FS Regulatory Developments - July 2016 Update

FS Regulatory Developments - July 2016 Update

A collection of KPMG's latest publications and articles which focus on developments in, and issues facing the regulatory industry.

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Monthly Update - FS Regulatory Developments

The new UK Prime Minister has said "Brexit means Brexit". The challenge is to land this without damaging the wider European economy. There is no escaping that we live in an integrated world with economies interdependent in terms of trade, capital, information, and technology. And equally, the real sentiment behind the vote is now being understood - alienation, distribution of wealth and opportunity and the lack of trust in "the elite", which incorporates politicians and business. It is evident that this is not just a UK phenomenon; the rest of Europe and the World looks on with interest. Delivering a stable post-Brexit environment (both for the UK and the other 27 members) will be complex and difficult but vital.

We can all come up with a long list of topics to be discussed across the whole economy, including financial services, but both the club of 27 and the UK really need to agree on some high level principles as to what would work for them. For financial services in London, the questions of passporting/equivalence, client servicing, market operation and the provision of cross border services are high on the agenda. However, at the moment it is not clear what the real economy across Europe really needs. We will continue to contribute to this debate.

Realistically, the horizon will remain unclear for quite some time. However, firms should continue to plan and evaluate the risks and/or opportunities and prepare accordingly. Notably, at some point firms will need to make decisions around their legal structures; operating models; where capital is held; what the distribution models will look like; and data and technology requirements. However, this is not a decision to be made in haste and repented at leisure; it is complex and planning and optionality cannot wait for long.

Despite the uncertain economic landscape derived from Brexit, firms must continue to manage the complex suite of new rules enacted - or still being formulated - by global, regional and national policy setting bodies. Key developments this month include the first ECON meeting with Vice-President Valdis Dombrovskis who will take over responsibility for financial regulation following Commissioner Hill's resignation; the ECB, FSB and IOSCO all issuing statements in relation to asset management and systemic; the ECB expectation on governance and risk appetite; the IAIS papers on the G-SII assessment process; the next level of detail on the IDD; and the European Commission proposing improvements for Venture Capital funds.

I hope you find the articles below interesting. If you would like further information on any topic or have any questions, please do not hesitate to contact me or your usual KPMG contact.


Darina Barrett
Head of FS Markets
KPMG Ireland  

Post-Brexit approach to regulation

On 6 July 2016, the Committee on Economic and Monetary Affairs (ECON Committee) held their first hearing with Vice-President Valdis Dombrovskis - who will take over responsibility for financial regulation following Commissioner Hill's resignation. Vice-President Dombrovskis gave a clear sense of direction on financial regulation and acknowledged the significance of Brexit on the shape of financial and capital markets. A challenge ahead will be to keep the balance in rule-making between the EU and the needs of the Eurozone. More...

Asset Management and Systemic Risk - the global fog begins to clear

The debate about systemic risk for asset managers and investment funds is showing signs of moving to a conclusion on some policy issues. The ECB, FSB and IOSCO have all issued further statements. The ECB paper continues to refer to "shadow banking" activity and asset management as a "less regulated" sector, which is unlikely to be read by the industry as a sign that the ECB's thinking has developed. However, the paper does acknowledge that in many areas the UCITS Directive and AIFMD requirements go some way to addressing the issues. The FSB has proposed 14 recommendations, most of which concern liquidity management and leverage in open-ended funds. The recommendations are addressed to regulators and, within Europe, all bar one (system-wide stress testing "where relevant" of the potential effects of collective selling by funds and institutional investors) are already covered to a greater or lesser degree via existing rules or practice. Meanwhile, IOSCO has set out its priorities regarding data gaps for open-ended funds, alternative funds and segregated accounts. Again, within Europe, some of these data are already collected, but as we predicted, more will now be required. More...

SSM supervisory statement on governance and risk appetite

On 21 June 2016, the ECB published the 'SSM supervisory statement on governance and risk appetite'. The report conveys some lessons from the thematic review of banks' management bodies and their Risk Appetite Frameworks (RAF) and describes some good practices observed across the significant institutions (SIs). It also sets out supervisory expectations regarding a bank's Board and RAF, acknowledging all existing governance structures. For banks the report adds a valuable point of information on supervisor's expectation in terms of Risk Governance. More...

