Being better informedFS regulatory, accounting and audit bulletin

PwC FS Risk and Regulation Centre of Excellence

October 2015

In this month’s edition:

Lord Hill sets out CMU priorities – includingconsultations and new legislative proposals

ECB responds to EMIR review

In-depth analysis of latest MiFID II regulatorydevelopments and a look ahead at what else we’rewaiting for

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 1

Welcome to this edition of “Beingbetter informed”, our monthly FSregulatory, accounting and auditbulletin, which aims to keep you up tospeed with significant developmentsand their implications across all thefinancial services sectors.

As we approach Halloween we’ll all be

hoping that the various global, EU and

domestic regulators don’t have any scary

items in store for us this month.

As we race through the final quarter of 2015

we are seeing an uptick in publications as

regulators battle to meet their deadlines

before the end of the year. This was

particularly evident on the last day of

September when a range of CMU proposals

were released, looking to examine the EU’s

regulatory framework for venture capital

funds and proposing an EU-wide covered

bond regime. We plan to cover the CMU

developments in more detail next month, so

stay tuned for that.

Aside from CMU the big story in September

for most firms focused on MiFID II as

ESMA released more than 25 draft RTS and

ITS. These provide much of the detail that

many have being waiting for and give firms

a call to arms to ensure implementation

plans are well underway with the 3 January

2017 implementation deadline fast

approaching. This month’s feature article

examines some of the big ticket items from

the RTS in more detail, including the

changes for transparency, transaction

reporting and microstructure issues.

It proved to be a busy month for ESMA as it

released its draft RTS for MAR and CSDR

on the same date. While not gathering as

much of the focus, firms should be looking

closely at the MAR requirements since these

mirror elements of MiFID II, including

implementation deadlines. Given the global

focus on market abuse many firm’s risk

appetites require an immediate focus. The

FCA plans to consult on its own MAR rules

in November.

Steven Maijoor, ESMA Chairman, also used

September to speak about the “derivatives

union” that has been created through EMIR

and MiFID II. But this clearly hasn’t

eliminated all derivatives concerns, as the

ongoing EMIR review demonstrates. The

ECB submitted its thoughts on the review

last month – certainly one to keep watching.

In the UK the FCA consulted on its

implementation plans for UCITS V, the next

big investment fund regulatory change.

UCITS V echoes AIFMD for fund manager

remuneration and depositary oversight and

custody rules. But many firms have found

their UCITS V implementation programmes

are more detailed than expected as they

start to identify who will be caught by the

new remuneration rules and what their new

depositary relationship will look like after

March 2016. The FCA also consulted on

other investment fund changes, notably

increasing the depositary breach reporting

requirements and setting out its

expectations for managers filing derivative

risk management programmes. It seems the

FCA’s new fund supervision team is starting

to bed in and find its feet.

Laura Cox

FS Risk and Regulation Centre of Excellence

020 7212 1579

laura.cox@uk.pwc.com

@LauraCoxPwC

Executive summary

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 2

How to read this bulletin?

Review the Table of Contents therelevant Sector sections to identify thenews of interest. We recommend yougo directly to the topic/article ofinterest by clicking in the active links

within the table of contents.

ContentsExecutive summary 1

MiFID II: end of the beginning, or beginning of the end? 3

Cross sector announcements 7

Banking and capital markets 18

Asset management 21

Insurance 23

Monthly calendar 26

Glossary 29

Contacts 34

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 3

In September ESMA published nearly 30

final draft RTS and ITS for MiFID II and

MiFIR. The technical standards provide

much of the detail which underpins some of

the more controversial elements of MiFID

II, particularly transaction reporting, pre

and post-trade transparency and

microstructural issues (such as high

frequency trading). ESMA was originally

due to publish these in July, but delayed

publication to allow legal scrutiny by the

EC. The delay may also reflect the feedback

submitted on the original drafts, which led

to some crucial changes, particularly for

transparency requirements.

Unfortunately, we’re not yet at the end of

the MiFID II regulatory process. While the

draft RTS and ITS provide detail that was

previously lacking they might not be

adopted by the EC. And ESMA’s final

technical advice on much of the investor

protection issues (provided in December

2014) still hasn’t materialised from the EC

in the form of delegated acts. And let us not

forget that even with all of these technical

standards and delegated acts (together the

Level 2 measures for MiFID II) there will

still be a lot of outstanding questions. So

perhaps we should ask ourselves: are we at

the beginning of the end for MiFID II rules,

or only just at the end of the beginning?

Here we focus on the three main RTS topics.

We’ll also consider the MiFID II timeline,

and potential and delays, and set out what’s

next.

Changes in transactionreportingThe transaction reporting detail revealed by

ESMA allows firms to make real progress

implementing the enhanced transaction

reporting requirements. While MiFID I

included rules on transaction reporting,

MiFID II substantially changes this, with:

new categories of instruments that must

be reported

more transactions triggering reporting

obligations

additional information that must be

disclosed regarding the specific

individuals and algorithms making

critical transaction decisions

a vast increase in quantity of data fields.

And as many of these requirements are

governed by the Regulation (MiFIR), the

transaction reporting obligations are

directly applicable and firms cannot rely on

any accommodation through divergence in

national transposition, as they could under

MiFID I rules. A major issue faced by firms

MiFID II: end of the beginning, or beginning ofthe end?

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 4

is the broader scope of financial

instruments caught under the new regime.

MiFID I limited its purview to financial

instruments traded on a regulated market,

allowing many derivatives and other debt

instruments to be excluded from its reach.

But the narrow focus on exchange trading

meant that MiFID I failed to address

increased market fragmentation caused by

the proliferation of other types of trading

facilities in MiFID I.

By contrast, MiFIR applies transaction

reporting requirements to additional

categories of financial instruments, such as

those admitted to a trading venue

(including MTFs and OTFs), when the

underlying is a financial instrument traded

on a trading venue or when an index or

basket composed of financial instruments.

Unfortunately, ESMA failed to provide a

‘golden source’ of covered instruments,

leaving firms to monitor the trading status

of underlying financial instruments, indices

and baskets.

Disclosing individual tradersand algosFirms are also grappling with the new

requirement to disclose individuals and

algorithms involved in trades. Notably,

ESMA has removed the opportunity to

designate a committee, as opposed to an

individual, as the responsible internal

entity. Firms will still need to identify one

person even in cases of collective decisions.

This poses interesting questions of

governance and accountability.

MiFID II requires that firms to report their

use of algorithms in trading decisions.

However, while exclusive designation must

be given to each unique set of code that

constitutes an algorithm, the final RTS

reveal that ESMA has ceded a large amount

of discretion to investment firms in

determining when variations to existing

algorithms should be considered as new

algorithms, as well as how to classify the

interrelationships between algorithms that

form a chain.

Based on the preferences of stakeholders,

ESMA has clarified that transaction reports

need to be provided in an XML template

data format in accordance with the ISO

20022 methodology.

Why it mattersWe’ve recently seen the FCA’s focus on

transaction reporting (and data errors), and

with new regulatory requirements such as

EMIR firms find it difficult to accurately

collect and report the necessary

information. MiFID II will increase this

challenge, and many firms are expecting

significant IT expenditure to get themselves

ready for these new transaction reporting

rules. In particular, firms expect it to be

difficult to meet MiFIR’s expansive scope

and navigate the overlaps and gaps between

EMIR, REMIT and other transaction

reporting regulations.

Regulatory Speed Bumpsfor HFTsNeither algorithmic nor HFT fell within the

scope of MiFID I. But this all changes under

MiFID II with algorithmic traders and

trading venues enabling algorithmic trading

having to implement detailed requirements

governing the resilience and capacity of

their trading systems over the next 15

months. Rules that ensure orderly trading

are opposed to high-speed trading where a

second’s delay is quantified in terms of

dollars, pounds, euros or yuan lost. By

broadening the scope of regulated activities

and managing the flow of trades, MiFID II

imposes regulatory speed bumps, forcing

high-speed traders to pump the brakes to

prevent disorderly trading and market

volatility.

Defining HFTEven though MiFID II defines algorithmic

trading and high frequency algorithmic

trading techniques, the definition of HFT

won’t be known until the delegated acts are

finalised. In its final draft technical advice

to the EC in December 2014, ESMA

proposed two options to capture all

“genuine” HFTs:

infrastructure “designed to minimise

latency”

median daily lifetime of orders less than

the median for the entire market.

These HFT firms must now be authorised as

an investment firm subject to organisational

requirements and trigger obligations for the

trading venues where they are a member or

participant.

Need for new controlsA trading venue enabling algorithmic

trading must have arrangements in place to

limit the ratio of unexecuted orders to

transactions any one member or participant

may enter into its system. Controlling the

ratio places another rumble strip in the path

of high-speed traders to reduce the risk of

exceeding system capacity. Instead of

setting a maximum ratio, ESMA establishes

a methodology for calculating the ratio

either by the total volume or total number of

orders. Trading venues must calculate the

ratio for each member or participant at the

end of every trading session.

MiFID II imposes mandatory tick sizes to

control price volatility. A tick size is the

smallest incremental movement in the price

of an exchange-traded instrument. The

regime only applies to shares, depositary

receipts, and some ETFs. Even though

MiFID II explicitly requires OTFs to comply

with the regime, they are in effect exempt

since trading on an OTF is limited to non-

equities which are out scope of this

particular requirement. Regulated markets

and MTFs must apply the tick size

corresponding to the published liquidity

band for the greater of the average trades

per day or the price range for the orders

submitted.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 5

Firms engaged in algorithmic trading who

pursue a market making strategy must

execute a written agreement with the

trading venue where that strategy is

executed, ensuring that these firms continue

to provide liquidity under stressed market

conditions. In the final RTS ESMA requires

market making agreements for algorithmic

traders who post firm, simultaneous two-

way quotes at competitive prices for at least

half the trading day. This increases the

threshold from the proposed 30% of trading

day, encompassing algorithmic traders with

no intention of holding themselves out as

market markers.

Trading venues operating a continuous

auction trading order book must have a

market making scheme for specific liquid

instruments. These venues may grant

incentives to algorithmic traders providing

liquidity under normal market conditions,

but must do so for firms required to provide

liquidity under stressed conditions. The

trading venue must publish its market

making scheme describing the incentives

and parameters for the provision of liquidity

in terms of presence, size and spread.

