Consultation on New Benchmarks entering the Regulatory Perimeter

1 10 2014

images-10The Fair and Effective Financial Markets Review (FEMR or the “review”) – a triumvirate headed by Nemat Minouche Shafik (Bank of England) and co-chaired by Martin Wheatley (FCA) and Charles Roxburgh (HM Treasury) – has the twofold objective of (i) reinforcing confidence in the fairness and effectiveness of wholesale financial market activity conducted in the United Kingdom and (ii) influencing the international debate on trading practices, including highlighting issues that can only be addressed through co-ordinated international action. The review, which is expected to produce a final report by June 2015, focuses on both regulated and unregulated wholesale markets – such as fixed-income, currency and commodity markets, including associated derivatives and benchmarks – in relation to which most of the recent concerns about misconduct have arisen.

However, at the Chancellor of the Exchequer’s invitation, until the delivery of the final report in June 2015, the review has recommended a list of additional major benchmarks across the fixed income, currency and commodity markets (FICC) that should be included in the regulatory framework originally implemented in the wake of the LIBOR scandal. The review considers the Wheatley Review of LIBOR 2012 to be the blueprint for reform and recalls that Mr Wheatley had envisaged adding further benchmarks to the present LIBOR regime (see here). The ambit of the review includes matters such as trading practices, scope of regulation, supervision of firms and markets and the impact of recent and forthcoming regulation. Read the rest of this entry »

Transposing the BRRD

28 09 2014

th-27Directive 2014/59/EU, or the Bank Recovery and Resolution Directive (BRRD), aims to ensure that the European Union (EU) effectively addresses the risks posed by the banking system. The BRRD contains 133 Recitals and stretches 132 Articles and it aims to create a harmonised framework across Europe for dealing with the problem of “too big to fail” through bank recovery and resolution. It entered into force on 2 July 2014 and establishes a common approach within the EU to the recovery and resolution of banks and investment firms. Article 130 (Transposition) exacts that the Member States shall adopt and publish by 31 December 2014 the laws, regulations and administrative provisions necessary to comply with the BRRD and that the text of those measures shall be communicated to the Commission and, save Section 5 (The bail-in tool) of Chapter IV (Resolution tools) which has an implementation deadline of 1 January 2016, the said measures shall apply from 1 January 2015.

As recorded in the initial recitals, the BRRD is firmly embedded in the belief that the financial crisis was of systemic dimension in the sense that it affected the access to funding of a large proportion of credit institutions. Therefore, in order to avoid failure, with consequences for the overall economy, such a crisis necessitates measures aiming to secure access to funding under equivalent conditions for all credit institutions that are otherwise solvent. Read the rest of this entry »

European Supervisory Authorities on Risk in EU Financial Systems

27 09 2014

The bi-annual report of the Joint Committee (JC) of the European Supervisory Authorities (ESAs) – i.e. the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) – has identified a number of risks to financial stability in the EU. These risks include uncertainties in global emerging market economies, an intensified search for yield in a protracted low interest rate environment, prolonged weak economic growth in an environment marked by high indebtedness and the risks related to conduct of business and Information Technologies (IT). Subsequent to the last report in spring 2014, the instant report focuses on the delicate economic recovery within the EU that can be observed in weak balance sheets both in private and public spheres. Presently favourable market conditions may conceal shortcomings in a weak economic environment and the ESAs consider high indebtedness and low private sector credit growth to be particularly testing and they place emphasis on continued structural reforms that drive improvements in competitiveness and revive lending.

On the one hand, the report explains that ongoing asset quality reviews and stress tests in the banking and insurance sector will present a clearer picture of asset quality and help improve the reliability of balance sheets of EU financial institutions. However, on the other hand, the report emphasises that ongoing balance sheet repair and debt restructuring should remain a key priority in moving forward. Read the rest of this entry »

Barclays Fined £38m for Failing to Safeguard Client Assets

25 09 2014

In the highest fine ever imposed for client assets breaches, pursuant to the Financial Services and Markets Act 2000, the Financial Conduct Authority (FCA) has fined Barclays £37,745,000 because of the bank’s failure to properly protect clients’ custody assets worth £16.5 billion. The majority of these belonged to the bank’s Affiliates (£13.5 billion) and its Affiliates’ clients (£2.7 billion) – read Final Notice here. Had Barclays come to be plagued by the onset of insolvency, its clients ran the risk of incurring extra costs, lengthy delays or losing their assets. The bank’s breaches arose from significant weaknesses in its systems and controls and a historical focus on business lines and products traded, rather than giving adequate consideration to which legal entity was conducting the relevant business.

