In Spain the government announced the reintroduction of direct rule from Madrid for Catalonia, following the recent referendum on independence. In the Czech Republic ‘populist’ candidate Andrej Babis secured a resounding victory in parliamentary elections to become the new Prime Minister of a coalition government. In Austrian elections the far-right Freedom party secured its strongest results in two decades. The UK government had to defer the continuation of its EU withdrawal bill due to the number of amendments tabled and the lack of support from Tory party MPs for certain provisions. Japan’s, Shinzo Abe returned to power with a strong majority after calling a snap election. The recent hurricanes and earthquakes in Mexico were estimated to cost insurance companies $95bn. Here are the main stories in finance and regulation for the last two weeks.
The Central Bank confirmed that it will offer MiFID Local Licences to proprietary trading firms which are exempt from compliance with CRD IV. Such a licence would require a reduced level of minimum initial capital and would avoid the need to implement the Bonus Cap. An applicant will need to confirm that it trades solely on its own account in derivatives, has no external clients, does not act as a market maker, uses only exchange traded instruments and will be an indirect clearer. The Central Bank justified the different treatment for these firms on the basis that they do not pose systemic risk and do not hold client funds.
The Central Bank successfully applied for the appointment of provisional liquidators to Charleville Credit Union, expressing a view that there could have been a disorderly failure if it had not acted. The Registry of Credit Unions had been engaged with Charleville but the regulator took the view that the credit union was unable to address its reserve position, despite previous external funding. The Deposit Guarantee Scheme was also invoked.
Tracker mortgages made the headlines after widespread condemnation of banks which wrongly moved customers to more expensive rates. An estimated 13,000 people have been moved from tracker rates, but the Central Bank said that it lacked powers to take action against the banks involved. The government was also reported to be considering moving consumer protection responsibility from the Central Bank to a separate entity.
The International Swaps and Derivatives Association floated the idea of an ISDA Master Agreement being governed by European law, due to concerns from their members that the current choices of English or New York law would not be fully effective after Brexit. ISDA said that it was looking at two jurisdictions, initially: Ireland and France. The US Commodity Futures Trading Commission and the European Commission agreed to recognise each other’s derivative rules, with a potential final agreement being made before MiFID II. In other news, the market size of the financial derivatives’ sector in the European Union was estimated at €453 trillion in notional amounts, using figures reported to trade repositories under the EMIR obligations.
Ten senior executives at Piraeus Bank in Greece had resigned following alleged irregularities in the sale of a €1.2bn loan package at a deep discount in 2014. The purchaser paid €300m for the package, of which €200m came in the form of loans from the bank itself. The loan package consisted mainly of non-performing shipping loans but also included some €30m in personal loans to the executives in question. The individual resignations, which took place at different times, were not announced by the bank. The matter is currently subject to an anti-corruption investigation.
European Securities and Markets Authority received a mandate from the European Commission to provide recurring reports on the cost and past performance of retail investment, insurance and pension products. authority will aim to increase investor awareness of net returns and the impact of costs and charges on performance. The work will form part of the CMU Action Plan.
The European Commission called for the completion of the Banking Union by 2018. Publishing what it described as an ‘ambitious yet realistic path’ to agreement on outstanding questions, the Commission called for a quick agreement from the EU Parliament and Member States to its package of reforms proposed in 2016. Political agreement was also called for on the plan for a European Deposit Insurance Scheme. A package of measures for reducing non-performing loans is also being completed.
The treatment of small businesses by the Royal Bank of Scotland’s Global Restructuring Group was reported to be under investigation by Scottish police. Concerns continued as to the refusal of the Financial Conduct Authority to publish the full report on the matter, although the regulator did concede that it would issue a summary of its findings. RBS last year agreed to pay £400m in compensation to its small business customers.
The Financial Conduct Authority reported that half of UK adults were in a potentially vulnerable financial situation. A survey of 13,000 people also showed that two-thirds of people aged 75 or over, and three quarters of those in the 85 plus group, were equally potentially vulnerable, meaning that they were over-indebted, could not meet their expenses or were constantly overdrawn. The regulator also started its review of the debt management sector. The review will be based on a sample of fee-charging and free-to-customer debt management providers.
The Financial Conduct Authority fined Rio Tinto plc £27m for breaches of the Disclosure and Transparency Rules. The mining company had failed to carry out an impairment test on assets which it had acquired. The result was that its financial reporting for the half year of 2012 was inaccurate. An announcement writing off 80% of the value of the assets was made at the beginning of 2013. The FCA concluded that the company’s behaviour showed a serious lack of judgment. The company has also been charged with fraud in the United States.
The International Swaps and Derivatives Association considered the issue of Brexit and contractual certainty and whether UK banks could continue to perform their contractual obligations after Brexit. They concluded that existing obligations should not be impacted, but highlighted concern that some events which occur during the contract lifecycle might result in continued performance falling foul of an absence of passporting rights applying to the UK. This included portfolio compression, significant amendments, rolling of positions or novations to third parties. The trade body called on policy makers to reach agreement on the impact of Brexit on existing contractual obligations.