Daily Financial Services News Reports in Chronological Order and Additional Material

Daily financial services news reports in chronological order and additional material

1. General reform covering multiple topics 8.3 Remuneration and bonuses

1.2 Conflicting political agendas 9.1 Clearing and settlement, moving OTC derivatives onto exchange/central counterparties - regulatory 2.1 Global "wholesale products"

2.2 EU 9.2 Payment systems and non-consumer banking

2.3 UK domestic 11.1 Insurers/reinsurers/life offices

3.1 Macro-prudential 11.2 Insurance brokers and intermediaries

4.1 Supervision of firms and individuals 12. Funds

4.2 Enforcement (civil and criminal) 13.1 Consumer banking and finance

5.1 Too big to fail 13.2 Retail investments

5.2 Systemically important firms 13.3 Consumer protection and rights (inc FOS)

5.3 FSCS 13.3A OFT enforcement

5.4 Funeral planning 13.4 Competition

5.5 Rescues and administration/Special Resolution 13.4A State aid clearances

6.1 Groups, colleges of supervisors and local entity 14. Building societies and other mutuals (friendly regulation societies, credit unions, industrial and provident societies) 6.2 Extending regulation - holding companies, bank-like activities, systemically important offshore entities 15. Getting the third pillar to work - active investors and listed company regulation 6.3 Offshore havens and tax 16. Business as usual (inc money laundering and 7. Financial regulation (general) bribery)

7.1 Liquidity

7.2 Capital

7.3 Trading book capital

7.4 Accounting

7.5 Stress testing

7.6 Securitisation

7.7 Credit rating agencies

7.8 MiFID and securities regulation (inc market abuse and short selling)

8.1 Governance and risk management

8.2 Non-exec directors

1. General reform covering multiple topics

Chronological materials

Speech by Adair Turner: Responding to the financial crisis: challenging past assumptions (30 November 2009) Text of the above, given at the British Embassy in Paris, follows. Topics include: the causes of the crisis (he notes that this "was not just a crisis of specific institutions or regulations, but of economic theory"); optimal capital requirements and leverage; trading and market liquidity; financial transaction taxes and remuneration (he notes: "in the long run ... sector-specific incomes policy would be unenforceable. It would take investment banks no time at all to work out ways round such rules, such as shifting people from employee to self-employed status"). (30/11/09) Responding to the financial crisis: challenging past assumptions

FSA Board minutes FSA has published the minutes of its meeting held on 24 September 2009. Topics included: Mortgage Market Review; RDC's quarterly report; the Listing Authority Advisory Committee's annual report; Turner Review FS; new UK liquidity regime; future of financial capability; FSA fee regime. (30/11/09) http://www.fsa.gov.uk/pubs/board-minutes/sept_09.pdf

The Warwick Commission on International Financial Reform: In praise of unlevel playing fields The report recommends the following policy reforms: regulation needs to be formally more countercyclical, risk taking must be matched to risk capacity for the financial system to be resilient; regulators must have the flexibility to apply tighter regulatory requirements on systemic institutions, instruments and markets; greater emphasis must be placed on host country regulation and incentives for the financial sector and for financial firms to grow in size and influence, and to concentrate on short-term activity, must be offset, perhaps through additional capital requirements for large institutions and financial transaction taxes. Adair Turner has contributed a foreword. (27/11/09) http://www2.warwick.ac.uk/research/warwickcommission/report/swc_report.pdf (NB: 80 pages long)

Speech by Adair Turner: CBI Conference (23 November 2009) Text of the above follows. He discusses the causes of the financial crisis and the role of the financial sector, noting "we should ask whether society is getting these crucial financial plumbing services as efficiently, at as low a cost, and with as little risk, as possible. That does not mean we can define precisely how large the financial system should be. It doesn’t mean that we know how much trading is optimal, nor that we can easily define some products as beneficial and others as harmful. But it does imply an important and profound shift in regulatory philosophy. In the years running up to the crisis, it was the strong mindset of the FSA – shared with regulators and central banks across the world, it was almost part of our DNA – that we assumed that financial innovation was always beneficial, that more trading and more liquidity creation was always valuable, that ever more complex products were by definition beneficial because they completed more markets, allowing a more precise matching of instruments to investor demand for liquidity, risk and return combinations. And that mindset did affect our approach – and the approach of the whole world regulatory community – to the setting of capital requirements on trading activity; it affected our willingness to demand risk reduction in the CDS market; and it influenced the degree to which we could even consider short-selling bans in conditions of exceptional market volatility". (23/11/09) Speech to the CBI Annual Conference

HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): Debate on the future of EU financial regulation and supervision The Sub-Committee's report on "The Future of EU Financial Regulation and Supervision" was debated in the HoL Chamber on 10 November 2009 in conjunction with the HoL Economic Affairs Committee's report on "Banking supervision and regulation". A link to the relevant section of Hansard follows. (12/11/09) UK Parliament - Lords EU Economic and Financial Affairs, and International Trade Sub- Committee A

HoL EU Select Committee – Sub-Committee A: Debate on the future of EU financial regulation and supervision The Sub-Committee has published a letter of response from the Vice Chairman of the EC with regard to its report and notes that the report will be debated in the HoL Chamber on 10 November 2009 in conjunction with the HoL Economic Affairs Committee's report on banking supervision and regulation. Separately, the Sub-Committee is to hear oral evidence from Lord Myners on Tuesday 10 November and will give evidence on EU financial supervision and on the AIFM Directive. (4/11/09) http://www.parliament.uk/documents/upload/CommissionResponseeufrs1.pdf

Speech by Adair Turner: Examining the causes of the financial crisis (29 October 2009) Text of the speech, given at the Economic Club of America and National Journal Group, follows. Topics include: causes of the crisis, including how it was "a crisis of economic theory"; optimal capital requirements and leverage; trading and market liquidity; regulation of pay; financial transaction taxes. (2/11/09) Examining the causes of financial crime

DP09/4: Turner Review Conference Discussion Paper This DP focuses on two key issues: systemically important banks and, how to assess the cumulative impact of capital and liquidity reforms. Section 3 covers the issue of how to deal with systemically important banks which are seen as ‘too-big’ or ‘too-inter-connected-to-fail’ and considers how systemic importance can be defined and assesses policy options. Annex 1 sets out a more in-depth consideration of how recovery and resolution plans will be applied in the UK, potentially serving as a blueprint for international initiatives. Section 4 examines a potential approach to assessing the cumulative impact of reforms to the global capital and liquidity regime and considers the case for banks and investment banks conserving capital now, in anticipation of higher international regulatory requirements (22/10/09) http://www.fsa.gov.uk/pubs/discussion/dp09_04.pdf (NB: over 60 pages long)