HFTs may withdraw liquidity only when the

trading venue declares “exceptional

circumstances” of extreme volatility as

defined in the final RTS. Market making

requirements are the traffic spikes,

preventing liquidity providers from backing

up when the market is depending on them

to commit.

Steep learning curve for HFTsNewly regulated algorithmic and HFTs may

lack the implementation and ongoing

compliance experience of existing MiFID

firms. Consequently, to assess the impact of

MiFID II, these firms must focus on the

most fundamental elements of their

business models and first accurately identify

any potential:

algorithmic and high frequency trading,

broadly defined

internal systems on which these trades

are executed

trading venues where their algorithmic

trading provides liquidity.

None of these tasks will be easy, particularly

with the ongoing uncertainty of defining

exactly what is a HFT.

Transparency misgivingslead to policy changesThroughout the entire MiFID II policy

process, changes to the transparency regime

have been arguably the most contentious

area. In headline terms, MiFID II extends

the pre- and post-trade transparency regime

developed for equities under MiFID I to

equity-like products (such as ETFs) and

non-equities.

Changes to previous proposalsGiven the enormity of the task ESMA faced

in designing the transparency regime, and

the controversy which surrounded its

extension to non-equity products, it is

unsurprising to see significant changes from

its original proposals. Market participants

were most concerned about the definition of

a liquid market, the calibration of waivers

and the approach taken to categorising non-

equities. In its December 2014 proposals,

ESMA supported the ‘classes of financial

instrument approach’ (COFIA) for

categorising non-equities for transparency

purposes; market participants were

concerned as that this would be

insufficiently granular to avoid substantial

misclassification of instruments-the so

called ‘false positives.’ The COFIA approach

proposed would have meant dragging

instruments into the transparency regime

which belonged to the same class as more

liquid instruments but which didn’t trade in

a market with sufficient levels of liquidity to

realise the benefits of transparency.

Industry concerns were echoed by the

finance ministries of the UK, France and

Germany in a joint letter sent to ESMA.

Getting more granularIn recognition of these concerns, ESMA

chose to adopt a more granular approach

for non-equities and to use the ‘instrument

by instrument approach’ (IBIA) for bonds.

The regime for derivatives now consists of

three layers of granularity with a yearly

liquidity assessment. In an unexpected

development, all foreign exchange

derivatives are deemed illiquid. The more

granular approach will be a relief to market

participants who feared that inappropriate

transparency would further harm liquidity

leading to market bifurcation. But this may

be somewhat tempered by the greater

operational complexity associated with

calculating more thresholds to determine

liquidity and apply the appropriate waivers.

As requested by industry participants, the

‘large in scale’ (LIS) and ‘size specific to the

instrument’ (SSTI) thresholds, which set the

level at which the pre-trade transparency

obligations can be waived and post-trade

publication requirements deferred have

been set at different levels for pre- and post-

trade purposes. This reflects the greater risk

involved in revealing quotes compared to

the price of a transaction already executed.

One significant area of concern for industry

was the absence of an approach to packaged

trades. ESMA has done its best to shoehorn

this into the Level 2 text, but for pre-trade

transparency it has recommended an

amendment of MiFIR. All components of a

package must be published but deferred

publication is now possible for the entire

package, as long as it has one eligible

component.

Impact of changesESMA’s changes to the technical application

of the transparency regime are significant

and firms should look carefully at the

implications for their business. While there

will be some relief that there is an apparent

reduced risk of illiquid instruments being

dragged into the transparency regime, firms

might need to recalibrate impact

assessments to take the more granular IBIA

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 6

approach into account. Overall, it is likely

that some of the doomsday scenarios

anticipated by some will have less chance of

coming to pass.

What should you be doingnow?While the RTS do not provide finality to all

MiFID II requirements and or all the

answers, they do answer a lot of common

questions and issues firms have with MiFID

II. In relatively uncontroversial areas (such

as transaction reporting) firms now have

enough information to make serious

decisions about IT development and

approach to complying with the rules from 3

January 2017.

Many of our clients have now completed

their gap assessments and are now

considering both the strategic consequences

and the best approach for filling identified

gaps. For those that haven’t got this far, you

risk lagging behind your peers. Those that

experienced AIFMD implementation will be

aware that often full clarity is never

provided, so delaying decisions until more

clarity is available may not be possible.

Decisions need to be made and documented

to ensure a robust defence to any future

regulatory challenge.

What’s next?The RTS and ITS now pass to the EC, EP

and Council for adoption which should

happen within the next three months

(assuming no challenge to content). The

delegated acts are a different story though.

Latest feedback from the FCA suggests they

might not be available until November or

even December this year. And some areas of

the delegated acts may differ to the

technical advice published by ESMA,

reflecting the strong political opposition in

areas such as research payments and

commission payments for non-independent

advisers. It’s likely the EP and Council will

be closely monitoring the RTS and

delegated acts to ensure they do not revisit

Level 1 debates or go further than the Level

1 texts allow.

So we might not have final Level 2 measures

until the end of the year. And while these

will provide some clarity they’re unlikely to

be the golden ticket for understanding all

MiFID II requirements. Judgements will

need to be made, documented and

defended. Firms will closely watch their

peers to ensure they don’t stand out. And

despite the delays to the Level 2 measures it

seems unlikely the MiFID II compliance

date (3 January 2017) will change as this is

politically untenable. But we might expect

that regulators may take a more conciliatory

approach initially in 2017 as long as firms

are doing their best to be compliant. We

touched on this issue in our recent MiFID II

blog.

So while me may be at the beginning of the

end of regulatory texts for MiFID II, we’re

probably only just reaching the end of the

beginning in the work we have seen most

firms undertake to implement MiFID II.

The path to 2017 and beyond for

implementation might be challenging in

places.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 7

In this section:

Regulation 7

Capital and liquidity 7

CMU 8

Conduct 9

Financial crime 10

Financial stability 10

Market infrastructure 12

Operational resilience 14

Other regulatory 14

Remuneration 15

Securities and derivatives 15

Supervision 16

Accounting 17

Regulation

Capital and liquidityBasel III monitoring showsimprovements

On 15 September 2015, the Basel Committee

issued a Basel III monitoring report based

on data as of 31 December 2014. The data

obtained assumes Basel III requirements

are applied in full without the benefit of

transitional provisions. All Group 1 banks

(internationally active banks which have tier

1 capital greater than €3bn – 100 banks)

met the target CET1 target level of 7% (plus

surcharges on G-SIBS where applicable).

There are shortfalls on the higher Tier 1 and

total capital target levels but these are much

reduced as compared with the position at 30

June 2014.

The report also collected data on LCR and

NSFR. The weighted average LCR for Group

1 Banks was 125% compared with the 100%

final minimum with 85% of Group 1 banks

exceeding this minimum. The equivalent for

NSFR was 111% and 75% respectively. These

all represent increases compared with the

position at 30 June 2014.

EBA revises supervisory reportingvalidation rules

The EBA issued a revised list of ITS

validation rules for supervisory reporting

and new Data Point Model and Taxonomies

for ITS on supervisory reporting (v2.4) on 9

September 2015. The validation list

highlights those rules that have been

deactivated because they are incorrect or

because they trigger IT problems (or

subsequently reactivated). The changes

apply six months after the ITS amending

LCR reporting and of the ITS on leverage

ratio disclosure and report are published in

the OJ. Both are currently in EBA final draft

form. The EBA have added the revised

validations to their webpage on Data Point

Models and Taxonomies for ITS on

Supervisory Reporting. The revised

validation rules follows earlier changes

made on 2 March, 8 May, 9 June and 16

June 2015.

Capital relief for securitisations

The EC proposed amendments to CRR on

30 September 2015 to incentivise credit

institutions and investment firms to

originate, sponsor and invest in simple,

transparent and standardised (STS)

securitisations. The EC proposed a

simplified approach to determining capital

requirements for all securitisations, which

allows:

basing securitisation capital charges on

the capital charges of the underlying

exposures, provided that a firm has an

internal ratings-based approach that has

met supervisory approval

if such an approach is unavailable,

basing the securitisation capital charges

either on external ratings or on a

formula combining underlying capital

charges and the percentage of

delinquent underlying exposures.

The EC also proposes that STS

securitisations should be given favourable

capital treatment. This could include senior

positions benefitting from a lower risk

weight floor of 10%, as opposed to 15% for

other securitisations and holders of certain

STS securitisation positions will be able to

use the capital charges of the underlying

exposures, regardless of the capital

determination method used.

It's now up to the EP and Council to

consider the proposed amendments to CRR

and finalise their own positions.

Another CRD IV monitoring report

The EBA published CRD IV – CRR /Basel

III exercise report on 15 September 2015.

This exercise, run in parallel with an

equivalent BCBS initiative, gathers data on

capital ratios, leverage ratio (LR) and

liquidity ratios (LCR and NSFR) for EU

banks. The underlying data is as of 31

December 2014 and is based on the full

application of CRD IV and CRR (and where

not fully reflected in the EU legislation the

Basel III framework) without the benefit of

transitional provisions.

Cross sector announcements

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 8

Group 1 banks (internationally active banks

which have tier 1 capital greater than €3bn

– 100 banks) have a shortfall of €1.5bn

relating to the CET 1 target level of 7% (plus

surcharges on G-SIBS where applicable).

There are also shortfalls in the higher Tier 1

and total capital target levels but these are

much reduced as compared with the

position as at 30 June 2014.

CRR default definition

On 22 September 2015, the EBA Consulted

on draft guidelines on the application of the

definition of default under the CRR. The

EBA expands the definition of default laid

out in CRR, which influences own funds

requirements both under the internal

ratings-based (IRB) and the standardised

approach. Where a client’s credit

arrangement allows them scope to change

repayments, or they are suspended by legal

requirements this should not be considered

default. Firms can apply the definition of

default at the level of an individual credit

facility so there cannot be automatic

contagion between exposures of that obligor

though it may be treated as an indicator that

they are unlikely to pay.

For firms using the IRB approach the

default definition should be approved by the

management body or by a designated

committee. Internal audit should regularly

review the process used to identify the

default of an obligor. The draft guidelines

also clarify the definition and treatment of

technical default and set the expectation

that firms monitor the scale of multiple

defaults and keep a register of all current

and past versions of the default definitions.

The consultation closes on

22 January 2016, with an EBA hosted

public hearing on 13 November 2015.

