisition of an interest in a joint operation that is a business. The ED clarifies that an acquisition that meets the IFRS 3 business definition is not a business combination, because the acquiring party does not obtain control. However, the ED proposes that business

combination accounting should be applied. See our Straight Away 104.

PwC publications

IFRS News. The December 2012/January 2013 edition contains information on:

IFRS 9 Project: Making headway on financial instruments

IASB Revenue Project: Boards

make progress

IAS 19 and Discount Rates: IC debates definition of ‘high quality’

Impairment of Non-financial Assets: Goodwill and non-current assets on regulatory radar

Cannon Street Press:

◦ Agenda consultation

◦ Rate regulated activities

◦ EDs for scope amendments

◦ Annual improvements ED

◦ ED on acquisitions of interests in joint operations

Questions and Answers: ‘B’ for business.

Year-end accounting reminders

Read about reporting requirements, topics issues, new standards and

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FS regulatory, accounting and audit bulletin – January 2013 PwC 23

interpretations in effect for the accounting year end 31 December 2012.

Year-end accounting reminders - IFRS

Year-end accounting reminders – UK GAAP

Practical guide to IFRS 10 - Investment entities: Exception to consolidation

Many funds and similar entities will be exempt from consolidating controlled investees under amendments to IFRS 10, ‘Consolidated financial statements’. This exemption comes as a result of amendments to, IFRS 12, ‘Disclosure of interests in other entities’ and IAS 27, ‘Separate financial statements’, on 31 October 2012. These amendments particularly benefit funds, as those that qualify will be able to apply fair value to controlled investments, rather than having to consolidate them. However, the amendments do not apply to the consolidated accounts of a non-investment parent of an investment subsidiary.

The amendments apply to annual periods beginning on or after 1 January 2014, but earlier application is permitted. See our practical guide.

Practical guide to IFRS 9 - Limited amendments to the IFRS 9 classification and measurement model

In November 2012 the IASB published an ED proposing limited amendments

to IFRS 9 ‘Financial Instruments (2010)’. Our practical guide summarises the proposals and their impact on the current IFRS 9 financial instruments classification and measurement model.

Preserving SME’s reduced disclosure regime

The ESAs published their response to the IASB’s request for information on its Comprehensive Review of IFRS for small and medium sized enterprises (SMEs) on 12 December 2012. The IFRS rules allow SMEs that are ‘financial institutions and other entities that hold assets for a broad range of stakeholders to disclose less than the full IFRS rules require. In their response, the ESAs urged the IASB not to increase requirements for SMEs.

Audit

Internal guidance and FAQs on the audit tendering provision of the Code

Guidance has been issued to the assurance practice on implementing the transitional arrangements suggested by the FRC for the new audit tendering provision of the UK Corporate Governance Code. A number of FAQs are also dealt with. The guidance and FAQ responses are available on inform. This material is for internal use.

As a reminder, two practical guides on the new tendering provision and also to the Code changes to board and audit committee reporting are available on Inform. These are designed for both internal and external use.

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2013: a

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 24

In this section:

Regulation 25

Other regulatory 25 Credit union interest rate caps set to rise 25

Deputy Chairman, Financial Services Regulatory Practice

Anne Simpson

020 7804 2093

anne.e.simpson@uk.pwc.com

FS Regulatory Centre of Excellence

Andrew Hawkins

020 7212 5270

andrew.d.hawkins@uk.pwc.com

Banking and Capital Markets

Executive

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Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 25

Regulation

Other regulatory Credit union interest rate caps set to rise

HMT consulted on Credit union maximum interest rate cap on 18 December 2012, under which it proposes to raise credit unions’ maximum interest rate cap from 2% to 3% per month.

The proposal is based on findings reported by the DWP in its May 2012 Credit Union Expansion Project Project Steering Committee Feasibility Study Report. The DWP found that the current 2% cap makes it difficult for credit unions to break even on small, short-term loans. This restricts their ability to offer loans to those who depend on higher cost alternatives.

The consultation closes on 15 March 2013.

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2013: a

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Announcements

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 26

In this section:

Regulation 27

Alternative investment 27 Social enterprise and venture capital funds on EU horizon 27

Other regulatory 27 FSA gives Asset Pool Monitor guidance 27

UCITS 27 UCITS guidelines come into force 27

Asset Management Regulatory Lead

Amanda Rowland

020 7212 8860

amanda.rowland@uk.pwc.com

FS Regulatory Centre of Excellence

Andrew Strange

020 7804 6669

andrew.p.strange@uk.pwc.com

Asset Management

Executive

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Cross Sector

Announcements

Banking and

Capital Markets

Asset

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 27

Regulation

Alternative investment Social enterprise and venture capital funds on EU horizon

The Council and EP announced on 12 December 2012 that they had reached political agreement on the European Social Entrepreneurship Funds Regulation and the European Venture Capital Funds Regulation.

EU legislators are introducing these structures to facilitate investment in venture capital and social undertakings, aims of the Europe 2020 strategy. The regulations create investment requirements for these two new types of funds. While such funds must maintain assets under management below €500m to remain outside the AIFMD scope, the funds will be eligible for European passports to facilitate EU distribution.

The regulations are expected to come into force on 22 July 2013, the same date by which Member States must implement AIFMD.