HMT: Speech by Paul Myners (15 October 2009) Text of this speech, made at the Chatham House Global Financial Regulation Conference, follows. He proposes specific areas where the EU should concentrate to develop a better regulatory system. (16/10/09) Chatham House Global Financial Regulation Conference - HM Treasury

HMT: Speech by Paul Myners (6 October 2009) Text of this speech, made at the UBS Corporate Governance Forum, follows. He comments that "the debate surrounding the response to the global financial crisis has to date focused on the failures of regulation and supervision ... a similar debate needs to be opened in the institutional investment community about whether a fundamentally short-termist strategy is appropriate to service the liabilities of the nations savers and pension participants; why so much emphasis is based on quarterly performance, appraised relative to an index when the fundamental beneficiaries of those investments have liabilities that span lifetimes; why governance and good stewardship is marginalised. ... For a long period inadequate governance practices went unchallenged and unchecked in the global banking sector. Employees, directors and even whole companies were not held to account until their performance collapsed and value was destroyed. ... Investors and their agents need to recognise the issue and acknowledge the value they put at risk by failing to rise to the challenge of being good and effective owners. They need to work together to bring about a new enlightenment in governance and stewardship, placing it at the heart of capital allocations and efficient, effective and accountable investment decisions. (9/10/09) UBS Corporate Governance Forum - HM Treasury

Speech by Adair Turner: The City of London Corporation’s Annual Reception for the City Office speech (6 October 2009) Topics include: the recent European regulatory reform proposals, OTC regulation reform and the AIFM Directive. (7/10/09) The City of London Corporation¿s Annual Reception for the City Office speech

HMT: Speech by Paul Myners (30 September 2009) Text of the following, given at the EUROFI Financial Forum 2009, follows. He sets out areas where he believes further action on European regulation is required, including: crisis management and resolution; 3

enhancement of the operational effectiveness of deposit guarantee schemes; secure access to additional liquidity support; effective safeguards for the hosts of branches and the creation of a clearing directive. (6/10/09) EUROFI Financial Forum 2009 - HM Treasury

FS09/3: A regulatory response to the global banking crisis - Feedback on DP09/2 FSA has published a response to the feedback it received to the Turner Review and associated DP. This sets out FSA’s analysis of the responses received and reports on the progress made since March, in implementing change and in achieving international agreement. Respondents generally agreed with the analysis of the Turner Review and the broad approach it proposed. The majority offered clear support for the analysis of causes, the main recommendations and FSA’s supervisory approach as detailed in the Turner Review and DP. Key issues raised by respondents were: an international approach was needed when looking at policy options; concerns were raised that any measures implemented by the UK alone could damage London’s competitiveness; large firms were against increased requirements for systemically important firms; and the need for an impact assessment of the ‘whole package’ of reform to be carried out. FSA notes that the strongest concern was the need for international consistency in formulation and implementation of the regulatory policy response to the crisis. FSA plans to issue a further DP in October, ahead of the Turner Review conference on 2 November, which will focus on key areas including: • Systemically important firms: the new DP will address the issue of how to identify ‘systemically important firms’, the policy tools available and how they might be applied. This will include discussion of the possible design of living wills and their implementation at both national and global level. • Cumulative impact of capital and liquidity reforms: the new DP will consider methodologies for making these trade-offs between costs of intermediation and financial stability. The new DP will be published ahead of the second Turner Review conference which is being held on 2 November 2009. (30/09/09) FSA publishes feedback to the Turner Review and associated discussion paper http://www.fsa.gov.uk/pubs/discussion/dp09_02.pdf (NB: over 90 pages long)

BBA: Response to HMT consultation - Reforming financial markets BBA has published its response to the above and expresses concerns over costs and suggests that "banks were also disappointed the government had not taken the opportunity to create a single overarching regulator for credit which would have streamlined the system making things easier for customers and industry alike". (30/09/09) BBA – British Bankers' Association - BBA says reforms must be costed

HMT: Government response to HoL Select Committee on Economic Affairs - 2nd Report of Session 2008-09: “Banking Supervision and Regulation” HMT notes that the response draws on its July 2009 "Reforming financial markets" paper. (25/09/09) http://www.parliament.uk/documents/upload/GovernmentResponse-Banking-Supervision-and- Regulation.pdf

Speech by Paul Myners: Developing a new financial architecture: lessons learned from the crisis (18 September 2009) Text of the above speech, given at the FT Global Finance Forum, follows. He discusses lessons learned from the financial crisis, including bank remuneration and governance issues arising. He notes: "Without action to strengthen systematically significant banks, we will find ourselves with yet more ‘too big to fail’ problems. If we are to rebuild trust in our institutions and rebuild stability of the financial system, we need to reform the rules and regulations governing markets, and need to be on the front-foot in identifying and dealing with issues ... We will introduce an explicit financial stability objective for the FSA; and give the FSA an explicit duty to have regard to systemic stability and the need to work internationally. Alongside this, the new Council for Financial Stability (CFS) will provide the UK Authorities with a better mechanism to analyse emerging risks to the financial stability of the UK’s economy, and coordinate the appropriate response ... Firms that are systemic, and that will cost more to resolve in times of failure, should be supervised and regulated more intensively. This will mean higher capital requirements, and tougher standards of liquidity than for smaller firms". He also sets out Government

thinking on "living wills", noting "we will be taking action, including legal powers where necessary, to ensure the FSA is equipped to insist on the implementation of these living wills". (18/09/09) Speech by Paul Myners, Financial Services Secretary, Developing a new financial architecture: lessons learned from the crisis, at the Financial Times Global Finance Forum - HM Treasury

Speech by Andrew Haldane (BoE): Credit is trust (14 September 2009) Text of this speech, given to the Association of Corporate Treasurers in Leeds, follows. He considers the parallels between the current financial crisis and those of the past, and the importance of trust between banks and their customers, advocating a return to mutuality. He notes: "One reason why regulation might not be the whole answer is that trust in financial regulation is itself one of the casualties of crisis. Regulation is seen by some as part of the problem, not the solution. More generally, in repairing public trust, it would be preferable if banks were seen to be initiating root and branch reform themselves, rather than having it thrust upon them by regulators". (15/09/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech400.pdf