CCP third country recognitioncorrection

On 19 September 2015, the Corrigendum to

Commission Implementing Regulation

concerning the extension of the transitional

periods related to own funds requirements

for exposures to CCPs set out in CRR and

EMIR was published in the Official Journal.

The corrigendum corrects an error in

Recital 5 to the ITS and clarifies that, for

existing CCPs established in third countries

that have already applied for recognition,

that recognition process was ongoing (at the

time of the publication of the ITS) but

would not be completed by 15 June 2015.

CMUWe saw a number of CMU developments

late in September after the action plan was

published. We'll focus more on the CMU

action plan, proposed new regulatory

developments and what this means for you

in our feature article next month.

CMU springs into action

The EC published its long-awaited CMU

action plan on 30 September 2015,

transforming its green paper's priorities

into a detailed timetable of proposed

regulations, consultations and reports.

Consistent with the green paper and

speeches, the EC attempts to advance a pro-

growth agenda by enhancing and

integrating Europe's capital markets,

specifically strengthening investment

intermediation and increasing SME

funding.

The EC does not give a comprehensive plan

for the CMU journey. Instead it combines

concrete first steps with a commitment to

explore further possibilities. Given this,

industry should be very attentive to the

direction of the reports and consultations

promised by the agenda, particularly where

further regulation is likely in areas such as

crowdfunding and retail investment

products. The EC concurrently called for

evidence on the cumulative impact of post-

crisis regulation.

Some of the notable near-term action items

outlined by the plan include:

proposed regulations establishing a new

category of high quality securitisations

and recalibrating the capital

requirements for such instruments

making prospectus requirements less

onerous

a consultation on an expanded role of

European venture capital funds

a consultation on European regulation

of covered bond market

addressing the role of fees and other

restrictions for cross-border fund

distribution.

CMU agenda announced

On 30 September 2015 Jonathan Hill,

Commissioner for Financial Stability,

Financial Markets and CMU presented the

CMU agenda in a speech focused on how the

priorities will support the policy goals of the

CMU initiative. He outlined the concerns

and challenges that individuals face trying

to access capital markets across member

states, and reiterated that increasing

financing opportunities for all businesses, at

all stages of development, is a core mission

of the CMU. He also discussed the near

term action items, many of which were

announced or published concurrently with

the CMU agenda, including:

improving venture capital markets

relaunching European securitisation

markets through a proposed regulation

that will create a class of high quality

securitisations subject to lower capital

requirements

lightening prospectus burdens for

exchange listing

consulting on creating a European-wide

covered bond market

defining "infrastructure investment" and

tailoring regulatory requirements

accordingly

committing to a study on increasing the

cross-border supply of retail financial

services.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 9

In addition, he indicated that establishing a

European-wide personal pension market, as

well as addressing member state

prerogatives around taxation and

insolvency, would be addressed in the near

term as well.

Reviewing post-crisis financialregulation

EC Commissioner for Financial Stability,

Financial Services and CMU Jonathan Hill

gave a speech at the European Banking

Federation on 17 September 2015. Lord Hill

emphasised that stability of the banking

sector needs to be coupled with growth, and

reiterated his commitment to conducting a

comprehensive review of the cumulative

effects of post-crisis financial regulation and

its unintended consequences. He also

expressed optimism that last year's

comprehensive assessment had sent a

message to the market that UK banks are

now more resilient and better capitalised.

Lord Hill indicated that finalising the

following reforms remain a priority:

bank structural reform

rules around benchmark manipulation

money market fund regulation

effective recovery and resolution

regimes for clearing houses.

His speech indicates that the EC will

simultaneously pursue a pro-growth agenda

while also addressing some of the remaining

challenges of the post-crisis agenda,

including the operational and stability

issues faced by financial market

infrastructures.

ECB's CMU priorities

Yves Mersch, ECB executive board member,

outlined the ECB's medium to long-term

priorities for CMU in panel remarks at the

Eurofi conference on 10 September 2015.

Mersch highlighted that complicated

political and policy questions

at both member state and EU levels must be

addressed for CMU to be viable. He

emphasised the need for increased

harmonisation of bankruptcy and tax laws

across member states, and considered that a

single rulebook for European capital

markets needed to be complemented by

increased supervisory convergence. Mersch

also noted that shadow banking should be a

strong area of supervisory

concern, indicating that the ECB is sensitive

to the potential systemic risk of increased

capital market integration and

appreciates appropriate safeguards are

necessary.

Aligned covered bond market

The EC consulted on the establishment of a

European-wide covered bond market on 30

September 2015. It found that significant

differences in bond yields depending on

origin, divergent supervisory practices and

legal requirements are causing market

fragmentation.

An integrated covered bond market should

ensure common high quality standards,

which will prevent stigmatisation of certain

classes of bond instruments based on

geographic origin, and should lead to more

consistent pricing of comparable

instruments across the EU. While covered

bonds are included in EU prudential

regulation of firms and their exposures to

various instrument classes, the EC is

looking to regulate the instrument itself,

either directly or through voluntary

coordination measures.

If the EC chooses the route of direct

regulation it sets out the elements it could

consider, including:

uniform definition of covered bond

system of public supervision

treatment of overcollateralisation

treatment of the dual recourse principle

segregation and eligibility of cover assets

transparency requirements.

The consultation closes on

6 January 2016.

ConductIOSCO reports on financial capability

IOSCO published Sound Practices for

Investment Risk Education (FR21/2015) on

15 September 2015. It provided a suite of

broad principles market regulators may use

to frame domestic investor education

measures. IOSCO's research found that

gender, age and prior experience with

products shape an investor's approach to

investment risk. It also made the broad

observation that investment risk is often

poorly understood by retail investors.

Advice to ESMA on proxy advisorprinciples

The ESMA-affiliated Securities and Markets

Stakeholder Group (SMSG) published

advice to ESMA on 18 September 2015 on

the impact of best practice principles for

proxy advisors (established in March

2014). SMSG concluded it is too early to

adequately assess the effectiveness of these

voluntary, industry-developed principles in

addressing proxy advisory conflicts of

interests. ESMA previously published a

final report calling on the industry to

implement a code of conduct which would

be subject to a two-year review, which was

the impetus for ESMA's call for evidence

and SMSG's published advice. SMSG

considered more time is needed to assess

the impact of the principles, largely because

only one proxy season had passed under the

principles. However, it noted two issues

were already observable:

proxy advisors are producing

compliance statements of varying

quality, which could be mitigated if they

were published in a uniform format and

at the same time of year

monitoring should be conducted by an

independent committee.

In addition, SMSG indicated that

monitoring should focus on how well the

principles address conflicts of interest

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 10

around proxy advisors selling reports,

governance ratings and consulting services

to the same issuers that are covered by its

proxy advice to investors.

Financial crimeThe Wolfsberg Group publishes RiskAssessment FAQs

The Wolfsberg Group published Frequently

Asked Questions on Risk Assessments for

Money Laundering, Sanctions and Bribery

& Corruption on 7 September 2015,

providing guidance on current best

practices. In contrast to the heavily

quantitative assessment of credit and

market risks, financial crime risk

management requires a qualitative, risk-

based approach calibrated to the size,

complexity, global reach, and risk appetite

of the financial institution. Moreover,

guidance from national regulators on the

management of financial crime risk vary.

To provide uniformity, the Wolfsberg

Group's guidance addresses:

the purpose, frequency, and

organisation of a risk assessment

whether the scope of a money

laundering risk assessment should

encompass other financial crimes such

as bribery and corruption

the conventional/standard money

laundering risk assessment

methodology, comprised of the

assessment of inherent risks mitigated

by internal controls to derive a residual

risk rating

the use of issues highlighted during the

risk assessment, i.e., the assignment of

action owners to track and remediate

issues prior the next risk assessment

the impact of the risk assessment on the

financial institution’s risk appetite

the use of software/systems to conduct a

risk assessment.

Throughout, the Wolfsberg Group

emphasises the involvement of senior

management and business units in the

success of a financial crime risk assessment.

Global financial institutions with broad

geographic reach will be interested in

aligning themselves to the Wolfsberg

Group’s uniform risk assessment

framework, particularly in countries where

regulatory approaches vary.

Suggestions for MAR guidance

On 29 September 2015 ESMA's Securities

and Markets Stakeholder Group (SMSG)

published its advice to ESMA (dated 21

September 2015) on ESMA's Level 3

measures to implement MAR. The SMSG

recommends that ESMA:

creates an online tool for the single

rulebook on market abuse akin to the

EBA's documentation tool that gathers

the Level 1 and 2 regulations as well as

guidance and Q&As

publishes guidelines for those receiving

market soundings that are not too

complex (since doing otherwise runs the

risk of discouraging market soundings)

publishes guidelines specifying the right

to delay disclosure of inside information

that incorporate CESR's list of non-

exhaustive list of legitimate interests

and follow CESR's interpretation of 'not

misleading the public'

provides more guidance on 'the

reasonable investor' test due to

divergences at national level

clarifies that issuers are under no

obligation to respond to speculation or

market rumours that are without

substance.

MAR aims to bring greater convergence in

national market abuse regimes and it tasks

ESMA with resolving interpretative

questions by issuing guidelines. Presently,

national regulators issue their own guidance

to firms. The SMSG considers Q&As from

ESMA are best suited to replace national

measures, but it notes that the ECJ is the

ultimate authority to interpret MAR.

Settling MAR requirements

ESMA set out its final report incorporating

final draft RTS and ITS on MAR on 28

September 2015, alongside a report from

Europe Economics on compliance costs for

firms. The standards cover requirements

and/or standards for:

market soundings

accepted market practices

preventing, detecting and reporting

suspicious orders or transactions and

abusive practices

disclosing managers' transactions and

insider lists

investment recommendations

buy-back programmes and stabilisation

measures

delaying the disclosure of inside

information.

Some changes have been made, including

new guidance for market soundings where

there is more than one disclosing market

participant (both must comply with MAR).

The EC has three months in which to

consider and adopt, or recommend changes

to the standards. MAR and the level 2 texts

will apply from 3 July 2016, with some

MiFID II dependent measures coming into

effect from 3 January 2017.

