Weekly Financial Services Regulatory Update - Week To 17 October 2014

Author:Mr James Cooper, Laura Cooke and Julian Connerty
Profession:Clyde & Co

17 October 2014: PRA speech considers Solvency II models, bonus caps and governance for banks and insurers. The Bank of England (BoE) published a speech given by Andrew Bailey, Deputy Governor for Prudential Regulation and CEO of the Prudential Regulation Authority, at the City Banquet.

Issues considered by Mr Bailey in the speech included the following:

Solvency II models. Mr Bailey noted that, as a consequence of the implementation of the Solvency II Directive (2009/138/EC), insurers will be using models to assess safety and soundness and policyholder protection. He emphasised that the PRA will be using these models in "an appropriately diagnostic fashion". The PRA will seek to challenge models robustly and will not hesitate to withhold approval of inadequate or opaque models Bonus caps. Mr Bailey criticised the bonus cap for bankers introduced by the CRD IV Directive (2013/36/ EU), describing it as a "bad policy". He also criticised the use of role-based allowances by banks, which the European Banking Authority (EBA) considers may have been used to circumvent the bonus cap. Mr Bailey called for a system where senior people responsible for the performance of their firms understand that for a reasonable period of time a meaningful proportion of their remuneration is at risk of being taken away Governance. In its implementation of Solvency II, the PRA will aim to align the fit and proper requirements of Solvency II with the new senior managers regime. The PRA also intends to set out the meaning of the statutory requirement of senior management responsibility: senior managers will need to show that they have taken the steps that a person in their position could reasonably be expected to take to prevent breaches of our requirements http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech763.pdf

16 October 2014: Memorandum of understanding between FCA and LSB: October 2014. The FCA published a memorandum of understanding (MoU) it has entered into with the Lending Standards Board (LSB).

The MoU sets out the framework for co-operation and communication between the FCA and LSB in carrying out their respective functions under the FCA's banking conduct and consumer credit regimes and the Lending Code, which is monitored and enforced by the LSB and does not have FCA confirmed industry guidance status.

The MoU identifies the key areas in which the FCA and LSB have a mutual regulatory interest as:

Payment services Providing appropriate information and treating customers fairly Unfair contract terms Financial difficulties In addition, the MoU outlines how the FCA and LSB will exercise their respective responsibilities in relation to investigation and enforcement and co-operation, co-ordination and exchange of information.

At least annually, the FCA and LSB will consider the content and application of the MoU and determine whether any rules or procedures need to be reviewed for possible change.

The MoU replaces the previous version of the MoU between the FCA and LSB, which was dated March 2013


16 October 2014: FCA Chief Executive responds to points raised during September 2014 Treasury Committee hearing. The House of Commons Treasury Committee published a letter (dated 30 September 2014) from Martin Wheatley, FCA Chief Executive, to Andrew Tyrie, Treasury Committee Chairman.

In his letter, Mr Wheatley clarifies and responds to the following points raised during his appearance before the committee at a hearing on 9 September 2014:

FCA enforcement action against individuals for benchmark fixing. The FCA has published warning notices against 11 individuals involved in the attempted...

To continue reading