Speech by Charlie McCreevy (10 September 2009) Text of the above, given as the Annual Sir Thomas Gresham Lecture, follows. He discusses the outlook for regulation in the mid and post-crisis environment and remarks "over the past ten years the EU and its Member States have introduced and transposed thousands of pages of new regulations, and directives in financial services ... But despite the unprecedented level of work and extent of regulation, our financial system has ended up at the edge of an abyss - with taxpayers picking up the bill for failure. Against this background it is incumbent upon us to ask ourselves whether the calls for even more regulation should be so intense – and whether there might be reasons – other than too little regulation - for the widespread financial failure we have seen. To me the answer is clear: It was not too little regulation that caused the problems. And it is not lots more regulation that will solve them. The main failure of the past decade was the failure not of regulation itself but of the supervisory resources used to oversee enforcement of that regulation". (11/09/09) EUROPA - Press Releases - Charlie McCREEVY European Commissioner for Internal Market and Services Annual Sir Thomas Gresham Lecture London, 10 September 2009

Speech by Neelie Kroes (11 September 2009) Text of the above, given as the opening address at 13th Annual Competition Conference of the International Bar Association, follows. Topics include state aid and the restructuring of banks ("regarding business models: we hope that the second stage of our state aid system - restructurings of individual banks – will help move our banking system towards this safer footing. It is our view that, while some banks may have been too big to fail, none are too big to restructure"). (11/09/09) EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Policy Opening address at 13th Annual Competition Conference of the International Bar Association Fiesole, 11th September 2009

G20: UK, France and Germany release joint letter (3 September 2009) This press release from the Prime Minister's website contains the text of the above-mentioned letter sent to the Prime Minister of Sweden, the country which currently holds the Presidency of the EU, signed by Gordon Brown, Nicolas Sarkozy and Angela Merkel, which sets forward proposals for the forthcoming G20 meeting. It proposes binding rules for financial institutions with "sizable complex and risky business activities", including improving governance with regard to designing and further developing compensation policies; imposing appropriate disclosure requirements banks; and encouraging risk awareness for all staff involved in determining a financial institution’s risk position. It further suggests that there be "sanctions at national level for banks that do not play by these rules. For example governments could not give mandates to those financial institutions which are recognized not to apply internationally agreed binding rules" and that ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank’s revenues and/or profits be considered. The letter also suggests that speculative activities constituting a risk to financial stability should be discouraged by increasing capital requirements on these activities as already recommended by the Basel Committee and that G20 should address the moral hazard problem posed by systemically relevant financial institutions. The letter also proposes agreement "on a comprehensive list of countermeasures that could be implemented starting in March 2010 for jurisdictions that failed to implement effectively the international 5

standards regarding the exchange of tax information". (4/09/09) UK, France and Germany release joint letter on G20 | Number10.gov.uk

Speech by Alistair Darling MP: CBI Scotland Annual Dinner, Glasgow (3 September 2009) Topics include: the "living wills" for banks issue, the G20 finance ministers meeting and its proposals re remuneration, competition in the banking sector (he proposes that, from now on, OFT addresses market access issues for financial services providers in its annual update), taxation on offshore accounts. (4/09/09) Speech by the Chancellor of the Exchequer, the Rt Hon Alistair Darling MP, at the CBI Scotland Annual Dinner, Glasgow - HM Treasury

HoC Liaison Committee: Evidence session with Gordon Brown (16 July 2009) The CLC has published the minutes of the above (the following sections deal with questions on banking regulation only - other non-FS related topics were also discussed). Topics include: bank exec bonuses; the workings of the Tripartite; the Lloyds/HBOS merger; the Walker Review and the White Paper. (17/08/09) House of Commons - Liaison Committee - Minutes of Evidence House of Commons - Liaison Committee - Minutes of Evidence

FSA Board minutes FSA has published the minutes of its meeting held on 25 June 2009. Topics included: CEO report, wholesale and retail reports; remuneration code; SBPP and FSPP Annual Reports; Complaints Commissioner's Annual Report (it was noted that "there was no guidance in the legislation about the way in which the FSA should balance its statutory objectives, and judgement was required"); preparing FSA for macro-prudential regulation. (14/08/09) http://www.fsa.gov.uk/pubs/board-minutes/jun09.pdf

HoC Regulatory Reform Committee: Themes and trends in regulatory reform In this report, the Committee concludes that events in the financial sector do not require a wholesale revision of the fundamental approach to regulation in other sectors, but sets out a number of lessons to be learned. Among its suggestions are that, in future, analysts and commentators must avoid confusing risk- based regulation and “light-touch” approaches. (22/07/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmdereg/329/329i.pdf

HMT: Reforming financial markets HMT has published the above, together with a House statement by Alistair Darling in which he notes "the FSA now has powers to penalise banks if their pay policies create unnecessary risk, and are not focused on the long-term strength of their institutions. And from now on, I will require the FSA to report, every year, on how financial institutions are complying with their new Code of Practice for remuneration, and how they will deal with firms that don’t comply". The paper sets out a number of core issues to which the Government's strategy for regulatory reform must respond: strengthening the UK’s regulatory institutional framework, so that it is better equipped to deal with all firms and, in particular, globally interconnected markets and firms; dealing with high impact firms that may be seen as being “too big to fail”, through improved market discipline and through improved supervisory focus on such firms; identifying and managing systemic risk as it arises across different financial markets and over time; working closely with international partners to deliver the global action required to respond to the lessons of the financial crisis. The Government will bring forward a Bill in the next legislative session to make provision in areas where primary legislation is required. Among specific points made: • With regard to FSA, in addition to the above, the government is providing it with a formal, statutory objective for financial stability, and extending its rule-making power to give it clearer legal authority to set rules whose purpose is to protect wider financial stability. It will extend FSA's powers to deal with individual institutions on a case-by-case basis through firm-specific interventions, so that these too can be exercised in pursuit of its new stability objective and enhance its enforcement powers to enable it to deal with market misconduct, including powers of suspension and penalty for firms or individuals and enable FSA to keep the scope of regulation under constant review, gathering the information it needs from unregulated institutions (eg. SIVs) to determine whether they pose a threat to stability, and whether they should be brought under formal FSA supervision.