Financial stabilityLooking to the future of the Eurozone

ECON published Monetary Dialogue with

Mario Draghi, President of the ECB on 23

September 2015. Draghi said that slowing

growth in emerging economies, a stronger

euro and a fall in commodity prices have

meant a weaker economic recovery and

slower increase in inflation than previously

expected in the Eurozone – but it was too

soon to know if the slowdown in emerging

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 11

economies was of a temporary or

permanent nature. However, he also said

that lending in the Eurozone had picked up

and there was a very moderate

improvement in the labour markets. When

asked about helicopter money (printing

money and distributing it to the public) as

an alternative to QE he pointed to the legal

aspects questioning whether this would be

consistent with European treaties.

Draghi suggested the macro-prudential

framework should be extended to the

shadow banking sector. He also reinforced

the message of the Five Presidents Report,

which advances a euro area treasury as one

possible solution to the need for a political

centre. He added that the European

monetary union must strengthen its tools to

manage and prevent the build-up of fiscal,

financial and other macroeconomic risks.

Imbalances must also be prevented through

tighter control of national fiscal policies,

stronger governance over structural reforms

and a layer of fiscal stabilisation at the

European level.

The next monetary dialogue is scheduled to

take place on 12 November 2015.

Risks to EU financial system

The JCESA reported on risks and

vulnerabilities in the EU financial system on

9 September 2015. It noted that while the

risk environment remains largely

unchanged from the last report the

following areas continue to be of concern:

low interest rates and accommodative

monetary policy constrain banking

sector profitability

the prolonged low interest rate

environment continues to highlight the

need for rigorous valuations of assets

and liabilities, especially when inputs to

such valuations are not observable in

active markets

asset managers face valuation risks due

to reduced corporate bond market

liquidity and increased investments in

illiquid assets

the increased role of market-based

funding, specifically through the

issuance of new securities, did not fully

match the reduction of bank loans to the

corporate sector, meaning a net decrease

in total funding volume

the potential of capital markets remains

constrained because of member state

divergence around disclosure

requirements and accounting methods

liquidity fluctuations have led to

performance volatility for EU funds.

The report indicated that ongoing reform of

financial product disclosure, the

development of the capital markets union

and imposing bank transparency exercises

would address some of these issues.

Corporate debt risks stability

On 22 September 2015 the FSB published

its Corporate Funding Structures and

Incentives Final Report. The FSB examines

the rise in non-financial corporate debt

which has particularly affected emerging

economies, which has financial stability

implications, and finds that:

increases in corporate debt levels have

increased the sensitivity of corporates to

macroeconomic and financial shocks

which could have important knock-on

effects for the banking sector such as a

decline in asset quality

the issuance of non-investment grade-

bonds has increased while investor

protection covenants are half as

common as they were a decade ago

foreign currency corporate funding has

also increased creating a potential for

foreign currency mismatches

declining underwriting standards and

the continuing low interest rate

environment could lead to the build-up

of a bond bubble.

The FSB recommends various macro-

prudential policies which could be used to

address financial stability concerns.

Possible next steps for the FSB and G20

Ministers and Governors include obtaining

more granular data on the liability structure

of corporates in addition to data on non-

listed companies and addressing the debt-

equity bias.

Evolving macro-prudential tools

The ESRB updated its overview of

measures of macro-prudential interest and

an updated overview of countercyclical

capital buffer rates on 25 September 2015.

It provided an overview of the macro-

prudential measures that EU and EEA

states have adopted. Most of the measures

adopted were targeted at credit growth and

leverage. On countercyclical capital buffers,

only Sweden and Norway have set a

countercyclical capital buffer above 0%.

Global last resort lender?

On 22 September 2015 Minouche Shafik,

BoE Deputy Governor, spoke about Fixing

the global financial safety net: lessons from

central banking. She called for

strengthening of the global financial safety

net to deal with two risks:

to emerging markets of sudden capital

outflows

to sovereign debt crises giving way to

contagion.

Countries choosing to self-insure by

accumulating foreign exchange reserves has

numerous costs including the build-up in

financial imbalances seen prior to the

financial crisis. As a solution she cites that

the BoE has taken steps to reduce moral

hazard while expanding the provision of

liquidity insurance by offering greater

predictability of access on more favourable

terms. Measures to reduce moral hazard

include stronger micro-prudential

supervision, stress testing and a credible

resolution regime.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 12

Shafik suggests that the IMF should lead the

way in changing its current approach, by

strengthening its surveillance toolkit to

include stress testing and should manage

the risk of systemic spill overs from

sovereign crisis through the use of state

contingent bonds, such as GDP-linked

bonds.

Climate change and financial stability

On 29 September 2015 Mark Carney, BoE

Governor spoke about Breaking the

Tragedy of the Horizon - climate change

and financial stability. He cautioned on the

risk to financial stability posed by climate

change and identified three channels

through which this could occur:

physical risks that impact insurance

liabilities and financial assets

liability risks where injured parties

claim compensation for the effects of

climate change

transition risks from the reassessment of

asset values which occur as costs and

opportunities become apparent.

He thinks the risks to financial stability

would be minimised if the transition to a

low carbon economy follows a predictable

path helping the market anticipate the

transition. He cited the IPCC’s carbon

budget that amounts to between a fifth and

third of the world's proven reserves of oil,

gas and coal which would render the vast

majority of reserves ‘stranded assets’. But he

thinks the de-carbonisation of the economy

also presents a major opportunity for

insurers and long term investors.

He said the FSB (which Carney chairs) is

considering recommending to the G20

summit that more be done to develop

consistent, comparable, reliable and clear

disclosure around the carbon intensity of

different assets. He proposed a Climate

Disclosure Task Force to design and deliver

a voluntary standard for disclosure by

companies that produce or emit carbon.

Stress testing could also be used to estimate

the impact of climate change on businesses

returns.

Market infrastructureECB responds to EMIR review

The ECB responded to the EC's review of

EMIR on 4 September 2015, identifying a

number of key areas where it believes that

the EU's derivatives regulatory framework

could be improved. These include:

ensuring that CCP supervisory colleges

have enough time to appropriately

assess applications, by providing a

minimum delay between application and

college vote

defining with more granularity the risk

models and parameters that CCPs can

use to determine margin and default

fund requirements, and require CCP

college approval of these models

including macro-prudential elements in

margin requirements

aligning reporting specifications, and

thereby moving away from the status

quo where trade repositories specify the

reporting formats (addressing issues

around procedures for obtaining access,

technical connections and the types of

data files provided)

addressing excessively diverse CCP

safeguards around limiting cash

settlement risks in commercial bank

money

incorporating the assessment of

recovery plans in the process of

recognising third-country CCPs.

The ECB is happy with the current rules on

risk mitigation for non-centrally cleared

transactions, collateral exchange and the

identified spectrum of eligible collateral.

Strengthening CCPs into 2016

The chairs of the FSB, IOSCO, the

Committee on Payment Markets and

Infrastructures (CPMI) and the Basel

Committee released a progress report on

the CCP Workplan on 22 September 2015. It

sets out the current status and future of

plans for CCP resilience, recovery planning

and resolvability, as well as an analysis of

interdependencies.

The organisations set out the following

timeline for future developments:

a CPMI-IOSCO consultation on CCP

resilience and recovery issues, which will

cover stress testing, risk management

and recovery mechanisms - mid 2016

a CPMI-IOSCO report on Level 3

implementation of the Principles for

Financial Market Intermediaries (i.e. the

consistency of outcomes) - mid 2016

an FSB Resolution Steering Group

(ReSG) report on the need for and

proposals for further guidance to

support CCP resolvability and resolution

planning - end of 2016

a joint Basel Committee, CPMI, FSB and

IOSCO report on key interconnections

between CCPs and clearing members

and the potential for contagion effects -

October 2016.

A final report on all these issues is then due

by the end of 2016.

LEI ROC reporting

On 7 September 2015, the Legal Entity

Identifier Regulatory Oversight Committee

(LEI ROC), an FSB and G20 endorsed

committee of 60 national public authorities,

consulted on collecting data on direct and

ultimate parents of legal entities in the

Global LEI System. The LEI ROC seeks

stakeholder feedback on the proposed

approach for collecting data on direct and

ultimate parents of entities covered by the

LEI framework.

The LEI ROC proposes that entities that

have or acquire an LEI would report their

ultimate accounting consolidating parent, as

well as their direct accounting consolidating

parent. It acknowledged the accounting

consolidation approach will not capture

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 13

many types of control relationships, but it

believes the increased simplicity it brings

will establish a strong foundation for

expanding reporting parameters in the

future. LEI ROC suggested that entities

report to the Local Operating Units of the

Global LEI system, which then verifies the

relationship based on available public

documents. Entities would be required to

provide information on parent companies

for an LEI to be issued or renewed, but they

will have the option to decline in certain

circumstances. LEI ROC notes that certain

data on certain types of relationships will

not be captured, such as joint ventures and

branches, but it indicates that these will be

addressed in separate proposals.

The consultation period closes on

19 October 2015.

Setting CCP selection standards

On 23 September 2015, the ECB published

the standards that Eurosystem members

will apply when choosing CCPs to clear

interest rate swaps and other instruments

that they enter into when managing

member state foreign reserves. While

central banks are typically exempted from

mandatory clearing, the Eurosystem

members may voluntarily submit their

transactions to clearing to benefit from

liquidity efficiency or to support efforts to

address systemic risk.

The standards require Eurosystem members

to choose CCPs that:

recognise central banks should not be

subject to many of the requirements

around loss-sharing, such as default

fund contributions, because central

banks cannot go bankrupt and such

requirements would otherwise be one-

sided

provide central banks with segregation

and portability options at the individual

account level to facilitate the quick

transfer of trading positions and related

assets from a defaulting clearing

member to a new one without undue

delay

have access to central bank liquidity to

ensure adequate capitalisation

provide Eurosystem with all of the

information necessary to understand

risk, obligations and cost.

The ECB intends the standards to ensure

responsible use of market infrastructure by

the Eurosystem, as well as neutrality vis-a-

vis the clearing industry.

The reality of REMIT

The Agency for the Cooperation of Energy

Regulators (ACER) released its 2016 work

programme on 30 September 2015. ACER's

mandate was expanded by REMIT to

include wholesale market monitoring.

ACER expected data on more than 500,000

energy market transactions per day from

October 2015 and will need to scrutinise this

to identify possible instances of market

abuse (in which case it will notify national

regulators and coordinate investigations).