Other regulatory FSA gives Asset Pool Monitor guidance

The FSA published a thematic overview on the role of the Asset Pool

Monitor (APM) on 13 December 2012. The guidance provides insight on APM reports and inspections required under the Regulated Covered Bonds (RCB) Regulations 2008, while allowing APMs some flexibility.

An APM must inspect a regulated covered bond issuer and prepare an annual report on the quality of the assets in the asset pool. Only one APM should be appointed for each RCB programme and the report must be provided to the FSA.

APMs are expected to opine on the issuer’s compliance with the 2008 regulation. While the FSA does not want to be prescriptive about APM processes, the FSA says that the APM’s inspection report should go further than just listing errors detected in the review. APMs must inspect the issuers’ compliance with the relevant regulations and whether the issuer is part of the scope of an agreed-upon procedures audit. Contents should include:

scope of the agreed upon procedures

APM’s conclusion on the accuracy of the records

APM’s assessment of the steps taken by the issuer to comply with

Regulations 16 and 17, and on the quality of the assets in the pool

APM’s conclusion about the compliance of the issuer with Regulations 16 and 17.

The FSA does not impose a sampling methodology on APMs, but the FSA expects the APM to identify and justify its methodology in the report. When choosing a sample, APMs are expected to use best efforts in determining expected and maximum error rates.

The FSA states in the findings that it recognises that APMs could follow a range of approaches to carry out assessments. Should APMs require further clarification on due diligence, they should contact the FSA.

UCITS UCITS guidelines come into force

ESMA published the official translations of its guidelines for UCITS on 18 December 2012. The majority of these guidelines were finalised in July 2012, but ESMA delayed publishing the official translations until the guidelines on repos and reverse repos for UCITS were finalised earlier in December (see separate article).

Competent authorities have two months from the date of publication to

declare whether they will comply with the guidelines or explain why they are not going to comply. It will be interesting to see if any competent authorities decide not to comply with the guidelines with many similar themes emerging in the wider-reaching UCITS VI consultation.

Once a competent authority declares that they comply with the guidelines, the transitional arrangements will start. UCITS in that jurisdiction have up to a year to comply with the guidelines.

Executive

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2013: a

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Cross Sector

Announcements

Banking and

Capital Markets

Asset

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 28

In this section:

Regulation 29

Consumer protection 29 EIOPA to focus on consumer protection in 2013 29 FSA reminders firms of unfair contract terms 29

Enforcement 29 EIOPA enforcement processes made clear 29

Other regulatory 29 Help on the way for with-profits mutuals 29 Changes to policies in packaged bank accounts 29 Macroeconomic uncertainty tops concerns in stability

report 30 Regulatory reform 30

EU and US supervisors continue dialogue 30 Add-on general insurance to be reviewed 30

RRPs 30 RRP rules for insurers challenged 30

Solvency II 30 Solvency II delay remains unconfirmed 30 EIOPA to conduct long-term guarantees assessment 31 EIOPA presses ahead with Pillar 2 31 FSA cancels IMAP briefing, defers review of technical

provisions 31

Accounting 32

IASB 32 IASB Insurance Contracts Project: IFRS 4, phase II 32

Global Solvency II Leader

Paul Clarke

020 7804 4469

paul.e.clarke@uk.pwc.com

FS Regulatory Centre of Excellence

Mike Vickery

011 7923 4222

mike.p.vickery@uk.pwc.com

Insurance

Executive

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2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 29

Regulation

Consumer protection EIOPA to focus on consumer protection in 2013

Gabriel Bernardino, EIOPA Chairman, spoke at the EIOPA Consumer Strategy Day in December, outlining EIOPA’s 2013 strategic objectives. Priorities include raising consumer awareness of consumer rights and obligations and working toward more harmonisation of EU consumer protection regimes.

EIOPA also wants to concentrate on key consumer trends, develop industry training standards and promote cross-sectoral regulatory consistency and enforcement.

FSA reminders firms of unfair contract terms

On 6 December 2012, the FSA issued a copy of Royal London Mutual Insurance Society Limited’s notice of undertaking to amend terms the FSA found in unit linked contracts. Firms should take note of all FSA enforcement generated undertakings or court decisions as part of their risk management reviews.

Enforcement EIOPA enforcement processes made clear

EIOPA published its Procedures for warnings, temporary restrictions and prohibitions on 6 December 2012. These procedures came came into force immediately when adopted in November, to support EIOPA’s strategic objectives in respect of crisis management, financial stability and consumer protection.

If a financial activity threatens EIOPA’s objective ‘to contribute to the stability and effectiveness of the financial system or the orderly functioning and integrity of financial markets’ EIOPA may issue a:

warning (not suspending the activity)

temporary prohibition (banning certain financial activities for a defined period)

temporary restriction (permitting the financial activity to continue for a defined duration, with restrictions and/or specific conditions).

EIOPA may take these actions against insurers, intermediaries, national supervisors or, in the case of warnings, issue them to consumers.

Other regulatory Help on the way for with-profits mutuals

Faced with declining with-profits business, many mutuals may be forced to close as with-profits funds run down. The FSA published Mutuality and with-profits funds: a way forward (CP 12/38) proposing changes to support the market.