• The Government intends to legislate in the autumn to create a Council for Financial Stability (CFS) which will replace the Standing Committee. Key features of this Council will be: membership consisting of the Tripartite parties. The CFS is intended to provide a means of coordinating the activities of these authorities whenever it is necessary to do so. FSA's new remuneration code will be tabled for its first meeting. • Subject to the results of further work, including consultation, there is to be a move towards the introduction of a pre-funded element in the FSCS covering the deposit-taking class. • Measures to raise financial capability are proposed, including the provision of a national money guidance service; better and faster ways of dealing with widespread complaints when providers get it wrong, for example, by streamlining FSA’s powers to impose a settlement, and by enabling a representative body to bring an action on behalf of a group of consumers to enforce their rights and obtain collective redress and is proposing that FSA consider the impact on market access of all proposed regulatory changes and that OFT should address market access as part of its annual updates of its Financial Services Strategy. • The Banking Act made provision for the Government to introduce - by secondary legislation - a new insolvency regime for investment banks. Work is underway with a group of technical experts to consider the case for legislation; if necessary, the Government will introduce the new insolvency regime early in 2010. (8/07/2009) Reforming financial markets - HM Treasury (Alistair Darling's statement) Government plans for the reform of financial markets - HM Treasury (press release) http://www.hm-treasury.gov.uk/d/reforming_financial_markets080709.pdf (report - NB: over 170 pages long) FSA statement and BBA press releases on the paper: FSA statement on the Government White Paper BBA – British Bankers' Association - Reforming financial markets white paper, BBA reaction

CP09/20*: Quarterly Consultation No. 21 This CP proposes amendments to: • BIPRU - to allow banks which use the internal ratings based approach to model their risks additional flexibility in estimating the maturity of trade finance facilities they provide to borrowers; • BIPRU - to allow limited licence and limited activity investment firms to continue to rely on the transitional provisions until 31 December 2010; • GENPRU and INSPRU - to the use and definition of approved reinsurance to close; • GENPRU, INSPRU, IPRU (FSOC) and IPRU (INS) - to update and give better effect to FSA policy; • BCOBS - including: the addition of guidance to BCOBS on the advance notification to a banking customer of material changes to interest rates that are to the customer’s disadvantage and of bonus or introductory rates coming to an end; these proposals would not at present be relevant to credit unions as they are currently unable to offer interest on deposits; adding provisions to BCOBS on liability for losses in respect of unauthorised transactions on accounts outside the scope of the PSRs; adding a rule to BCOBS to mirror COBS 2.1.2R on exclusion of liability; adding a rule to BCOBS on the action a firm must take where it has failed to execute a transaction or has executed it incorrectly; a six-month transitional provisions to allow firms time to change references to the Banking Code and Business Banking Code in documentation and literature and to allow firms time to implement FSA's proposals on interest rates; • SUP - to make mandatory for firms to submit authorisation and notification forms electronically; • SUP - to clarify the consequences of failing to disclose relevant information; • COLL - to provide greater clarity on several aspects of scheme management; • DISP and FEES - to complete the regulatory changes required to implement the PSD; • SUP - to enhance the regulatory approach to PII policy exclusions; • BIPRU - to extend the capital floors to help us meet our market confidence and consumer protection objectives. Responses to this CP should be received by 6 September 2009, except for the proposals in Chapters 6 and 10 (re BCOBS, DISP and FEES) where the consultation ends on 17 August 2009. (6/07/09) http://www.fsa.gov.uk/pubs/cp/cp09_20.pdf

HMG: Building Britain's future Chapter 2 of this wide-ranging document looks at plans for "protecting savers and stabilising the banks", noting the forthcoming White Paper. Annex A, which sets out a draft regulatory programme, includes synopses of the Financial Services and Business Bill and the Bribery Bill. (6/07/09) http://www.hmg.gov.uk/media/27749/full_document.pdf

BBA International Banking Conference Further to yesterday's update, the following link goes to all the speeches made at the conference. The items by Paul Myners (Financial services regulation and supervision - the picture in the UK and in Europe) and Paul Tucker (Financial Stability) may be of particular interest. (1/07/09) http://www.bba.org.uk/conf09

1.2 Conflicting political agendas

See House of Lords publications: Economic Affairs Committee report on Banking Supervision and Regulation (May 2009), and European Union Committee report on The future of EU financial regulation and supervision (June 2009).

See also TSC reports in the chronological reports below.

Chronological Reports

Speech by Adair Turner: Mansion House (22 September 2009) In this speech, Adair Turner discusses the post-banking crash world and defends his Prospect interview. He argues "We cannot go back to business as usual and accept the risk that a similar crisis occurs again in ten or 20 years’ time. We need radical change. Regulators must design radically changed regulations and supervisory approaches, but we also need to challenge our entire past philosophy of regulation. And parts of the financial services industries need to reflect deeply on their role in the economy, and to recommit to a focus on their essential social and economic functions, if they are to regain public trust ... FSA, on behalf of society, must consider whether the financial services industry is delivering its vital services in an efficient and risk-controlled fashion. That does not mean we can define precisely how large the financial system should be. It doesn’t mean that we know how much trading and liquidity creation is optimal, nor that we can easily define some products as beneficial and others as harmful. But it does imply an important and profound shift in regulatory philosophy ... rebuilding trust in the necessary and socially useful functions of banks cannot mean an end to all trading activities nor, much as some might like it, an end to well-remunerated traders. But it does mean that the top management of banks, and in particular of any banks which are involved both in complex trading activities and in retail banking activities - need to operate within limits. They need to be willing, like the regulator, to recognise that there are some profitable activities so unlikely to have a social benefit, direct or indirect, that they should voluntarily walk away from them. They need to ask searching questions about whether the complex structured products they sold to corporate and institutional customers, truly did deliver real hedging value or simply encouraged those institutions into speculative and risky exposures which they did not understand: and, if the latter, they should not sell them even if they are profitable. They need to be willing to accept the capital and other requirements which will be imposed on activities of little value and considerable risk, rather than deploy lobbying power to argue against such constraints on the basis of a simplistic assertion that all innovation is always valuable". He also discusses bank bonuses, suggesting that FSA's new rules "will not - and are not designed to - influence the overall level of compensation". (23/09/09) Mansion House speech

HMT: Speech by Lord Myners (10 September 2009) Text of a speech given at the Business for New Europe Seminar in London follows, in which he notes that "the future success of London and our financial services industry will depend on the shape and scale of the new EU and global regulation. This is a task that we as the UK cannot undertake on our own and which the EU cannot undertake successfully without the UK ... We need to explain to Europe when its proposals do not meet intended objectives, or could have unintended consequences. We can only do that through collaboration – simply grand-standing will not work. With this spirit in mind, we need to acknowledge the legitimate concerns that lie behind EU initiatives on hedge funds, alternative investment fund management and Solvency II. But we need to ensure that we set out the evidence and the consequences of changes to deliver reform that is proportionate and appropriate. We are having success with this approach – I visited Brussels earlier this week and was pleased to see growing support for a more proportionate directive on hedge funds. We have explained the benefits of private equity and the unintended consequences of legislation. The EU needs to support the role that private equity can play in recapitalising businesses with inadequate capital structures. I was further encouraged in a meeting this week with Charlie McCreevy, but we need to continue to work with the Commission to fix this Directive and make it better, not to kill it. And with regards to solvency levels for insurance firms, we will continue

to work with the EU to deliver prudential regulation, avoiding knee-jerk reactions and over-conservatism for its sake alone. Solvency II will be good for our insurers and others in Europe, but work is still required if we are to avoid harmful consequences in one or two areas, including the annuity market". (14/09/09) Business for New Europe Seminar, Thames Exchange, London - HM Treasury