ACER's potential success is dependent on it

obtaining significant additional resources -

which it has been requesting since 2014,

and has only been partly successful in

obtaining. It notes the EU's budget for 2016

includes an additional 10 ACER staff

members, but reflects this is less than it

requires.

Natural LEIs

On 30 September 2015 the LEI Regulatory

Oversight Committee (LEI ROC) issued

guidance for its member local operating

units (LOUs) on when it is appropriate to

provide a natural person with a legal entity

identifier. LEI ROC concludes that the

following criteria need to be addressed:

whether the individual is acting in a

business capacity, as evidenced by

registration in a business registry, and

excluding when a natural person is

engaged in the activity of an employee

corroboration by LOUs of essential

information, such as applicant name and

presence on a business registry

exclusivity of the LEI is preserved, even

when the individual is registered in

multiple registries across different

jurisdiction; in which case the LEI

should be based on the information

contained in registry from the

individual's main place of business

verification by LOUs that there are no

privacy rights, data protection or other

obstacles preventing the free use of the

LEI.

ESMA proposes CSD requirements

On 28 September 2015, ESMA published

draft RTS for CSD authorisation and

operational requirements under the CSDR.

While this RTS is significant for FMI's,

investment firms are still waiting on

settlement discipline standards that have a

more direct impact on industry, especially

around mandatory buy-in. In addition, the

requirements for securities settlement in

book entry form and a uniform T+2

settlement period were already directly

addressed in the Level 1 text.

The draft RTS set out many authorisation

and operational standards that are similar

to those that apply to other market utilities,

such as CCPs. CSD-specific criteria include

information regarding:

policies and procedures to address

settlement fails

safekeeping of securities

management of participant default

settlement finality

conditions of CSD participation in a

wider corporate group

recognition of third-country CSDs

recordkeeping of securities settlement

reconciliation methods

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 14

reducing operational risks posed by CSD

linkages.

The draft RTS give both depositaries and

those utilising their services a better

understanding of what is expected from

these facilities.

ESMA develops search tool

ESMA published the draft RTS on

European Electronic Access Point (EEAP)

on 25 September 2015, in response to the

amended Transparency Directive

2013/50/EC (2013).

ESMA will create a website that allows

online search and access capabilities to

regulated information, such as annual

reports, shareholder information and

issuers admitted to trading in EU markets,

akin to the SEC's EDGAR.

ESMA invites feedback on the RTS draft by

27 November 2015, particularly in

relation to potential IT systems, technical

infrastructure and search criteria

envisioned. It expects the site to be

operational by 1 January 2018.

II conference on 19 October 2015.

Operational resilienceCyber Security by country

The Hedge Fund Standards Board (HFSB)

published Cyber Security for Hedge Fund

Managers on 29 September 2015. The

HFSB describes the wide spectrum of

national regulation from a principle or

conduct based approach to more stringent

risk management strategy approach. It also

highlighted that likely 60% of cyber threats

are caused through human error (e.g. weak

log-in credentials, phishing attacks and

disgruntled employees). In addition, the

HFSB recommends specific cyber security

strategies.

The true value of the report, however, can

be found in the information contained in its

three Annexes:

Annex A compares the cybersecurity

requirements of different national

regulatory bodies

Annex B presents a list of the available

cyber risk management frameworks

Annex C highlights cyber-attack

simulations and international

cooperation on such matters.

Annex A is particularly useful because it sets

out different countries' cybersecurity

regulations.

Other regulatoryState of the (European) Union

On 9 September 2015, Jean-Claude Juncker

made the annual State of the Union 2015:

Time for Honesty, Unity and

Solidarity address. Over and above wider

policy challenges, he discussed the Five

Presidents' Report on further consolidation

of the euro zone, focusing on the

establishment of a common deposit

guarantee system. Juncker acknowledged

that some member states have less robust

national deposit insurance schemes than

others, and consequently advocated a

reinsurance model as opposed to full

mutualisation. The President also touched

on tax reform, arguing that the country

where a company generates its profits must

also be the country of taxation. The EC is

pushing member states to define the

modalities of a financial transaction tax by

the end of 2015.

ESMA initiatives

Steven Maijoor, ESMA Chairman, delivered

a statement before ECON on 14 September

2015 outlining ESMA's activities and

priorities. He emphasised that ESMA has

focused on fulfilling its twin objectives of

financial stability and investor protection by

either implementing a single rule book or

encouraging supervisory convergence.

Maijoor noted that ESMA has

also implemented an extensive array of

technical standards over the past year

and consulted more broadly on subjects

such as venture capital robustness,

crowdfunding, securitisation and the CMU.

ESMA has supported European markets by

ensuring strong infrastructure is in place

and will continue to do so. For instance, it is

building a single platform

to provide regulators with one access point

to millions of derivative transaction reports

filed with different trade repositories.

With supervisory convergence, Maijoor

discussed ESMA's upcoming peer reviews

on HFT, prospectus approval and other

subjects. He also touched on ESMA's work

directly regulating credit rating agencies

and trade repositories.

ESMA looking at EU vulnerabilities

On 14 September 2015, ESMA published its

biannual report on the trends, risks and

vulnerabilities facing the EU financial

system. It highlighted concerns around a

combination of excessively high asset price

valuations and low secondary market

liquidity. Likewise, ESMA observed that

there are investor protection concerns

around increased investment fund use of

leverage by as well as the increased

potential for liquidity and maturity

transformation mismatches.

On the positive side, ESMA reports that

market sentiment in financial services

improved overall in the first half of 2015,

but nonetheless remained mixed with

increased confidence in market

intermediaries but diminished support for

the insurance and pension fund sectors. It

notes that capital markets activity picked up

over the period, with positive net issuance

for equity, government debt and the debt

issuance of non-financial corporations

(although a continued decline in

secuitisations), but observed that capital

markets are still overshadowed by a

dominant (albeit recently subdued) loan

market.Pensions

Pension funds (still) exempted fromclearing

On 15 September 2015, EC delegated

regulation (EU) 2015/1515 on EMIR was

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 15

published in the OJ. It extended the

transitional period for EMIR clearing

requirements by an additional two years for

pension scheme arrangements that enter

into derivative transactions to reduce

investment risks directly related to their

financial solvency.

The transitional period in EMIR was set to

expire in August 2015 and, consequently,

the delegated regulation (passed by the EC

in June) allows pension schemes subject to

EMIR to trade in derivatives without

submitting designated instruments to

mandatory central clearing until August

2017.

The rationale for the exemption is that

pension scheme models that try to minimise

cash holdings to increase investor return

could be threatened by CCP margin

requirements. The EC has found that CCPs

have yet to develop technical solutions for

the transfer of non-cash collateral as

variation margin, and it will presumably

revisit the issue before the extended

transitional period expires in August 2017.

RemunerationEBA publishes 2013 pay dataSeptember 2015

The EBA published a Report -

benchmarking of remuneration practices at

union level and data on high earners on 7

September 2015. National regulators must

collect data on high earners (over €1m)

from firms in scope of CRD IV for the EBA,

which aggregates and analyses it. This data

here relates to 2013, with the EBA expecting

to report by the end of 2015 for 2014 data.

Securities and derivativesMaijoor hails 'derivatives union'

On 22 September 2015, Steven Maijoor,

ESMA Chair, gave a speech applauding

ESMA's implementation of EMIR as

creating an EU 'derivatives union' that can

serve as an inspiration for the still-

developing CMU. He focused on the

upcoming implementation of mandatory

clearing for the first class of instruments as

well as ESMA's review of the EMIR

reporting obligations.

Maijoor discussed the successes arising

from EMIR reporting, including the

calibration of transparency obligations

under MiFIR. But he noted the need to

ensure more effective supervision and

enforcement of trade repositories pursuant

to ESMA's direct regulatory authority.

Likewise, he argued that there is a need to

improve the quality of the data being

reported and discussed ESMA's current

review of the reporting rules and specifics

around some of the data fields.

Risks in securities markets

On 14 September 2015, ESMA published its

quarterly risk dashboard, concluding that:

systemic stress eased but remains

volatile, with concerns around

mispricing of risks, deteriorating

liquidity and potential amplification of

market distortions

key risks still arise from the uneven

economic outlook, ultra-low interest

rates and the fiscal crisis in the euro

zone

there has been no observable spill-over

into European markets from fall in

Chinese equities markets

low sovereign bond yields may have

unintentional negative consequences,

including excessive risk taking and

capital misallocation

market risk remains high, as witnessed

by fluctuating bond valuations

liquidity remains high, with particular

volatility in the fixed income markets.

ESMA concluded that contagion risk

remains high, in part because of cross-

holdings between banks and asset

managers.

Derivatives data reporting

On 2 September 2015 IOSCO and BIS'

Committee on Payments and Market

Infrastructures (CPMI) consulted on

proposed key data elements for derivatives

transaction reporting, covering the

following data elements:

effective date

end date

whether cleared or not

settlement method, such as physical,

cash or other

primary obligor ID

notional amount

notional currency

valuation currency.

The consultation period closed on 9 October

2015. IOSCO and CPMI plan to consider

unique transaction identifiers (UTIs) and

unique product identifiers (UPIs) in

separate consultation work streams at a

later date.

Standardising EU securitisations

On 30 September 2015 the EC proposed

regulation to simultaneously establish

heightened due diligence and risk retention

obligations for both originators and

investors, while also creating a class of

simple, transparent & standardised (STS)

securitisations. The EC hopes to expand the

securitisation market by providing a means

for credit institutions and other financial

institutions to originate, sponsor and invest

in STS securitisation vehicles without

triggering excessive capital requirements,

but also hopes to make the securitisation

market as a whole more stable through

enhanced investor protection.

Currently, securitisation is primarily

regulated indirectly through investment and

exposure constraints imposed on financial

services firms through AIFMD and other

regulations focused on specific types of

firms and activities. The proposed

regulation shifts focus onto the originators,

while expanding the due diligence

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 16

obligations of financial services firms.

Originators will need to retain at least 5%

net economic interest in the securitisation,

effectively prohibiting the "develop to

distribute" model. Originators and sponsors

will need to provide investors with

information on the underlying exposures

and collateralisation, both at the time of

investment decision and through quarterly

reports.

The EC also imposes additional

requirements for asset-backed commercial

paper, including processes for replacement

and collateralisation of the funding

requirement and exclusion of call options

and other clauses that have a final effect on

maturity.

The EP and Council will now need to

consider the proposed Regulation and

determine their own negotiating positions.