For David Lawton, FCA director of markets, “Barclays lack of focus on the rules was unacceptable” because the FCA’s “on-going scrutiny of firms’ compliance reflects the importance of the regime, which protects custody assets worth £10 trillion held in the UK.”

Tracey McDermott, the FCA’s director of enforcement and financial crime, considered that:

Barclays … exposed its clients to unnecessary risk.

And she remarked further that:

All firms should be clear after Lehman that there is no excuse for failing to safeguard client assets.

Read the rest of this entry »

FCA on MiFID II and the Future of European Trading

24 09 2014

Directive 2004/39/EC, the Markets in Financial Instruments Directive (MiFID), governing the provision of investment services in financial instruments by banks and investment firms and the operation of traditional stock exchanges and alternative trading venues, has been in force since November 2007. Considered to be a core pillar in EU financial market integration, MiFID has been credited with creating competition between these services and bringing increased choice and lower prices for investors. However, the financial crisis revealed weaknesses and with the aim of making financial markets more efficient, resilient and transparent, and to strengthen the protection of investors, the European Commission published its legislative proposals regarding MiFID II and Markets in Financial Instruments Regulation (MiFIR) in October 2011. These entail wholesale reform that will change financial markets, banking services and the bank-customer relationship.

In April 2014, MiFID II and MiFIR were endorsed by the European Parliament. In May 2014, the Council of the European Union adopted the legislation. Subsequently, the MiFID II legislation came to be published in the Official Journal of the European Union in June 2014. In July 2014, MiFID II and MiFIR entered into force. They must generally apply within Member States by January 2017. It is therefore unsurprising that the Financial Conduct Authority (FCA) considers this legislation to be “the future of European trading in the balance” and has hosted a conference on it. Read the rest of this entry »

Conduct of Persons in Financial Services: Causing a Financial Institution to Fail

25 04 2014

imagesThe Financial Services (Banking Reform) Act 2013 (the Act) is yet another Leviathan statute. The Act is spread out over eight parts encompassing one hundred and forty-eight sections and contains ten schedules. First of all, this wide-ranging legislation implements the recommendations of the Independent Commission on Banking (or ICB, chaired by Sir John Vickers). Equally, it also implements the recommendations of the Parliamentary Commission on Banking Standards (or PCBS, in relation to the LIBOR scandal) which aim to improve culture and standards in the banking sector. Moreover, under section 17, the Act also provides the Bank of England with the new stabilisation “bail-in option” under the Banking Act 2009.

Independent Commission on Banking

In its final report, the ICB remarked that:

Banks are at the heart of the financial system and hence of the market economy. The opportunity must be seized to establish a much more secure foundation for the UK banking system of the future.

Recommending structural reform of the banking industry, coupled with measures designed to increase the capacity of banks to absorb losses, the ICB’s work focused on cost effective solutions as regards rescuing failing banks. Read the rest of this entry »

London School of Economics: Lunchtime Workshop on Benchmarking and Metrics for Bank Ethics and Behaviour

24 04 2014

The Conduct Costs Project of the London School of Economics (LSE) is hosting its first Lunchtime Workshop on Benchmarking and Metrics for Bank Ethics and Behaviour on Wednesday 14th May 2014. Confirmed Speakers include Tom Sleigh (Banking Standards Review), James Palmer (Herbert Smith Freehills LLP) and Tania Duarte (LSE Conduct Costs Project). Professor Roger McCormick – Director of the LSE’s Conduct Costs Project – will chair the event. Attendance at the Lunchtime Workshop is free of charge, but attendees must please book a place by sending an email to no later than 2nd May. The event shall take place at the LSE, New Academic Building, The Wolfson Theatre. Attendance is free. However, if you are interested in helping to fund the Project’s activities please get in touch with the Project Director Professor Roger McCormick at or by telephone on 07802 604 316.

Tom Sleigh, Banking Standard Review

Tom works for Lloyds Banking Group (LBG), where he spent two years as Chief of Staff to the Managing Director for retail and wealth customer products. On joining he oversaw the expansion of the team to include Intermediary distribution, Halifax Share Dealing, Scottish Widows Bank and the Customer Insights research team, to become 3,000 staff strong across multiple UK sites.

Prior to this Tom was Chief Advisor to the COO at the BBC, and began his career at strategic consultancy Booz Allen Hamilton.

LBG seconded Tom to the Banking Standards Review, working for Sir Richard Lambert, with the goal of establishing a new body to raise standards of competency and conduct in UK banking. Read the rest of this entry »


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