After the summer break Parliaments returned to some significant challenges: France is to tackle reform of labour laws, Britain will continue with Brexit preparations and the US will move its focus to tax reform. Brexit negotiations resumed but quickly fell into deadlock amid criticism that the negotiation papers prepared by the government were inadequate or unrealistic or did not move matters forward. Tensions with North Korea escalated once more following an underground nuclear test by the Asian dictatorship. In India, the attempt to reduce black market money payments by cancellation of large value notes appeared to have had limited impact. Here are the significant stories from the last two weeks in finance and regulation.
The European Union (Markets in Financial Instruments) Regulations 2017 were signed by the Minister for Finance, implementing the forthcoming MiFID II obligations. An Addendum to the Consumer Protection Code has been issued including a new chapter which is effective from January 2018 impacting firms authorised under the Investment Intermediaries Act 1995; MiFID II allows national discretion on the continued authorisation of certain investments firms outside of MiFID but on the proviso that they are subject to analogous requirements.
The Central Bank published the results of its themed review of suitability requirements required to ensure investment recommendations made by investment firms align to their client's investment objectives and personal circumstances. The review showed many firms were failing to meet the required standards, and the regulator reminded investment firms that they were responsible for implementing an appropriate corporate governance framework which met the requirements and embedded a client-centric culture.
Amendments to the Solvency II Regulation were published by the Minister for Finance. The amendments include some key changes impacting third country reinsurers, changes to the 'fit and proper' requirements in relation to holding companies, portfolio transfers by Irish regulated entities and separation of assets and liabilities.
The Central Bank updated its minimum competency standards and published a revised Minimum Competency Code 2017 following the introduction of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Minimum Competency Regulations 2017. The updates reflect changes in European regulations.
The European Central Bank fined Ireland's Permanent tsb Group Holdings €2.5m for breaching two liquidity directions. The fine is the first instance of the use of ECB sanctions under the Single Supervisory Mechanism - the ECB has responsibility for 'significant' institutions under the EU banking framework. The Irish bank was found to have breached its liquidity coverage ratio between October 2015 and April 2016, although it argued that it was a case of misinterpretation of a revised regulation rather than an actual deterioration in its true liquidity coverage.
The International Swaps and Derivatives Association published its position on further changes to the Bank Recovery and Resolution Directive which warned that the introduction of two new moratoria powers will put European financial institutions at a severe competitive disadvantage globally, and posed significant challenges to financial stability. ISDA also published a paper on 'CCP Location and Legal Uncertainty', which looks at the potential impact of the movement of clearing of Euro denominated transactions out of London after Brexit takes effect.
Investors in Northern Rock, the first bank to fail at the start of the financial crisis, have renewed their push for financial compensation after nationalisation of the lender. They complained that the UK treasury was reported to have made a profit of £4.7bn from the bank, but investors were not compensated. Separately law firm Linklaters was reported to have quit its position as advisers to Barclays Bank during its refunding with Qatar investors at the height of the financial crisis. Reports suggested that the reason was that the financing was illegal but the law firm said it was due to conflict of interest.
Online betting group 888 Holdings suffered a record £37.8m penalty for serious failings in the handling of thousands of vulnerable customers. The UK Gambling Commission found a failure in self-exclusion procedures which allowed gamblers to continue playing after having chosen exclusion. The group also failed to notice suspicious behaviour on its sites by one customer who bet more than £1.3m, including £55,000 of stolen money.
Six global banks joined a project to create a new form of digital cash for use in clearing and settlement of financial transactions over Blockchain. Barclays, Credit Suisse, CIBC, HSBC, MUFG and Statestreet will work on a utility settlement coin originally created by UBS. The coin would allow financial companies to pay each other without market standard cash settlement times; the coins would be directly transferable into cash at central banks. The result would be a time and cost saving for post-trade settlement and clearing.
ISDA was faced with a challenging decision as to whether the obligation to make payment could be triggered under credit default swaps where the reference entity extended repayment of its loan facilities. Noble Group, a commodity trader, extended its loan repayment terms, prompting calls that ISDA's Determinations Committee should declare a default, which would trigger payments under the swaps. However, ISDA responded that it needed to review the terms of the loan agreements and that these had not been disclosed to it. In the meantime, any default payments have been frozen.
The US government introduced sanctions impacting on the Venezuelan government's ability to access US debt and equities markets. The sanctions also limit activities which can be entered into in relation to the state oil company PDVSA. The US government noted that the sanctions were calibrated to deny funding to the government which it described as illegitimate. Separately, the Office of Foreign Assets Control reached settlement agreements in relation to breaches of Iranian sanctions with COSL Singapore - in relation to oil rig supplies - and Blue Sky Blue Sea, Inc. - in relation to used cars and car parts.