SupervisionUnderstanding unforeseen regulatoryimpacts

The EC called for evidence on the

cumulative impacts and unintended

consequences of post-crisis regulation on 30

September 2015. It observed that the scale

of the regulatory response to the financial

crisis, which is spread over a wide variety of

regulations covering different sectors, firms

and instruments, could mean that the

regulatory framework is building up

redundancies, gaps and unjustifiable costs.

Further such a review does not occur in a

vacuum, and should be conducted with the

intent to increase the opportunities for

economic growth. The call for evidence

focuses on:

unnecessary regulatory constraints on

financing, with specific attention on

encouragement of innovation and

investment support for infrastructure

development

regulatory impacts on market liquidity

adequacy of investor and consumer

protection

degree to which prescriptiveness of

regulation has imposed unwarranted

business costs

duplication of disclosure reporting

excessive documentation requirements

unintentional increases of procyclicality.

The broader CMU agenda aim to balance

fostering capital markets growth, including

sometimes through scaled-back regulation,

and creating some of the same systemic

risks that led to the financial crisis. The call

for evidence is very much in line with that

balance, as it seeks to lighten the regulatory

burden when it fails to achieve the intended

benefits of that regulation.

The call for evidence closes on

6 January 2016.

Cross-border regulation

On 17 September 2015 IOSCO published its

Final Report on Cross-Border Regulation,

assessing policy options for national

supervisors developing domestic regulation

with cross-border implications. The lack of

coordination among national regulators

could result in conflicting rules, regulatory

arbitrage and increased cost of complying

with differing regulatory requirements.

IOSCO sets out three actions in its

regulatory toolkit:

National treatment – subject to

exemptions and accommodations,

national regulators could grant foreign

firms access to the domestic market with

the same regulatory requirements as

domestic firms, though home and host

regulators would have to agree in

advance on the exchange of non-public

information through cooperation

agreements (based for example on the

IOSCO Principles Regarding Cross-

Border Supervisory Cooperation).

Recognition – domestic regulators may

permit unilateral or reciprocal

recognition of activities by foreign firms

in the local market, if the foreign

regulator meets equivalency tests,

supported by on-going cooperation

between regulators.

Passporting – domestic regulators may

authorise foreign firms to offer certain

products and services with or without a

branch in the domestic market, though

IOSCO notes this requires a great deal of

legal alignment.

IOSCO suggests global regulators should

more closely consider the implications for

cross-border cooperation prior to the

policy-making stage of regulatory

development.

Oil price reporting

IOSCO reported on the implementation of

the Principles for Price Reporting Agencies

(PRAs) on 17 September 2015. The

Principles have been in place since October

2012, and set out standards intended to

enhance the reliability of oil price

assessments that are referenced in

derivative contracts.

IOSCO believes the PRAs continue to align

management policies and operational

procedures in line with the Principles. In

particular, IOSCO recognised that progress

has been made on:

electronic technology

policy documentation

compliance

training

methodology

scope of application.

IOSCO does not believe that further annual

reviews are necessary given the progress

that PRAs have made in implementing

changes.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 17

Early indication of EU-US regulatorypriorities

On 29 September 2015 representatives from

regulatory and government bodies in the EU

and US issued a joint statement of the

Financial Markets Regulatory Dialogue

(FMRD), highlighting discussions at their

most recent meeting.

Topics included:

CMU plans and the Prospectus Directive

review

negotiations on mutual recognition of

CCPs and continued cooperation on

their recovery and resolution plans

EU concerns about the effect of Volcker

Rule on foreign private firms

cooperation on technical aspects of bank

resolution, in particular the final

proposed TLCA global standard

update on the development of the EU

Benchmark Regulation

mutual commitment to developing

policies on financial cybersecurity.

Firms may be interested in FMRD as an

early indication of EU and US regulatory

priorities and potential policy changes.

Accounting

Electrifying annual reports

ESMA published a Consultation paper on

the RTS on the European Single Electronic

Format (ESEF) on 25 September 2015. The

amended Transparency Directive

establishes the ESEF to standardise the

electronic format for annual financial

reports. ESMA admits this might be difficult

at the moment because:

structured electronic reporting needs a

very clearly defined taxonomy, which

doesn't generally exist for audit

reporting

management reports usually use a

narrative that is not in

a distinct structure, which doesn't

generally lend itself to an electronic

format

member states use different forms of

GAAP or IFRS.

ESMA therefore proposes to limit the scope

of using ESEF for annual financial reports.

It also suggests member states might need

to develop national audit taxonomies to

reflect their own national GAAP

requirements.

The consultation closes on 24 December

2015. ESMA must submit the finalised RTS

to the EC by end of December 2016.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 18

In this section:

Regulation 18

Capital and liquidity 18

Payments 19

Supervision 19

Accounting 19

IFRS 19

Regulation

Capital and liquidityMaturity ladder to stay?

The EBA published its opinion on the EC

intention to amend the draft ITS on

additional liquidity monitoring metrics

under the CRR on 25 September 2015. It

believes it is essential to keep the maturity

ladder template in the ITS and the EBA

noted supervisors found the metric relevant

and, consequently, it is necessary to

harmonise it.

The EC recommended removing the

maturity ladder template in July 2015

because it needs to be adopted to the new,

more detailed, definition of liquid assets it

introduced in January 2015. The EC also

considered the metric introduced

unnecessary regulatory burden and the

duplicating implementation costs for firms.

The EBA disagrees.

The EBA did agree that the application date

of the ITS should be delayed from 1 July

2015 to 1 January 2015.

Stress testing results in December

The BoE set out the timetable for the

publication of the UK stress test results on

28 September 2015 while in the process of

analysing the results of firms’ initial stress

testing submissions. The FPC and the PRA

Board intend to discuss the analysis over

the autumn. Final decisions on the results of

the stress tests will be made by both

committees on 30 November 2015 and will

be fed back to the firms involved on the

same day. The UK stress test results will be

published alongside the Financial Stability

Report on 1 December 2015.

Asset encumbrance holds steady

The EBA published its Report on Asset

Encumbrance on 30 September 2015. The

EBA found no evidence of a general increase

in asset encumbrance across EU banking

institutions. The weighted average

encumbrance ratio in the EU in March 2015

was 27.1%, a slight increase from 25.5% in

December. However they varied from 0%

for Estonia to 44% in Denmark and Greece.

The EBA intends to monitor asset

encumbrance, the availability of collateral

for central bank funding and the use of

central bank funding on a yearly basis.

CCB disclosure standardised

The Commission Delegated Regulation on

RTS concerning the disclosure of

information in relation to the compliance of

institutions with the requirement for a CCB

in accordance with the CRR was published

in the OJ on 19 September 2015.

Institutions must disclose their CCB and the

geographical distribution of its credit

exposures relevant to the calculation of the

Banking and capital markets

James de VeulleDirector, Jersey office+44 (0) 1534 838375james.de.veulle@je.pwc.com

Nick VermeulenPartner, Guernsey office+44 (0) 14 81 752089nick.vermeulen@gg.pwc.com

Karl HaironPartner, Jersey office

+44 (0) 1534 838282

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 19

CCB. The RTS specifies standard templates

for this disclosure together with

corresponding compilation instructions.

This Pillar 3 disclosure requirement applies

from 1 January 2016.

Limiting CRR transitional exemption

The Delegated Regulation concerning a

RTS for the transitional treatment of equity

exposures under the IRB approach was

published in the OJ on 19 September 2015.

Member state authorities may exempt

specified categories of equities from the IRB

treatment of capital requirements until 31

December 2017. The RTS restricts this only

to those categories of equities that already

benefitted from an exemption in that

member state on 31 December 2013.

The Delegated Regulation RTS came into

effect on 9 October 2015

PaymentsEPC updates direct debit guidance

On 15 September 2015, the EPC issued

guidance on the form and content of the

SEPA direct debit mandates that creditors

give to individuals and business customers

to make payments within the Eurozone. The

guidance sets out the mandatory and

optional data elements to be included in the

mandates and illustrates different ways to

present the information while remaining

compliant with the SEPA Direct Debit Core

Rulebook and the SEPA Direct Debit B2B

Rulebook.

Updated rulebooks come into force on 22

November 2015 and the guidance is

intended to support them.

Financial inclusion in payments

On 10 September 2015, the CPMI-World

Bank Group Task Force on the Payment

Aspects of Financial Inclusion

(PAFI) consulted on how financial inclusion

is affected by payments and payment

systems.

PAFI suggests that financial inclusion in

payments should allow all individuals and

small business to access to at least one

transaction account, such as a bank account,

to meet their payment needs and serve as a

gateway to other financial services. To

achieve this it proposes seven guiding

principles and key actions:

a commitment from stakeholders to

broaden financial inclusion

a robust legal and regulatory

framework underpinning financial

inclusion

secure and accessible financial and IT

infrastructures

transaction account and payment

products designed to meet customers’

needs

availability of a broad network of access

points and interoperable access

channels

improved financial literacy

leveraging large-volume and recurrent

payment streams, including

remittances, to increase the number of

transaction accounts and encouraging

the use of these accounts.

PAFI invites comments on its Guiding

Principles from stakeholders by 7

December 2015.

SupervisionNo two-tier banking rules

Andrea Enria, EBA Chair, discussed

obstacles to the uniform application of the

Single Rulebook (a prerequisite for the

development of a banking union) in a

speech on 28 September 2015.

Enria discussed three impediments and

possible solutions to them:

Options and national discretions in level

1 measures result in EU law being

transposed and implemented differently.

Drafting rules that enable

proportionality would provide more

flexibility to regulated entities without

resulting in an inconsistent application

of measures across member states.

National implementation of level 3

guidance and standards range from

transposed national legislation to mere

supervisory practices. Introducing a

requirement for written implementation

under a hierarchical framework at

national level would address this.

Level 1 and 2 texts contain too many

technical details. Moreover, Level 2

technical standards, originally intended

to be easily adopted and amended,

instead require a protracted legislative

process. Delegating authority to the EBA

to adopt “directly applicable and easily

amendable rules on clearly identified

technical matters” with no impact on

economic policies would streamline this.

Enria emphasised the importance of even

greater harmonisation upon completion of

the Banking Union, pointing out that a two-

tier system for euro and non-euro member

states poses a threat to financial integration

in the Single Market. He suggested the EBA

could have a centralised role as regulator

and bank supervisor, with a Single

Rulebook applicable to all member states

irrespective of national currency.