FSA: Initial response to TSC report FSA welcomes TSC's contribution to the debate over the future of financial regulation. The report acknowledges that FSA has proactively identified and rectified its historic mistakes and that the financial services sector has clearly felt this change in approach. (3/08/09) FSA initial response to TSC report

TSC: Banking Crisis: regulation and supervision - Fourteenth Report of Session 2008-09 This report is the last to be published under this particular inquiry. Among points raised: • FSA. The report states the regulator had "failed dreadfully in its supervision of the banking sector", but goes on to say "it has already begun to rectify its mistakes ... the regulatory philosophy of the FSA has changed. It has less faith in market forces than before; it is more willing to challenge firms’ business decisions; it now considers the competence of new bank directors and appears more willing to remove ‘the punchbowl from the party’. All of this is good, but all of this is also fashionable. The FSA must develop the confidence to take unpopular decisions when the economic boom begins again, in the face of both industry and the political class". • Systemic risk. TSC says that the government should ensure that there are no banks that are "too big to fail" and that this be addressed by a tax on size and TSC asks FSA to consider a prohibition on proprietary trading by deposit-taking banks. • Capital and liquidity regulations. TSC supports the introduction of a leverage ratio, to complement the more risk-sensitive minimum requirements under Basel II and suggests an element of counter- cyclicality in capital regulation, based on simple rules with a more limited role for discretionary judgements by the prudential supervisor. • Tripartite. TSC suggests that the recent proposals by Alistair Darling are "largely cosmetic ... This Report reiterates our concerns expressed after our inquiry into Northern Rock that the division of responsibility for financial stability is unclear. Clarity over existing responsibilities remains a problem, but no new responsibilities should be allocated until a decision is made about the precise tools needed for macroprudential supervision". (31/07/09) HoC-TSC 14th report

Speech by Adair Turner – FSA Public Meeting Topics include: the scale of the financial crisis and the need for radical response; major changes implemented in FSA over the last two years; importance of FSA's work on issues not directly related to the financial crisis and FSA looking forward in conditions of political uncertainty. (23/07/09) Annual public meeting speech

Speech by Hector Sants – FSA Public Meeting Topics include: FSA's Supervisory Enhancement Programme; FSA's proposals for changes to its bank prudential regulatory framework and the wider policy agenda, particularly Solvency II; credible deterrence. He concludes: "Our culture has to be one that attracts and retains quality individuals who deliver decisive yet considered judgements. I believe we now have such a culture and individuals and, with the culmination of the operational changes I have outlined, the FSA is now a fundamentally different organisation to the one that existed in 2006. I believe the FSA is now fit for purpose". (23/07/09) CEOs speech - FSA Annual Public Meeting

Conservative Party Policy Paper: From crisis to confidence: plan for sound banking This paper, launched by George Osborne this morning, sets out the Conservative Party's proposals for financial regulation. These include the following: • BoE would be responsible for macro-prudential regulation, with the power to call ‘time on debt’ in the economy. It would also be responsible for the micro-prudential regulation of all banks, building societies and other significant financial institutions (including insurance companies). • BoE would be empowered to use capital requirements to crack down on risky bonus structures.

• FSA would be abolished and a new Consumer Protection Agency created to take its place. The regulation of consumer credit would be transferred from OFT to this new body. • A Conservative administration "will look to reduce barriers to entry for new banks and building societies in order to increase competition and diversity in the UK banking market". • A senior HMT minister with responsibility for European financial regulation would "spend as much time as necessary in Brussels to defend our national interest" • OFT and CC would be charged with conducting a focused examination of the effects of consolidation in the retail banking sector. The findings of this would "help to inform a Conservative Government’s ongoing strategy for disposing of its banking shares". (20/07/09) http://www.conservatives.com/News/News_stories/2009/07/~/media/Files/Downloadable Files/PlanforSoundBanking.ashx (NB: over 50 pages long) Industry responses: ABI - Association of British Insurers - ABI: Response to Conservative plans on financial reform BBA - BBA – British Bankers' Association - BBA response to opposition parties' banking reforms

2.1 Global

International Organisation of Securities Commissions (IOSCO)

About IOSCO IOSCO Library Section IOSCO Library Section IOSCO Library Section newsletters IOSCO News IOSCO Library Section speeches

The Bank of International Settlements (BIS) - general

About BIS Bank for International Settlements Monetary & financial stability – Overview About the Basel Committee Basel II: Revised international capital framework Committee on the Global Financial System Committee on Payment and Settlement Systems Central bankers' speeches - BIS

The Basel Committee on Banking Supervision (BCBS)

Basel II capital framework enhancements announced by the Basel Committee Enhancements to the Basel II framework Revisions to the Basel II market risk framework - final version Guidelines for computing capital for incremental risk in the trading book - final version

The Financial Stability Board (FSB)

FSB overview

FSB re-established FSF as enlarged FSB - the new FSB has an expanded membership, broader mandate and a stronger role Financial Stability Board

Publications - FSB FSA September09 Report of Financial Stability Board to G20 Leaders FSB April09 procyclicality FSB April09 sound compensation practices FSB april09 cross-border cooperation on crisis management FSB April09 enhancing market and institutional resilience 12 Key Standards for Sound Financial Systems designated by the FSF.

The International Association of Insurance Supervisors (IAIS)

About IAIS IAIS - International Association of Insurance Supervisors - Overarching standard setting papers IAIS - International Association of Insurance Supervisors - Recently published 25 June 2009 IAIS takes actions to further strengthen insurance supervision IAIS june09 International coop iaisJune 09 use of credit ratings iais MAY 2009 Insurance supervisors call rapidprogress on financial instruments standards

The International Association of Deposit Insurers (IADI)

About IADI Page IADI Bibliography BCBS/IADI Core Principles for Effective Deposit Insurance Systems - final paper June09

The International Accounting Standards Board (IASB)

International Accounting Standards Board - About Us Areas within the Financial Crisis Advisory Group scope International Accounting Standards Board - News

See also the Bank of England’s June 2009 Financial Stability Report: section entitled “…and robust international co-ordination arrangements are a priority” (page 44/45), and section 3.3 “Improved management of risks arising from interactions among firms and with the real economy through developing an international monetary system that limits the build up of international imbalances”, in

particular section entitled “…with reform of the international monetary system to prevent the build-up of international imbalances” (page 48). See FT editorial “We need a world financial court with specialist judges”, 9 September 2009.