The FSA proposed allowing a single fund to split into a with-profits fund and a 'mutual members' fund' which are not be subject to COBS 20 restrictions. This mutual members fund could be used to write new with-profit business. Key aspects of the proposal include:

removing the requirement to split funds through a court sanctioned scheme

removing the requirement for policy holder approval, unless required by the mutual's constitution (policyholders must still be appropriately engaged and informed)

requiring a robust business case for the mutual continuing in business as opposed to going into run-off

requiring assurance that the proposed split is fair to all policyholders and does not amount to a reattribution

obtaining a report on the split from an independent expert (with the terms of reference to be agreed with the FCA)

The FCA, in consultation with PRA, will consider each application and, if successful, will grant a waiver from COBS 20 to the mutual members' fund.

The proposal should enable mutuals to move forward in a way that treats with-profits policyholders fairly while considering the interest of policyholders when closing down with-profit business. It also should not have an effect on policyholders’ interests in proprietary with-profits funds. Finally, the change would encourage firms to share new business with members.

The consultation closes on 19 March 2013.

Changes to policies in packaged bank accounts

The FSA published Packaged bank accounts, New ICOBS rules for the sale of non-investment, insurance contracts - Feedback to CP12/17 including final rules (PS12/22) responding to issues

Executive

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2013: a

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arising from FSA’s July 2012 consultation CP12/17 and publishes final rules. PP12/17 confirms that:

requirements for the content and distribution of the annual eligibility statement take effect from 31 March 2013

ICOBS rule on separate premium disclosure will be switched off from 1 January 2013 for policies sold through packaged bank accounts.

Macroeconomic uncertainty tops concerns in stability report

EIOPA published its Financial Stability Report on 12 December 2012. The bi-annual report discusses the state of financial stability in relation to the insurance, reinsurance and occupational pension fund sectors in the EU/EEA as of 29 October 2012. Macroeconomic uncertainty continues to be the main challenge for the European insurance and occupational pensions industries. In addition, a realistic timetable for Solvency II implementation is urgently needed to aid European financial stability.

EIOPA also published their quarterly Risk Dashboard for December 2012. The findings do not show any risk increases. The major risk for insurers

continues to be macroeconomic risk, including political risk and weak worldwide growth outlook.

Regulatory reform EU and US supervisors continue dialogue

The EU/US Insurance Dialogue Project, comprised of representatives from the EC, EIOPA, the US National Association of Insurance Commissioners (NAIC) and the Federal Insurance Office of the US Department of the Treasury (FIO), seeks to foster mutual understanding and to enhance cooperation between the two regions.

The project Steering Committee agreed in December on seven common objectives and underlying initiatives to be pursued over the next five years. The Committee plans to develop a detailed project plan in early 2013. See EU/US Dialogue Project: The way forward and Updated EU-US Dialogue Project Technical Committee Report for details.

Add-on general insurance to be reviewed

The FSA announced that it will study the sale of general insurance products in conjunction with non-financial products and services. These policies are often offered with larger purchases,

such as cars, holidays and electronic devices. The study will look at whether there are common features of the ‘add-on’ insurance product markets that weaken competition and drive poor consumer outcomes.

The FCA aims to complete the assessment by the Q3 2013.

RRPs RRP rules for insurers challenged

EIOPA published its response to the EC consultation which proposed extending the RRP framework rules for banks to non-bank financial institutions. EIOPA identified issues that policy makers should consider when applying an RRP framework to insurers, including:

policyholder protection, as well as financial stability

the broad economic implications of an insurer’s failure (including insurers that are not systemically important)

aligning RRP objectives to Solvency II supervisory objectives

designating a resolution authority in each Member State and more consideration of the resolution process, including funding

dropping the ‘no creditor worse off than in liquidation’ requirement (NCWO), which would be complicated to apply to insurers and may not provide adequate protection to policyholders.

The EC consultation period closed on 28 December 2012.

Solvency II Solvency II delay remains unconfirmed

The recently announced delays to Omnibus II mean that Solvency II’s 1 January 2014 implementation date is likely to be postponed. The EU has yet to make a formal announcement, but a recently published letter from European Commissioner Barnier to the EIOPA Chair, Gabriel Bernadino, noted that the policy setters are 'continuing to discuss the date of application for Solvency II'.

Market speculation often cites 2016 as a possible implementation date, but a revised date has not been fixed. Commissioner Barnier urges EU legislators to publish a joint statement with a clear, realistic timetable when legislators agree on the revised date.

Our two page summary discusses how insurers may respond to the delay.

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2013: a

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 31

EIOPA to conduct long-term guarantees assessment

The main issue behind the Omnibus II/Solvency II delays is legislators’ failure to agree how to treat products with long-term guarantees (LTG). EU legislators asked EIOPA to perform a long-term guarantees assessment (LTGA) and EIOPA issued a press release in December with key dates:

launch of exercise 28 January 2013

submission of results by participating insurers 31 March 2013

publication of report June 2013.

Paul Clarke, our global Solvency II leader commented on the LTGA:

Reactions from the insurance industry to the outcome of the assessment will be mixed. Whilst all insurers should welcome an agreed calibration model as it finally brings closure to the major outstanding Solvency II issue, the impact of model will vary from insurer to insurer, leading to winners and inevitably losers.