Accounting

IFRSRecognising DGS contributions

ESMA published the Application of the

IFRS requirements in relation to the

recognition of contributions to the Deposit

Guarantee Schemes in IFRS accounts on 25

September 2015. ESMA's opinion addresses

the accounting treatment of predominantly

ex-ante schemes set up according to DGSD.

It is limited to the accounting treatment of

ex-ante non-refundable cash contributions

to a DGS for which the obligating event is

identified at a single point in time and

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 20

doesn’t apply to a deposit held at the DGS or

on an escrow account.

On recognising a liability, ESMA considers

that unless the scheme allows for the

contribution to be fully or partially reduced

or paid back when certain conditions are

met the liability should be recognised in full

when the event has occurred. An intangible

asset or prepayment cannot be recognised

as the contribution does not meet the

definition of an asset as set out under IAS

38 (Intangible Assets). For interim financial

statements the expense needs to be

recognised in full once the obligating event

has occurred as IAS 34 (Interim Financial

Reporting) has no specific provision for this

type of expense.

ESMA is therefore of the view that a

contribution needs to be recognised as an

expense in full.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 21

In this section:

Regulation 21

Alternative investments 21

Retail products 21

Regulation

Alternative investmentsBroadening funds scope

The EC proposed amending the EuVECA

and EuSEF Regulations on 30 September

2015, as part of the ongoing CMU initiative.

EU regulation has differentiated between

EuVECA/EuSEF and AIFMD funds by

allowing EuVECAs and EuSEFs access to

the EU passport despite being below

AIFMD size thresholds. The EC is

considering whether to amend the EuSEF

and EuVECA Regulations to:

allow EuVECAs and EuSEFs to be

managed by larger AIFMD firms, while

still retaining the opportunities for

smaller managers

reduce the minimum subscription (from

€100,000 to foster a wider pool of

investment)

standardise fund registration fees across

member states

expand the range of eligible fund

investments from its current restrictions

of companies employing fewer than 250

people and with annual turnover of no

more than €50m.

Despite the above, the EC may not fully

address some recent complaints voiced in

speeches about the EU venture capital

regime. Since increasing venture capital

investment is a key part of CMU we expect

focus to increase on making it easier for

investors to invest in venture capital over

the coming months.

The consultation closes on

6 January 2016.

Retail productsUCITS sanctions reporting

ESMA published its Final report - draft ITS

on penalties and measures under UCITS V

on 18 September 2015. UCITS V introduces

a new minimum sanctions regime to the

UCITS framework, aligning regulatory

penalties across the EU for breaching

UCITS rules.

Under the new requirements a national

regulator must inform ESMA on an annual

basis about the sanctions it has locally

imposed. ESMA sets out how this

notification should be carried out.

Unusually the ITS were not subject to open

public consultation - ESMA states this is

because the ITS are only aimed at national

regulators and have no direct impact on

UCITS market participants.

Asset management

John LuffPartner, Guernsey office+44 (0) 1481 752121john.luff@gg.pwc.com

Mike ByrnePartner, Jersey office+44 (0) 1534 838278michael.j.byrne@je.pwc.com

Adam GulleySenior Manager, Jersey+44 (0) 1534 8382390adam.gulley@je.pwc.com

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 22

The ITS now pass to the EC for adoption in

due course.

IOSCO review of MMFs

IOSCO published a peer review of money

market regulation (both proposed and final)

by IOSCO members on 2 September 2015. It

considered:

developing specific regulatory

definitions for MMFs

limiting asset types and risk, with all of

the largest jurisdictions reporting

implementation

introducing valuation requirements,

with some jurisdictions failing to define

the parameters around acceptable use of

the amortised cost method

putting measures in place to ensure the

resilience of stable MMFs, with the US

and EU utilising liquidity fees and

redemption gates

limiting the reliance on external credit

ratings, with a number of jurisdictions

still requiring that MMFs invest in

instruments with such ratings

requiring investor disclosures such as on

the fund's valuation method, potential

for market stress and clarifying the

limitations of stable NAV MMFs (such

as no capital guarantee)

establishing requirements around MMF

participation in the repo markets.

IOSCO's review is timely in light of the final

US rules published last year and the near-

finalisation of the EU's Regulation on

MMFs.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 23

In this section:

Regulation 23

Solvency II 23

EU update 24

Global update 24

Retail products 24

Accounting 25

IFRS 25

PwC Publications 25

Regulation

Solvency IILate tweaking to delegated acts

The EC amended the Solvency II Delegated

Acts through a new delegated regulation on

30 September 2015. The new regulation:

Introduces significantly lower capital

charges under the standard formula for

qualifying infrastructure debt and equity

investments (around 70% of the charges

applicable to other debt and equities).

This is intended to facilitate investment

by insurers in EU public infrastructure

projects.

Sets out requirements for documented

and validated due diligence and ongoing

risk management by insurers to qualify

for the lower charges.

Extends the transitional measure on

equity investments to all equities

(including equities held in collective

investment schemes where full look-

through is not possible). The move to

Solvency II’s standard formula capital

charges on equities held at the time of

implementation of Solvency II is spread

over a period of up to seven years.

Allows investments in ELTIFs and

equities traded through MTFs to be

treated as type 1 equities, qualifying for

a lower standard formula charge.

Corrects a number of drafting errors.

The introduction of a new class of asset for

infrastructure so close to implementation

reflects the political will created by the

Investment Plan for Europe announced in

November 2014. The Investment Plan

aimed to mobilise at least €315 billion of

investment over three years, with

institutional investment by insurers

identified as a key under-utilised source of

investment. The amendments intend to

remove obstacles to investment in

infrastructure created by Solvency II. The

EP and Council have three months to review

the changes (with the option to extend

review for a further three months).

In developing the new lower capital charges

for qualifying infrastructure the EC had

regard to EIOPA’s Final Report on

CP15/004 on the Call for Advice from the

EC on the identification and calibration of

infrastructure investment risk categories

and covering letter published on

29 September 2015.

Insurance

Evelyn BradyPartner, Guernsey office+44 (0) 1481 752013evelyn.brady@gg.pwc.com

Adrian PeacegoodDirector, Guernsey office+44 (0) 1481 752013adrian.peacegood@gg.pwc.com

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 24

Equivalence of group solvencycalculation

EIOPA published its Opinion on the group

solvency calculation in the context of

equivalence on 25 September 2015, dealing

with the treatment of insurers in equivalent

(or provisionally equivalent) territories

under the deduction and aggregation

method. In EIOPA's opinion, the

contribution to the group SCR should be

'the highest level of capital requirement, as

laid down in prudential regulations or

stipulated by the supervisory authority of

the equivalent or provisionally equivalent

third-country'. The Annex indicates that for

the USA the contribution to the group SCR

would be at least 300% of the Authorized

Control Level Risk-Based Capital.

Bermuda’s equivalence assessmentupdated

EIOPA published a Progress report on its

equivalence assessment of the Bermudian

supervisory system in relation to articles

172, 227 and 260 of the Solvency II

Directive on 4 September 2015 (dated 31

July 2015). As Bermuda is currently making

substantial amendments to its insurance

supervisory regime, EIOPA has revisited its

Solvency II equivalence assessment. The EC

intends to take further equivalence

decisions by autumn of this year.

Switzerland full equivalence confirmed

The EU published its decision on the

equivalence of the solvency and prudential

regime for insurance and reinsurance

undertakings in force in Switzerland in the

OJ on 24 September 2015. Its decision of 5

June 2015 to grant Switzerland full

equivalence in all three areas of Solvency II

subject to equivalence assessments is now

legally binding.

For further information on equivalence see

EIOPA’s webpage - Overview of

equivalence decisions.

Implementing Solvency II

Gabriel Bernardino, Chairman on EIOPA

spoke on the Implementation of Solvency II

-The dos and the don’ts on 2 September

2015. He presented the main principles of

Solvency II and highlighted a number of key

elements that stakeholders need to consider

to make Solvency II implementation a

success. He also considered the

opportunities created by the

implementation of Solvency II.

EIOPA updates the EP

EIOPA published a Statement by Gabriel

Bernardino, Chairman of EIOPA, at the

annual hearing at the ECON Committee of

the EP on 14 September 2015. It highlights

EIOPA’s achievements over the last year in

the areas of supervisory convergence,

consumer protection and financial stability

and identifies some of the challenges going

forward especially in the post-evaluation of

regulation and the convergence of

supervisory practices.

EIOPA Q&A updated

In September 2015, EIOPA updated

answers to questions on:

Guidelines on valuation of technical

provisions

Guidelines on loss absorbing capacity of

technical provisions and deferred taxes

Guidelines on group solvency

Guidelines on reporting and public

disclosure

EU updateLatest Risk Dashboard

EIOPA published its Risk Dashboard

September 2015 on 16 September 2015. The

risk environment facing the insurance

sector remains challenging, in particular,

market risk remains the most eminent risk.

But EIOPA also found that the liquidity

position of the insurance sector has

improved due to higher holdings in liquid

assets and stable lapse rates.

Global updateIAIS solvency review

The IAIS published a Thematic Self-

Assessment and Peer Review on solvency

and solvency related issues on 8 September

2015. This questionnaire addressed to

regulators covers current practice in their

jurisdictions re:

ICP 14 Valuation

ICP 15 Investment

ICP 16 Enterprise Risk Management for

Solvency Purposes

ICP 17 Capital Adequacy

ICP 20 Public Disclosure.

The comment period ended on

6 October 2015.

Retail productsObstacles to a Financial ServicesSingle Market

The EC published its roadmap for a Green

Paper on Retail Financial Services and

Insurance on 2 September 2015. The EC

seeks views on persistent fragmentation in

EU markets.

The EC noted that consumers and service

providers still face obstacles to cross-border

retail financial services within the EU

despite harmonisation measures from the

implementation of MCD, PRIIPs, PAD, and

PSD2, and the investor protection

provisions of MiFID II. The EC found

significant price differentials, which

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 25

evidencing a lack of competition and

transparency.

Hindrances identified include:

consumer hesitation to purchase retail

financial products and services abroad

or lack of awareness that cross-border

products and services exist

contractual limitations on life insurance

policies which exclude non-residents

“geo-blocking” or the restriction of

online content to domestic audiences

only

failure of service providers to leverage

advances in digitalisation to extend

online services to customers in other

member states

increased compliance costs for service

providers.