Chronological Reports

IMF: Financial sector taxation It is noted that, at the September 2009 G20 summit in Pittsburgh, IMF was asked “to prepare a report for our next meeting with regard to the range of options countries have adopted or are considering as to how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system.” It is conducting a wide-ranging study of financial sector taxation with the intent of presenting an initial analysis to the G20 finance ministers in April 2010 and is now seeking external stakeholders’ views on the potential usefulness and impact of various approaches to financial sector taxation. Responses are required by 1 February 2010. (24/12/09) IMF Seeks Views on Financial Sector Taxation

IOSCO: Guidelines to emerging market regulators regarding requirements for minimum entry and continuous risk-based supervision of market intermediaries This report covers the entry standards and risk-based supervision framework for market intermediaries in Emerging Market Committee members. Some of the challenges identified relate to the skills gap of regulatory staff; ability to identify and define relevant risk types and risk mitigants; obtaining comprehensive risk profiles of capital market intermediaries; subjectivity involved in determining risk scores; and applying a consistent risk rating methodology across all financial institutions. (22/12/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD314.pdf (NB: over 70 pages long)

OECD: Tools for regulatory quality and financial sector regulation - a cross-country perspective This report provides a comparative perspective on the application of quality regulation principles to financial sector regulators in the UK, US, Canada, Australia and France. It analyses the independence and accountability of the regulators, as well as their powers. It is noted that requirements related to better regulation principles are often implemented too late in the decision-making process when regulations are set at the international level. (21/12/09) http://www.oecd.org/dataoecd/40/53/44306704.pdf (NB: over 90 pages long)

IOSCO: Fit and proper assessment – best practice The Best Practices are intended to support the members of IOSCO in ensuring that financial institutions are subject to adequate regulations and supervision and that competent authorities take necessary legal or regulatory measures in this matter, are a framework of minimum voluntary standards for sound supervisory practices and are considered universally applicable. National authorities are free to adopt supplementary measures that they deem necessary to achieve effective supervision in their jurisdiction. The Best Practices may be read in conjunction with relevant international agreements and national regulations. (14/12/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD312.pdf

IIF: Reform in the financial services industry - strengthening practices for a more stable system The report notes that, over the past 18 months, the financial services industry has made significant progress in addressing the weaknesses that contributed to and became apparent in the financial crisis and that substantial reforms have been pursued by many firms. Specific areas of improvement include governance and transparency, stress testing, liquidity risk management, risk measurement, and risk- aligned compensation. However, the report notes that the industry still has much to do, including developments in management information systems. The report goes on to analyse reforms undertaken in liquidity risk management; valuation issues; compensation policies; credit underwriting, ratings and investor due diligence in securitisation markets and transparency and disclosure issues. The report also offers private-sector views on recent regulatory developments. (10/12/09) http://www.iif.com/download.php?id=ukBoiNBO8UE= (NB: over 200 pages long)

OECD: Policy framework for effective and efficient financial regulation This report sets out key principles to guide financial policy makers as they look to fundamental reform that will achieve strong, resilient financial systems. Among the issues they address are the need for increased transparency, more effective surveillance and greater accountability to the public. (4/12/09) http://www.oecd.org/dataoecd/18/53/44187223.pdf

FSB: Reports to G20 finance ministers and central bank governors/HMT: Communiqué FSB has published the following reports: • Progress since the Pittsburgh Summit in Implementing the G20 Recommendations for Strengthening Financial Stability - This updates the progress report made to the Pittsburgh Summit in September, and includes a description of the actions to date to implement the policy measures for improving financial regulation set out by the FSB in Pittsburgh. Areas on which it provides updates include: building high quality capital and mitigating pro-cyclicality; strengthening accounting standards; reforming compensation practices to support financial stability; improving OTC derivatives markets; addressing cross-border resolutions and systemically important financial institutions and strengthening adherence to international supervisory and regulatory standards. • Exit from extraordinary financial sector support measures - this reviews policies to withdraw from exceptional financial support measures. • Guidance to Assess the Systemic Importance of Financial Institutions, Markets and Instruments: Initial Considerations - this report by IMF, Bank for International Settlements and FSB responds to a request made by the G20 Leaders in April 2009 to develop guidance on this subject for use by national authorities • The Financial Crisis and Information Gaps - this report by the staff of the IMF and the secretariat of the FSB identifies information gaps and sets forth proposals for strengthening data collection to better capture the build-up of risk in the financial sector. HMT has also published the text of a Communiqué in respect of the 7 November meeting. (9/11/09) https://www.financialstabilityboard.org/publications/r_091107a.pdf https://www.financialstabilityboard.org/publications/r_091107b.pdf https://www.financialstabilityboard.org/publications/r_091107c.pdf (NB: 30 pages long) https://www.financialstabilityboard.org/publications/r_091107e.pdf http://www.hm-treasury.gov.uk/d/2009_communique_standrews.pdf

BoE: Banking on the state This paper considers the historical links between the banking system and the state. It notes that "events of the past two years have tested even the deep pockets of many states. In so doing, they have added momentum to the century-long pendulum swing. Reversing direction will not be easy. It is likely to require a financial sector reform effort every bit as radical as followed the Great Depression. It is an open question whether reform efforts to date, while slowing the swing, can bring about that change of direction". (6/11/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech409.pdf (NB: over 30 pages long)

Senior Supervisors Group: Risk Management Lessons from the Global Banking Crisis of 2008/Self Assessment Template This report identifies various other deficiencies in the governance, firm management, risk management, and internal control programs that contributed to, or were revealed by, the financial and banking crisis of 2008 and highlights a number of areas of weakness that need to be addressed by financial institutions. A supplement to the report, in the form of a self-assessment template, appears in the second linke below. (22/10/09) http://www.fsa.gov.uk/pubs/other/SSG_risk_management_lessons.pdf (NB: over 30 pages long) http://www.fsa.gov.uk/pubs/other/ssg_supplement.pdf