The LTGA findings should help legislators to finalise the Omnibus II rules. However, given that the June

2013 submission of the report, the vote in the EP plenary, currently scheduled for 10 June, is likely to be deferred again.

EIOPA presses ahead with Pillar 2

EIOPA issued an opinion and press release on 20 December 2012, setting out guidance for insurers and Member State supervisors on Solvency II Pillar 2 supervisory measures to be adhered to from 1 January 2014. EIOPA believes that, given the expectation of a further deferral of the regime launch, there is a risk of bilateral approaches being adopted by national supervisors in the interim which are inconsistent. It plans to publish specific guidelines to national supervisors on these issues in Q1 2013.

Pillar 2 requirements stipulate that insurers should have effective governance and risk management systems, including a forward-looking assessment of the insurer's own risks (based on the ORSA principles). Risk-management systems should include strategies, processes and reporting procedures to identify, measure, monitor, manage and report an insurer’s risks on a continuous basis. Firms should manage risks at

individual and aggregated level and address their interdependencies.

National supervisors should evaluate insurers' governance systems and how firms assess their risks. Supervisors should also form views on insurers who plan to use internal models, assessing their degree of readiness to make internal model applications, and keep up with changes to the internal model framework. These requirements should be applied in a manner which is proportionate to the nature, scale and complexity of the insurer's business.

It remains to be seen how national supervisors will respond to EIOPA's guidelines (which will be adopted on a ‘comply or explain’ basis). There are questions as to whether all national supervisors are empowered to apply the rules at this stage.

The FSA plans to look at how firms with relatively advanced ORSAs could meet current supervisory requirements, but all insurers may have to produce ORSA-style assessments from 2014.

EIOPA’s opinion demonstrates that insurers cannot just 'switch off' their Solvency II preparations now that an implementation delay seems certain. The corporate governance

requirements will apply from 2014 and others may apply earlier as well.

FSA cancels IMAP briefing, defers review of technical provisions

The FSA cancelled its 10 January 2012 industry briefing for insurers using the IMAP. Instead, the FSA plans to write to these firms communicating updates.

Due to continuing delays to Omnibus II, the FSA is deferring the second stage of its review of technical provisions which focus on calculations. The second stage of the review will no longer be performed on a year-end 2012 balance sheet, but on a year-end closer to the date of Solvency II implementation. The FSA will provide more information on the progress of the first stage (which focussed on approach and methodology) and update firms on the second stage in Q1 2013.

Where to go for more information

Read more about Solvency II on our web pages at www.pwc.co.uk/solvencyII

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2013: a

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 32

Accounting2

IASB IASB Insurance Contracts Project: IFRS 4, phase II

The IASB is working with the FASB to develop a harmonised IFRS for insurance contracts. However, differences between the IASB and FASB’s decisions mean that full convergence between their standards is unlikely. For more information see our webpage and also the IASB’s high level summary of the project status.

The IASB met on 14 December 2012 to continue their discussions on the proposed Insurance Contracts Standard. The discussion focussed on residual margin: an industry proposal for a ‘floating’ residual margin was narrowly rejected. But the IASB clarified points about unlocking the residual margin. It also confirmed that the constraint on recognising revenue which was proposed in the revenue

2 This section includes accounting developments

with a direct or potential on the financial

services industry only. For a complete update on

accounting developments in the UK visit

http://www.pwc.co.uk/eng/services/ifrs_servic

es.html

project should not be applied to the allocation of the residual margin.

The IASB also tentatively decided that the proposed financial instrument impairment model would not be applied to reinsurance assets.

See our summary of the meeting.

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Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 33

Open consultations

Closing date for responses

Paper Institution

14/01/13 Consultative document strengthening oversight and regulation of shadow banking: a policy framework for strengthening oversight and regulation of shadow banking entities

FSB

14/01/13 Consultative document strengthening oversight and regulation of shadow banking: an integrated overview of policy recommendations FSB

14/01/13 Consultative document strengthening oversight and regulation of shadow banking: a policy framework for addressing shadow banking risks in securities lending and repos

FSB

16/01/13 CP12/36: the regulation and supervision of benchmarks (consultation paper part) FSA

29/01/13 CP12/34: regulatory reform – FCA Handbook FSA

31/01/13 Consultation paper: guidelines for establishing efficient, consistent and effective assessments of interoperability arrangements ESMA

31/01/13 Thinking about disclosures in a broader context: a road map for a disclosure framework FRC

01/02/13 CP12/32: implementation of the Alternative Investment Fund Managers Directive FSA

01/02/13 CP12/29: personal pensions – feedback to CP12/5 and final rules on disclosures by SIPP operators and consultation on inflation-adjusted illustrations

FSA

Monthly Calendar

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 34

Closing date for responses

Paper Institution

01/02/13 CP12/37: The Financial Services Bill: implementing market powers, decision making procedures and penalties policies FSA

01/02/13 Consultation paper: guidelines on key concepts of the AIFMD ESMA

01/02/13 Consultation paper: draft regulatory technical standards on types of AIFMs ESMA

04/02/13 CP12/35: the FCA’s use of temporary product intervention powers FSA

06/02/13 CP12/30: complaints against the regulator (Bank of England, Prudential Regulation Authority and Financial Conduct Authority) FSA

06/02/13 Annual Plan: consultation document 2013-14 OFT

13/02/13 CP12/36: the regulation and supervision of benchmarks (discussion paper part) FSA