The EC will announce the launch of Green

Paper consultation here.

Accounting

IFRSIFRS 9 impairment implementationissues

The IFRS Transition Resource Group for

Impairment of Financial Instruments

discussed the new IFRS 9 standard at its

meeting on 16 September 2015. The main

topics discussed were:

significant increases in credit risk

using changes in the risk of a default

occurring over the next 12 months as an

approximation of the changes in the

lifetime risk of a default

measuring expected credit losses for

revolving credit facilities

forward-looking information.

For further details see our In transition

publication.

Amendments to IFRS 4 proposed

On 23 September 2015, the IASB confirmed

plans to consult on temporary measures

relating to the effective dates for IFRS 9

and the new insurance contracts. The IASB

will consider the implementation of IFRS 9

‘Financial Instruments’ before the new

insurance contracts standard comes into

effect. The IASB plans to:

amend IFRS 4 ‘Insurance Contracts’ to

give companies whose business model is

predominantly issuing insurance

contracts the option to defer the

effective date of IFRS 9 until 2021 (the

deferral approach)

give insurers who implement IFRS 9 the

option to remove from profit or loss

some accounting mismatches and

temporary volatility that could occur

before the new insurance contracts

standard is implemented (the overlay

approach).

IFRS 4 is currently being deliberated by the

IASB and a final standard is expected in

2016. An exposure draft setting out these

measures will be consulted on later this

year.

PwC PublicationsIFRS News

Our publication IFRS News September

2015 covers:

impairment: An analysis of recent ESMA

enforcement decisions

IFRS Research: Separating the facts

from the hype

negative interest rates: Not just for

banks!

Cannon Street Press: Workplan 2016-

2020

IFRIC rejections: IAS 7.

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 26

Open consultations

Closing datefor responses

Paper Institution

22/10/15 Consultative document – general guide to account opening BaselCommittee

23/10/15 Consultation paper – draft guidelines on sound remuneration policies under the UCITS Directive and the AIFMD ESMA

29/10/15 Consultation paper – draft guidelines on cooperation agreements between deposit guarantee schemes under DGSD EBA

31/10/15 Consultation paper – draft ITS under MiFID II ESMA

05/11/15 Draft RTS on the procedures for excluding transactions with NFCs established in a third country from the own funds requirementfor Credit Valuation Adjustment Risk under the CRR

EBA

07/12/15 Consultative report – correspondent banking CPMI-IOSCO

07/12/15 Consultative report – payment aspects of financial inclusion BIS

24/12/15 Consultation paper on the draft RTS on the ESEF ESMA

06/01/16 Consultation document – review of the EuVECA and EuSEF Regulations EC

06/01/16 Consultation document – covered bonds in the EU EC

06/01/16 Call for evidence: EU regulatory framework for financial services EC

Monthly calendar

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 27

Forthcoming publications in 2015

Date Topic Type Institution

Consumer protection

Q3 2015 Calculation of contributions to DGSs Guidelines EBA

Financial crime, security and market abuse

TBD 2015 Advice to Commission on Benchmark legislation Advice ESMA

Prudential

Q3 2015 Update on ITS on reporting of the leverage ratio Technical standards EBA

Q3 2015 LGD floors for mortgage lending Consultation EBA

Q3 2015 RTS on PD estimation Technical standards EBA

Q4 2015 Report on NSFR methodologies Report EBA

Securities and markets

Q4 2015 Securities Financing Transactions Regulation Discussion or ConsultationPaper on technical standards

Consultation or technical standards ESMA

Recovery and resolution

Q3 2015 Notification requirements Technical standards EBA

Q3 2015 RTS on Contractual Bail in Technical standards EBA

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 28

Date Topic Type Institution

Solvency II

TBD 2015 Solvency II Level 3 measures Level 3 text EIOPA

Supervision, governance and reporting

Q4 2015 Assessment of national SREP approaches Report EBA

Main sources: ESMA 2015 work programme; EIOPA 2015 work programme; EBA 2015 work programme; EC 2015 work programme;

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 29

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

AML Anti-Money Laundering

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

AQR Asset Quality Review

ASB UK Accounting Standards Board

Banking ReformAct (2013)

Financial Services (Banking Reform) Act 2013

Basel Committee Basel Committee of Banking Supervision (of the BIS)

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

Basel III Basel III: International Regulatory Framework for Banks

BBA British Bankers’ Association

BCR Basic capital requirement (for insurers)

BIBA British Insurance Brokers Association

BIS Bank for International Settlements

BoE Bank of England

BRRD Bank Recovery and Resolution Directive

CASS Client Assets sourcebook

CCB Countercyclical buffer

CCD Consumer Credit Directive 2008/48/EC

CCPs Central Counterparties

CDS Credit Default Swaps

CEBS Committee of European Banking Supervisors (predecessor of EBA)

CET1 Common Equity Tier 1

CESR Committee of European Securities Regulators (predecessor ofESMA)

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

CFT Counter Financing of Terrorism

CFTC Commodities Futures Trading Commission (US)

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

Glossary

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 30

CIS Collective Investment Schemes

CMA Competition and Markets Authority

CMU Capital markets union

CoCos Contingent convertible securities

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

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

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

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

CRAs Credit Rating Agencies

CRD ‘Capital Requirements Directive’: collectively refers to Directive2006/48/EC and Directive 2006/49/EC

CRD II Amending Directive 2009/111/EC

CRD III Amending Directive 2010/76/EU

CRD IV Capital Requirements Directive 2013/36/EU

CRR Regulation (EU) No 575/2013 on prudential requirements for creditinstitutions and investment firms

CSDR Central Securities Depositories Regulation

CTF Counter Terrorist Financing

DFBIS Department for Business, Innovation and Skills

DG MARKT Internal Market and Services Directorate General of the EuropeanCommission

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

D-SIBs Domestic Systemically Important Banks

EBA European Banking Authority

EC European Commission

ECB European Central Bank

ECJ European Court of Justice

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

ECON Economic and Monetary Affairs Committee of the EuropeanParliament

EEA European Economic Area

EEC European Economic Community

EIOPA European Insurance and Occupations Pension Authority

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

EP European Parliament

EPC European Payments Council

ESA European Supervisory Authority (i.e. generic term for EBA, EIOPAand ESMA)

ESCB European System of Central Banks

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 31

ESEF European Single Electronic Format

ESMA European Securities and Markets Authority

ESRB European Systemic Risk Board

EU European Union

EURIBOR Euro Interbank Offered Rate

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

EuVECA European Venture Capital Funds Regulation

FASB Financial Accounting Standards Board (US)

FATCA Foreign Account Tax Compliance Act (US)

FATF Financial Action Task Force

FC Financial counterparty under EMIR

FCA Financial Conduct Authority

FDIC Federal Deposit Insurance Corporation (US)

FiCOD Financial Conglomerates Directive 2002/87/EC

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

FiCOD2 Proposal to overhaul the financial conglomerates regime (expected2013)

FMI Financial Market Infrastructure

FMLC Financial Markets Law Committee

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

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 Global Systemically Important Banks

G-SIFIs Global Systemically Important Financial Institutions

G-SIIs Global Systemically Important Institutions

HMRC Her Majesty’s Revenue & Customs

HMT Her Majesty’s Treasury

IAIS International Association of Insurance Supervisors

IASB International Accounting Standards Board

ICAS Individual Capital Adequacy Standards

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 32

ICB Independent Commission on Banking

ICOBS Insurance: Conduct of Business Sourcebook

IFRS International Financial Reporting Standards

IMA Investment Management Association

IMAP Internal Model Approval Process

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 Directive2003/43/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

LCR Liquidity coverage ratio

LEI Legal Entity Identifier

LIBOR London Interbank Offered Rate

MA Matching Adjustment

MAD Market Abuse Directive 2003/6/EC

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

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

MCD Mortgage Credit Directive

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)

MMF Money Market Fund

MMR Mortgage Market Review

MREL Minimum requirements for own funds and eligible liabilities

MTF Multilateral Trading Facility

MoJ Ministry of Justice

MoU Memorandum of Understanding

NBNI G-SIFI Non-bank non-insurer global systemically important financialinstitution

NFC Non-financial counterparty under EMIR

NFC+ Non-financial counterparty over the EMIR clearing threshold

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – October 2015 PwC 33

NFC- Non-financial counterparty below the EMIR clearing threshold

NSFR Net stable funding ratio

OECD Organisation for Economic Cooperation and Development

Official Journal Official Journal of the European Union

OFT Office of Fair Trading

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

ORSA Own Risk Solvency Assessment

OTC Over-The-Counter

PPI Payment Protection Insurance

p2p Peer to Peer

PERG Perimeter Guidance Manual

PRA Prudential Regulation Authority

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

PRIIPsRegulation

Regulation on key information documents for investment andinsurance-based products

PSR Payment Systems Regulator

QIS Quantitative Impact Study

RDR Retail Distribution Review

RRPs Recovery and Resolution Plans

RTS Regulatory Technical Standards

RWA Risk-weighted assets

SCR Solvency Capital Requirement (under Solvency II)

SEC Securities and Exchange Commission (US)

SFT Securities financing transactions

SFD Settlement Finality Directive 98/26/EC

SFO Serious Fraud Office

SM&CR Senior managers and certification regime

SOCA Serious Organised Crime Agency

Solvency II Directive 2009/138/EC

SREP Supervisory review and evaluation process

SSM Single Supervisory Mechanism

SSR Short Selling Regulation EU 236/2012

T2S TARGET2-Securities

TLAC Total Loss Absorbing Capacity

TR Trade Repository

TSC Treasury Select Committee

UCITS Undertakings for Collective Investments in Transferable Securities

UCITS V UCITS V Directive 2014/91/EU

UTI Unique Trade Identifier

XBRL eXtensible Business Reporting Language

Executive summary MiFID II: end of the

beginning, or beginning

of the end?

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

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Asset Management Banking & Capital Markets Insurance Local regulations & AML

John Luff

+44 (0) 1481 752121

john.luff@gg.pwc.com

Karl Hairon

+44 (0) 1534 838282

karl.hairon@je.pwc.com

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+44 (0) 1534 838304

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+44 (0) 1534 838390

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+44 (0) 1534 838375

james.de.veulle@je.pwc.com

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Contacts