G20: Leader statement (24-25 September 2009)/Progress report on the actions to promote financial regulatory reform issued by the U.S. Chair of the Pittsburgh G-20 Summit/ FSB: Principles for sound compensation practices/Improving financial regulation - report of the Financial Stability Board to G20 Leaders/Overview of progress in implementing the London Summit recommendations for strengthening financial stability Paragraphs 10-16 of the leader statement covers "Strengthening the International Financial Regulatory System". The leaders call on finance ministers and central bank governors to reach agreement on an international framework of reform in the areas of: building high quality capital and mitigating procyclicality; reforming compensation practices to support financial stability; improve OTC derivatives markets; address cross-border resolutions and systemically important financial institutions - in all instances setting a timetable for completion. In addition, they call on international accounting bodies to complete their convergence project. More details appear in the second item, a document in tabular form issued by the US chair of the G20 summit. A number of relevant reports from FSB to the G20 leaders have also been published - links below. (28/09/09) Leaders' Statement: The Pittsburgh Summit http://www.pittsburghsummit.gov/documents/organization/129866.pdf http://www.pittsburghsummit.gov/documents/organization/129870.pdf http://www.pittsburghsummit.gov/documents/organization/129868.pdf http://www.pittsburghsummit.gov/documents/organization/129867.pdf

G20: Leader statement (24-25 September 2009) Paragraphs 10-16 of the statement covers "Strengthening the International Financial Regulatory System". The leaders call on finance ministers and central bank governors to reach agreement on an international framework of reform in the areas of: building high quality capital and mitigating pro-cyclicality; reforming compensation practices to support financial stability; improve OTC derivatives markets; address cross-border resolutions and systemically important financial institutions - in all instances setting a timetable for completion. In addition, they call on international accounting bodies to complete their convergence project. (28/09/09) Leaders' Statement: The Pittsburgh Summit

IOSCO: Transparency of structured finance products This consultation report sets out a number of factors to be considered by market authorities when considering enhancing post-trade transparency of structured finance products in their respective jurisdictions. Responses are required by 13 November 2009. (24/09/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD306.pdf

FSA: FSA and SEC discuss approaches to global regulatory requirements This press release notes discussions between Hector Sants and Mary Schapiro in which they agreed to identify a common, coherent set of data to collect from hedge fund advisers/managers to help tSEC and FSA identify risks to their regulatory objectives and mandates. Other issues discussed at the meeting included OTC derivatives markets and central clearing; accounting issues; regulatory reform; credit rating agency oversight; short selling; and corporate governance and compensation practices. (17/09/09) FSA and SEC discuss approaches to global regulatory requirements

FSA: Memorandum of Understanding with CFTC FSA has signed a new MoU with CFTC (signed on 14 September 2009) intended to enhance cooperation and the exchange of information relating to the supervision of cross-border clearing organisations. (16/09/09) http://www.fsa.gov.uk/pubs/mou/fsa_cftc.pdf

SIFMA/LIBA/ISDA/FOA/IIAC: Briefing for the G20 summit by securities and derivatives industry representatives This paper sets out the views of the above-mentioned associations' members in respect of: key overarching steps that should be taken in finalising the policy programme; key considerations relating to the identification and oversight of systemically important firms; updated information on industry initiatives and an updated list of examples of potentially divergent regulatory responses. Annexes provide an updated summary of significant relevant past and ongoing work carried out by SIFMA, LIBA and ISDA members to address some issues raised by the financial crisis, including websites for further 15

information, and an updated summary of actual or potential divergences from global policy consensus. (8/09/09) http://europe.sifma.org/docs/CommentLetters/20090902SIFMA,LIBA,ISDA,FOA,IIACBriefingforG20.p df

BIS: Comprehensive response to the global banking crisis The Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, met on 6 September to review a comprehensive set of measures to strengthen the regulation, supervision and risk management of the banking sector and reached agreement on the following key measures to strengthen the regulation of the banking sector: raising the quality, consistency and transparency of the Tier 1 capital base; introducing a leverage ratio as a supplementary measure to the Basel II risk-based framework with a view to migrating to a Pillar 1 treatment based on appropriate review and calibration; introducing a minimum global standard for funding liquidity that includes a stressed liquidity coverage ratio; introducing a framework for countercyclical capital buffers above the minimum requirement and issuing recommendations to reduce the systemic risk associated with the resolution of cross-border banks. It will also assess the need for a capital surcharge to mitigate the risk of systemic banks. (7/09/09) Comprehensive response to the global banking crisis

G20 Finance Ministers Meeting (4/5 September 2009): Declaration on further steps to strengthen the financial system This press release announces that the participants have "substantial progress in delivering our ambitious plan, which will ensure a robust and comprehensive framework for global regulation and oversight", but sets out a list of further recommended actions ahead of the G20 summit in Pittsburgh, including "limiting" remuneration; stronger regulation and oversight for systemically important firms; tackling non- cooperative jurisdictions, including countermeasures against tax havens from March 2010; consistent and coordinated implementation of international standards, including Basel II, particularly with regard to central counterparties for credit derivatives, oversight of credit ratings agencies and hedge funds, and convergence towards a single set of accounting standards on financial instruments. (7/09/09) http://www.g20.org/Documents/FM__CBG_Declaration_-_Final.pdf

BIS: Enhancements to the Basel II framework The proposals for enhancing the Basel II framework in the area of securitisation and more specifically for dealing with resecuritisations have been finalised. Banks are expected to comply with the revised requirements by 31 December 2010. These enhancements are intended to strengthen the framework and respond to lessons learned from the financial crisis. This paper focuses on the changes that BIS is making to Pillar 1. (14/08/09) http://www.bis.org/publ/bcbs158.pdf?noframes=11 (NB: over 40 pages long)

TSC: Banking crisis: international dimensions - eleventh report of session 2008-09 TSC has published a report comprising the evidence from its hearings on the international dimensions of the banking crisis. An introductory statement recommends that HMT provides, as a response to this report, a paper on potential future designs of the international monetary system setting out a range of options, indicating the potential advantages and disadvantages of each, and any obstacles to implementation. (24/07/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/615/615.pdf (NB: over 100 pages long)

IIF: Restoring confidence, creating resilience: an industry perspective on the future of international financial regulation and the search for stability Further to IIF's report on market best practices in July 2008 [see 23 July 2008 news update], this report sets out a global industry perspective on financial regulation at the national and international levels and on the reforms being developed under the broad auspices of the G20 and FSB. It "agrees that far- reaching regulatory reforms are necessary to guard against systemic vulnerabilities, ensure robust markets including liquid and transparent asset-backed credit markets, and encourage beneficial innovation. This would also help ensure that the industry follows through with its commitments. However, it is crucial that the cumulative effects of reform be consistent with market efficiency, avoiding rigidities that could stifle 16

growth, job creation and innovation, or increase the cost of financial services to customers". Section 1 considers the benefits of international financial markets and the importance of cross-border coordination and cooperation; section 2 discusses the shared responsibility of the industry and regulators for achieving high levels of confidence and resilience in the international financial system; section 3 deals with reform of prudential and accounting standards, section 4 considers financial stability and macroprudential oversight; section 5 addresses systemic issues associated with market infrastructure and the high degree of interconnectedness in financial markets; section 6 identifies the growing threat of fragmentation of international markets and section 7 deals with cross-border crisis management and financial firm resolution regimes. (24/07/09) http://www.iif.com/download.php?id=/11YetxP3hE= (NB: over 90 pages long)

2.2 EU

On 23 September 2009, the European Commission adopted legislative proposals which aim at addressing regulatory weaknesses at the micro- as well as macro-prudential level through the creation of a European System of Financial Supervisors (ESFS) and a European Systemic Risk Board (ESRB).