20/02/13 Consultation paper: guidelines and recommendations on the scope of the CRA Regulation ESMA

22/02/13 CP12/33: a new capital regime for Self-Invested Personal Pension (SIPP) operators FSA

28/02/13 CP12/39: the PRA’s approach to enforcement: consultation on proposed statutory statement of policies and procedures FSA

10/03/13 Consultation Paper on Draft Implementing Technical Standards on reporting of national provisions of prudential nature relevant to the field of occupational pension schemes

EIOPA

15/03/13 Consultative document: revisions to the Basel Securitisation Framework BIS

15/03/13 Consultation on raising credit unions’ maximum interest rate caps HMT

19/03/13 CP12/38: mutuality and with-profit funds: a way forward FSA

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 35

Closing date for responses

Paper Institution

31/03/13 Standard on risk management for Takaful (Islamic insurance) undertakings IFSB

Forthcoming publications in 2013

Date Topic Type Institution

Capital and Liquidity

Q1 – Q2 2013 CRR/CRD IV 76 regulatory technical standards, 32 implementing technical standards and 20 guidelines

EBA

Q1 2013 Review of Financial Conglomerates Directive Legislative proposals EC

Q1 2013 Removing the simplified ILAS BIPRU firm automatic scalar increase and other minor changes

Policy statement FSA

Q1 2013 Changes to the capital regime for self-invested personal pension operators

Policy statement FSA

TBC 2013 Revision of Financial Conglomerates Directive (FICOD II) Legislative proposals EC

TBC Strengthening Capital Standards 4 – consultation on CRD IV Consultation paper FSA

Client Money

Q3/Q4 2013 Review of the client money rules for insurance intermediaries Policy statement FSA

TBC Client assets regime (multiple client money pools) Policy statement FSA

TBC Regulated client money regime for consumer credit companies Consultation paper FSA

Consumer protection

Q1 2013 An EU framework for collective redress Legislative proposals EC

Q1 2013 Investor Guarantee schemes- revision Legislative proposals EC

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 36

Date Topic Type Institution

Q1 2013 Bank accounts Legislative proposals EC

Q1 2013 National Depositor Preference and UK depositors Policy Statement FSA

Q1 2013 FSCS management expenses levy limit (MELL) Consultation paper FSA

Q1 2013 FSCS funding model review Policy statement FSA

TBD Mortgage Market Review: Arrears and Approved Persons- final rules

Policy statement FSA

Financial crime, security and market abuse

Q1 2013 Financial message data transfer from the EU to the USA for the purposes of the Terrorist Finance Tracking Program

Report EC

Q4 2013 Market Abuse Review Technical advice ESMA

TBC 2013 Third Anti-Money Laundering Directive Legislative proposals EC

Insurance

Q2 2013 Tracing employers liability insurers – historical policies Policy statement FSA

Q3 2013 Institutions for Occupational Retirement Provision Legislative proposals EC

Q4 2013 Technical standards for Omnibus II Technical standards ESMA

Securities and markets

Q1 2013 Securities Law Directive Legislative proposals EC

Q1 2013 Limitation period and further procedures for fining credit rating agencies

Regulation EC

Q1 2013 Revision of the Transparency Directive Discussion papers ESMA

Q1 2013 Close-out netting Legislative proposals EC

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 37

Date Topic Type Institution

Q1 2013 Central counterparties loss allocation rules Consultation paper FSA

Q1 2013 OTC Derivatives, CCP Requirements, Trade Repositories and CCP Interoperability (EMIR)

Guidelines ESMA

Q1 2013 Guidelines on the enforcement of EMIR provisions on OTC derivatives

Guidelines ESMA

Q1 2013 Joint technical standards on Article 11 of EMIR (exchange of collateral)

Technical standards ESAs

Q2 2013 Guidelines on MiFID remuneration Guidelines ESMA

Q2 2013 Enhancements to the Listing Regime Policy statement FSA

Q4 2013 Technical standards following the revision of MiFID (MiFID II and MiFIR)

Technical standards ESMA

TBD 2013 Credit Rating Agencies III Regulation Technical advice ESMA

Products and investments

Q1 2013 Voluntary jurisdiction relating to interest rate hedging products Consultation paper FSA

Q1 2013 European Social Entrepreneurship Funds Technical advice ESMA

Q1 2013 European Venture Capital Funds Technical advice ESMA

Q1 2013 Implementation of the Alternative Investment Fund Managers Directive (Part 2)

Consultation paper FSA

Q1 2013 Payments to platform service providers and cash rebates by providers to consumers

Policy statement FSA

Q1 2013 The regulation and supervision of benchmarks Policy statement FSA

Q1 2013 FCA statement of policy on temporary product intervention powers

Policy statement FSA

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 38

Date Topic Type Institution

Q2 2013 Restrictions on the retails distribution of unregulated collective investment schemes and close substitutes

Policy statement FSA

Q2 2013 Personal pensions – disclosures by SIPP operators and consultation on inflation-adjusted illustrations (disclosures only)

Policy statement FSA

Q2 2013 Implementation of the Alternative Investment Fund Managers Directive

Policy statement FSA

Q2 2013 Technical advice on the revised Prospectus Directive Technical advice ESMA