Capital Markets Union – tackling insolvency

The European Commission has been consulting on the key barriers to more effective insolvency and debt restructuring frameworks across the EU. Taken in the broader context of CMU and its important goals to boost levels of investment and remove barriers to cross-border flows of finance, it is positive that the Commission is tackling this difficult issue. A debate on insolvency laws needs to reflect wider perspectives across financial regulation, investor protection, corporate reporting and transparency, which this consultation is trying to do. More…

Systemically Important Insurers – the debate continues

On 6 June 2016, the Financial Stability Board (FSB) published a document titled: Developing Effective Resolution Strategies and Plans for Systemically Important Insurers. This update sets a direction of travel in terms of supervisory expectations, thus providing much needed guidance for insurers, but a number of questions remain unanswered. It is very likely that supervisors will begin to integrate similar requirements within their domestic regimes. More…

Greater transparency in the G-SII assessment process

On 16 June 2016, the International Association of Insurance Supervisors (IAIS) issued its final papers on the G-SII assessment methodology and its paper on systemic risk from insurance product features (in the process dropping the much disliked non-traditional non-insurance (NTNI) title). It notes that the higher loss absorbency (HLA) requirements that are imposed on global systemically important insurers (G-SIIs) will be amended to take account of these papers.

The papers show that the IAIS has taken on board much of the feedback from the two consultations. Insurers will be pleased to see the loss of the NTNI acronym and the continuance of a focus on activities that the original consultation proposed. However, in many respects the biggest win for the industry is the greater transparency that will in future be provided within the G-SII assessment process. More...

Next level of detail on the Insurance Distribution Directive (IDD)

The IDD entered into force on 23 February 2016, with transposition of its requirements by 23 February 2018. However, in common with other recent directives, there are a number of articles where further delegated acts are required to support some of the detail. The Commission requested EIOPA's technical advice in these areas, which cover product oversight and governance; conflicts of interest; inducements and assessment of suitability and appropriateness and reporting. In the interests of achieving cross-sectoral consistency, EIOPA was requested to achieve as much consistency as possible with products falling under MiFID II where there is no fundamental differences between the wording used in the two directives. More...

European Commission proposes improvements for Venture Capital funds

Commissioner Hill's swan song is the publication by the European Commission of proposed changes to the Regulations on European Venture Capital Funds (EuVECAs) and European Social Entrepreneurship Funds (EuSEFs). The two fund regimes (which are regulated forms of Alternative Investment Funds) were only introduced in 2013. However, as we noted in our response to the Commission's Call for Evidence on post-crisis regulation, they are not attractive to either the industry or investors for two main reasons: the narrow investor base and the restriction to smaller fund managers. The proposal addresses the second point and also increases the range of eligible investee companies and prohibits national barriers to cross border marketing of these funds, but it does not widen the eligible investor base. This and other points are likely to emerge during the legislative debates. More...

The cumulative impact of regulation, taxes and a low interest rate environment - An impact analysis on the Belgian banking sector

This report - published by KPMG in Belgium - provides valuable insights into the likely impact on capital, liquidity and profitability of Belgian banks. Driven by the disposal of non-core activities, banks have been de-risking their balance sheets. Belgian banks have even managed to restore profitability to a higher level in 2015 compared to the previous post-crisis years, notwithstanding higher costs due to increased regulation and tax burden. But the Belgian banks will have to take corrective measures to maintain this profitability while keeping solvability and liquidity at acceptable levels. Click here to access the report.

Coming Soon - Evolving Insurance Risk and Regulation: Preparing for the future

The Regional Regulatory Developments chapter of Evolving Insurance Risk and Regulation has long been a prominent feature of report. The pace of regulatory evolution continues to vary greatly across the globe. As the world becomes smaller due to technology, and where large firms operate across many jurisdictions, this report grows in relevance. This, the third chapter in this years? Evolving Insurance Risk and Regulation: Preparing for the future, summarises the key regulatory trends in each country based on ICP compliance, prudential developments, and conduct of business and consumer protection. Full details on the publication series can be found here.

On the radar...

  • 25 July: EBA consultation deadline on the disclosure of encumbered and unencumbered assets
  • 4 August: EBA consultation deadline on the innovative uses of consumer data by financial institutions
  • 11 August: EBA consultation deadline on the guidelines on the LCR disclosure
  • 22 August: ESMA consultation deadline on Credit Rating Agencies' methodologies
  • 2 September: ESMA consultation deadline on the Distributed Ledger Technology Applied to Securities Markets

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