Q3 2013 Technical standards on the revised Transparency Directive: notification requirements and update and maintenance of Q&A

Technical standards ESMA

Q2 2014 Personal pensions – disclosures by SIPP operators and consultation on inflation-adjusted illustrations (inflation-adjusted illustrations only)

Policy statement FSA

TBD 2013 Packaged Retail Investment Products Technical standards ESMA

TBD 2013 Undertakings For The Collective Investment Of Transferable Securities V

Technical advice ESMA

TBD 2013 Markets in Financial Instruments Directive II Technical advice ESMA

TBD 2013 Markets in Financial Instruments Directive II Guidelines ESMA

Recovery and resolution

Q1 2013 Rescue and restructuring of financial institutions in Europe Guidelines EC

Q1 2013 Recovery and resolution plans Policy statement FSA

TBD 2013 EU framework for recovery and resolution plans Technical advice EBA

Solvency II

Q1 2013 Draft Level 2 delegated acts Level 2 text EC

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 39

Date Topic Type Institution

Q3/Q4 2013 Solvency II and linked long-term insurance business Policy statement FSA

Q3/Q4 2013 Transposition of Solvency II – part 2 Policy statement FSA

TBD 2013 Solvency Level 3 measures Level 3 text EIOPA

Supervision, governance and reporting

Q1 2013 Corporate reporting Guidelines/recommendations ESMA

Q1 2013 Regulatory fees and levies: rates for 2013/14 Consultation paper FSA

Q1 2013 EU corporate governance and company law Action plan EC

Q1 2013 Storage of regulated information at ESMA Discussion paper ESMA

Q1 2013 Supervisory convergence Discussion paper ESMA

Q1 2013 Revision of Enforcement Standards Consultation paper ESMA

Q1 2013 Remuneration and supervisory co-operation arrangements Guidelines/recommendations ESMA

Q1 2013 Regulatory fees and levies: policy proposals for 2013/14 Feedback statement FSA

Q1 2013 Financial Services Bill: implementing the markets powers, decision making procedures and penalty notices

Consultation paper FSA

Q1 2013 Regulatory reform: the PRA’s approach to enforcement Consultation paper FSA

Q1 2013 Regulatory reform: Enforcement and Markets Consultation paper FSA

Q1 2013 Regulatory reform: transitional provisions Consultation paper FSA

Q1 2013 Regulatory reform: PRA and FCA regimes relating to aspects of authorisation and supervision

Policy Statement FSA

Q1 2013 Regulatory reform: the PRA and FCA regimes for Approved Persons

Policy statement FSA

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 40

Date Topic Type Institution

Q1 2013 Regulatory reform: the FCA Handbook Policy statement FSA

Q1 2013 Proposed transfer of consumer credit to the FCA Consultation paper FSA

Q2 2013 Complaints against the regulators (Bank of England, Prudential Regulation Authority and Financial Conduct Authority)

Policy statement FSA

Main sources: ESMA 2012 work programme; EIOPA 2012 work programme; EBA 2012 work programme; EC 2012 work programme; FSA policy development update (Issue 152); ESMA 2013 work programme; EIOPA 2013 work programme; EBA 2013 work programme

Education – Conferences and event (January and February)

Date Topic Institution

January 2013 Journey to the FCA – sector-specific roundtables FSA

January 2013 Assessing suitability: centralised investment propositions and replacement business FSA

14 January 2013 Prudential regulatory training BBA

January – February 2013

Positive compliance: improving quality and raising standards FSA

February 2013 Mortgage Market Review roadshow - lenders FSA

8 February 2013 Regulatory update for senior management BBA

15 February 2013 Introduction to operational risk BBA

25 February 2013 Basel III workshop BBA

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 41

Banking

Transaction Banking Compass

Transaction banking is evolving from a stand-alone activity to one that's a valuable and strategic component of banking relationships in key customer segments. But certain challenges — like the financial crises and regulatory reform — impact it. We set out the issues you need to know to ensure effective and secure servicing of customer transactions in your organisation.

In ‘Managing for performance’, we look at what different customers most value and how banks can make the most of the resulting opportunities and value potential.

Read more here

Paying Europe’s Debts

We highlight the high level of debt that has built up in Europe, including the UK, in recent years. We discuss the economic and business implications of high public and private debt levels and the way that deleveraging by governments, households, banks and companies interacts.

Read more here

For a full library of insights into all issues affecting banking, please visit our new, easy to navigate online library: www.pwc.com/bankingpublications

Asset Management

The impact of AIFMD

The Level 2 regulation provides the long awaited detail on many AIFMD element, which fund managers and service providers need before they can design and fully implement change plans. AIFMs and depositaries now need to move forward and make the appropriate changes.

Read more here

Real Estate Investors key tax issues at year end 2012

This is an overview for investors and fund managers of year end to-dos and important issues in real estate taxation in 39 national tax systems. It also highlights what needs to be considered in international tax planning and in structuring real estate investments.

Read more here

For a full library of insights into all issues affecting asset management, please visit our new, easy to navigate online library: http://www.pwc.com/bankingpublications

Insurance

Solvency II – it’s not a case of if, but when

Despite continued delays, Brussels remains deeply committed to the introduction of Solvency II. In this short video, Insurance Day Editor Richard Banks discusses the key challenges facing the industry with PwC Partner Jim Bichard and PwC Director Tim Edwards, including the:

differing responses by European Regulators to the delay

likelihood that a delay will create clear winners and losers

human impact of delays.

Watch it here.

Getting to grips with Pillar 3

The implementation date for Solvency II looks set to be postponed. But the reporting and disclosure requirements

are unlikely to undergo any material changes.

Firms may be tested on their reporting capabilities and forced to make significant interim disclosures ahead of the EU-wide launch. It is important not to lose momentum on the preparations for Pillar 3, especially as some local supervisors are set to implement this part Solvency II early.

This paper outlines the issues insurers will need to consider and the next steps towards implementation. We explore the common misconceptions relating to delays, it is easy to under-estimate some of the key strategic and implementation challenges.

Read more here

Find out more about all issues affecting the insurance industry:

http://www.pwc.com/insurance

PwC Insights

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 42

2EMD The Second E-money Directive 2009/110/EC

ABC anti-bribery and corruption

ABI Association of British Insurers

ABS asset backed security

AIF alternative investment fund

AIFM alternative investment fund manager

AIFMD Alternative Investment Fund Managers Directive 2011/61/EU

AIMA Alternative Investment Management Association

AMICE Association of Mutual Insurers and Insurance Cooperatives

AML anti-money laundering

AML3 3rd Anti-Money Laundering Directive 2005/60/EC

ASB UK Accounting Standards Board

Basel Committee

Basel Committee of Banking Supervisors (of the BIS)

Basel II Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework

Basel III Basel III: International Regulatory Framework for Banks

BBA British Bankers’ Association

BIBA British Insurance Brokers Association

BIS Bank for International Settlements

BoE Bank of England

CASS FSA Client Assets sourcebook

CCD Consumer Credit Directive 2008/48/EC

CCPs central counterparties

CDS credit default swaps

CEBS Committee of European Banking Supervisors (predecessor of EBA)

CEIOPS Committee of European Insurance and Occupational Pensions Supervisors (predecessor of EIOPA)

CESR Committee of European Securities Regulators (predecessor of ESMA)

Co-legislators Ordinary procedure for adopting EU law requires agreement between the Council and the European Parliament (who are the ‘co-legislators’)

CFPB Consumer Financial Protection Bureau (US)

CFTC Commodities Futures Trading Commission (US)

CGFS Committee on the Global Financial System (of the BIS)

CIS collective investment schemes

ComFrame Common Framework for the Supervision of Internationally Active Insurance Groups

Council Generic term representing all ten configurations of the Council of the European Union

CPI Consumer Price Index

CPSS Committee on Payment and Settlement Systems (of the BIS)

CRA1 Regulation on Credit Rating Agencies (EC) No 1060/2009

Glossary

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 43

CRA2 Regulation amending the Credit Rating Agencies Regulation (EU) No 513/2011

CRA3 proposal to amend the Credit Rating Agencies Regulation and directives related to credit rating agencies COM(2011) 746 final

CRAs credit rating agencies

CRD ‘Capital Requirements Directive’: collectively refers to Directive 2006/48/EC and Directive 2006/49/EC

CRD II Amending Directive 2009/111/EC

CRD III Amending Directive 2010/76/EU

CRD IV Proposal for a Directive COM(2011) 453 final amending CRD

CRR Capital Requirements Regulations 2006 (S.I. 2006/3221)

CTF counter terrorist financing

DFBIS Department for Business, Innovation and Skills

DG MARKT Internal Market and Services Directorate General of the European Commission

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act (US)

D-SIBs domestically systemically important banks

EBA European Banking Authority

EC European Commission

ECB European Central Bank

ECP European cooperation mechanism

ED exposure draft

ECJ European Court of Justice

ECOFIN Economic and Financial Affairs Council (configuration of the Council of the European Union dealing with financial and fiscal and competition issues)

ECON Economic and Monetary Affairs Committee of the European Parliament

EEA European Economic Area

EFAMA European Fund and Investment Management Association

EIOPA European Insurance and Occupations Pension Authority

EMIR Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (EC) No 648/2012

EP European Parliament

ESA European Supervisory Authority (ie generic term for EBA, EIOPA and ESMA)

ESCB European System of Central Banks

ESMA European Securities and Markets Authority

ESRB European Systemic Risk Board

EURIBOR Euro Interbank Offered Rate

Eurosystem System of central banks in the euro area, including the ECB

FASB Financial Accounting Standards Board (US)

FATCA Foreign Account Tax Compliance Act (US)

FATF Financial Action Task Force

FCA Financial Conduct Authority

FDIC Federal Deposit Insurance Corporation (US)

FiCOD Financial Conglomerates Directive 2002/87/EC

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 44

FiCOD1 Amending Directive 2011/89/EU of 16 November 2011

FiCOD2 Proposal to overhaul the financial conglomerates regime (expected 2013)

FMI financial market infrastructure

FOS Financial Ombudsman Service

FPC Financial Policy Committee

FRC Financial Reporting Council

FSA Financial Services Authority

FSB Financial Stability Board

FS Act 2012 Financial Services Act 2012

FS Reform Bill 2012

Financial Services (Bank Reform) Bill 2012

FSCS Financial Services Compensation Scheme

FSI Financial Stability Institute (of the BIS)

FSMA Financial Services and Markets Act 2000

FSOC Financial Stability Oversight Council

FTT financial transaction tax

G30 Group of 30

GAAP Generally Accepted Accounting Principles

G-SIBs globally systemically important banks

G-SIFIs globally systemically important financial institutions

G-SIIs globally systemically important insurers

HMRC Her Majesty’s Revenue & Customs

HMT Her Majesty’s Treasury

IAIS International Association of Insurance Supervisors

IASB International Accounting Standards Board

ICB Independent Commission on Banking

ICOBS Insurance: Conduct of Business Sourcebook

IFRS International Financial Reporting Standards

IIF Institute for International Finance

IMA Investment Management Association

IMD Insurance Mediation Directive 2002/92/EC

IMD2 Proposal for a Directive on insurance mediation (recast) COM(2012) 360/2

IMF International Monetary Fund

IORP Institutions for Occupational Retirement Provision Directive 2003/43/EC

IOSCO International Organisations of Securities Commissions

ISDA International Swaps and Derivatives Association

ITS implementing technical standards

JCESA Joint Committee of the European Supervisory Authorities

JMLSG Joint Money Laundering Steering Committee

JURI Legal Affairs Committee of the European Parliament

LEI legal entity identifier

LIBOR London Interbank Offered Rate

LTG long-term guarantee

LTGA Long-term guarantee assessment

MAD Market Abuse Directive 2003/6/EC

MAD II Proposed Directive on Criminal Sanctions for Insider Dealing and Market Manipulation (COM(2011)654 final)

MAR Proposed Regulation on Market Abuse (EC) (recast) (COM(2011) 651 final)

MCR minimum capital requirement

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

FS regulatory, accounting and audit bulletin – January 2013 PwC 45

Member States countries which are members of the European Union

MiFID Markets in Financial Instruments Directive 2004/39/EC

MiFID II Proposed Markets in Financial Instruments Directive (recast) (COM(2011) 656 final)

MiFIR Proposed Markets in Financial Instruments Regulation (EC) (COM(2011) 652 final)

MMR Mortgage Market Review

MoJ Ministry of Justice

NAV net asset value

OCC Office of the Comptroller of the Currency (US)

OECD Organisation for Economic Cooperation and Development

Official Journal Official Journal of the European Union

Omnibus I Directive 2010/78/EU amending 11 existing Directives to reflect Lisbon Treaty and new supervisory architecture

Omnibus II Second Directive amending existing legislation to reflect Lisbon Treaty and new supervisory infrastructure (COM(2011) 0008 final) – amends the Prospectus Directive (Directive 2003/71/EC) and Solvency II (Directive 2009/138/EC)

ORSA own risk solvency assessment

OTC over-the-counter

PRA Prudential Regulation Authority

Presidency Member State which takes the leadership for negotiations in the Council: rotates on 6 monthly basis

PRIPs Packed Retail Investment Products

PRIPs Regulation

Proposal for a Regulation on key information documents for investment products COM(2012) 352/3

RAO Financial Services and Markets Act 2000 (Regulated Activities Order) 2001

RDR Retail Distribution Review

RRPs recovery and resolution plans

RTS regulatory technical standards

SCR solvency capital requirement (under Solvency II)

SEC Securities and Exchange Commission (US)

SFD Settlement Finality Directive 98/26/EC

SFO Serious Fraud Office

SIPP Self-invested personal pension scheme

SOCA Serious Organised Crime Agency

Solvency II Directive 2009/138/EC

SSAP statements of standard accounting practice

SSR Short Selling Regulation EU 236/2012

SUP FSA Supervision source

T2S TARGET2-Securities

TR trade repository

TSC Treasury Select Committee

UCITS Undertakings for Collective Investments in Transferable Securities

UCITS IV UCITS Directive 2009/65/EC

Executive

Summary

2013: a

transformative

year

Cross Sector

Announcements

Banking and

Capital Markets

Asset

Management

Insurance Monthly Calendar PwC Insights Glossary

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130115-105800-BD-OS

Laura Cox

020 7212 1579 laura.cox@uk.pwc.com

Asset Management Banking & Capital Markets Insurance

Andrew Strange

020 7804 6669

andrew.p.strange@uk.pwc.com

Andrew Hawkins

020 7212 5270

andrew.d.hawkins@uk.pwc.com

Mike Vickery

011 7923 4222

mike.p.vickery@uk.pwc.com

Peter Wilson

020 7804 3097

peter.wilson@uk.pwc.com

Chris Sermon

020 7212 5254

chris.l.sermon@uk.pwc.com

Kareline Daguer

020 7804 5390

kareline.daguer@uk.pwc.com

Liz Gordon

020 7212 6493

liz.gordon@uk.pwc.com

David Brewin

020 7212 5274

david.r.brewin@uk.pwc.com

Tania Lee

079 7668 7547

tania.a.lee@uk.pwc.com

John Newsome

020 7804 1168

john.newsome@uk.pwc.com

Betsy Dorudi

020 7213 5270

betsy.dorudi@uk.pwc.com

Manuela O’Dea

020 7804 9749 :

manuela.odea@uk.pwc.com

Vincent O’Sullivan

020 7212 3544

vincent.osullivan@uk.pwc.com

Contacts