The EC proposes ESFS roles/powers in 7 areas – setting harmonised rules in delegated areas (subject to a right of veto by the EC – the non-objection procedure), ensuring consistent application of EU rules (including mediation and decision on disputes between supervisors – a power to which the UK government objects), common supervisory culture and consistent supervisory practices, full supervisory powers over Credit Rating agencies, EU central counterparty clearing houses, coordination of crisis management, collecting micro-prudential information for the ESRC and an international role with international bodies and on equivalence decisions.

The role of the ESRB will be comparatively restrained. The ESRB will be composed principally of heads of the ECB, national central banks, European Supervisory Authorities and national supervisors. Its mandate will be to monitor risk in various areas, including in the banking sector, in relation to asset bubbles and with respect to market infrastructures. The ESRB will have the task of identifying any potential risk and issuing recommendations to the country, group of countries or European Supervisory Authority concerned. If an addressee of an ESRB recommendation does not comply with the recommendation, it will need to explain the reasons for its non-compliance. If the ESRB does not consider the explanations to be convincing, it will have the possibility of informing the Council of Ministers.

The EC is seeking to avoid a treaty change on the basis that changes can be made under Article 95 of the existing treaty. If the Commission’s proposals are adopted, the panoply of EU institutions involved in the legislative and rule setter process will be further enlarged, and will consist of the Commission/ Parliament/Council/ Presidency, the ESRB, the three ESFS bodies and their coordinating committee and the EC’s level 2 powers (in addition to its competition/state aid/merger control powers). One result is that policy and rulemaking power will increasingly reside with no-one but in the shifting sands of horse-traded majority voting. Outside Europe, consensus has to be achieved unanimously and commitments are fairly general and non-binding until they are adopted by one of the international rule-setting bodies such as the BCBS. Within the EU, however, there is a real danger (not only of regulation that is inappropriate for UK markets, but also) that policy making by ‘euro haggling’ produces fudged rules which have not been based on effective market failure analysis, impact and cost/benefit analysis, and industry consultation and that this results in bad regulation.

We have concerns about the process for setting European policy and euro-rules; one only has to look at the EC’s recent draft directive on alternative investment managers directive to see how the EU system can produce some very bad regulation which would damage important sectors and achieve little to protect consumers or the broader financial system. The directive has been roundly condemned by all sectors of the funds industry and by the UK government as ill conceived, dangerously protectionist and technically very weak (see section 12 below). The outcome now depends, not so much on tested policy objectives, but on a highly political game of ‘horse trading’ (dictated by the qualified majority rules (see above) involving the institutions of member states and the EU.

There will be greater potential for conflict between domestic policy/rules and EU policy/law that will restrict the freedom of the domestic authorities. The extent to which the UK will want/will be able to secure domestic flexibility (‘less Europe’) on issues such as branch liquidity, ESFS mediation of disputes within supervisory colleges and on ESFS powers generally, remains to be seen.

The Commission’s proposals for pan-European financial supervision may be considered at the October Council meeting and are due to take effect during 2010.

See the European Commission press release Commission adopts legislative proposals to strengthen financial supervision in Europe, 23 September 2009, the FAQs on the ESFS, the FAQs on the ESRB, and the following legislative proposals:

Proposal for a regulation on Community macro prudential oversight of the financial system and establishing a European Systemic Risk Board (ESRB)

Proposal for a decision entrusting the European Central Bank with specific tasks concerning the functioning of the European Systemic Risk Board

Proposal for a regulation establishing a European Banking Authority (EBA)

Proposal for a regulation establishing a European Insurance and Occupational Pensions Authority (EIOPA)

Proposal for a regulation establishing a European Securities and Markets Authority (ESMA)

For background information produced prior to the adoption of the above proposals, please see the following:

Section 2.2 of the Communication for the Spring European Council: Driving European Recovery Volume

Pages 96/97 of White paper - Reforming financial markets

Pages 39/40 of Conservative Party alternative White Paper

The House of Lords - The future of EU financial regulation and supervision - European Union Committee

Section 9.19 – 9.25 of DP09/2: A regulatory response to the global banking crisis

The speech by Adair Turner at The Turner Review press conference on 18 March 2009

Section III: Correcting Regulatory Weaknesses (pg 16) of the De Larosiere Report.

The decision adopted by the Council of Ministers in July 2009 – see http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/108622.pdf

Chronological Reports

Law Societies: EU legislation on company law and financial services (December 2009) This details the current status of various relevant Directives and European-level proposals. (23/12/09) http://www.lawsociety.org.uk/secure/file/183189/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/companylaw_dec2009.pdf (NB: over 40 pages long)

CEBS: Guidelines on operational risk mitigation techniques CEBS has published guidelines on operational risk mitigation techniques following a three-month public consultation period and a public hearing. The paper is structured in three main sections which: address the general conditions that should be fulfilled for the recognition of operational risk mitigation instruments, both insurance contracts and Other Risk Transferred Mechanisms; analyse the specific conditions for the use of insurance (eligibility of protection providers, characteristics of the products, haircuts for uncertainty of coverage) and for the use of ORTM. It is envisaged that the guidelines be implemented by 30 June 2010. A feedback statement on the April 2009 consultation has also been published - second link below. (22/12/09) http://www.c-ebs.org/documents/Publications/Standards--- 19

Guidelines/2009/Operational-risk-mitigation-techniques/Guidelines.aspx http://www.c- ebs.org/documents/Publications/Standards---Guidelines/2009/Operational-risk-mitigation- techniques/Feedback.aspx

CEBS/CEIOPS/CESR: Call for Evidence on cross sectoral internal governance issues In order to explore ways of promoting greater convergence of regulatory and supervisory practices in the area of internal governance, CEBS/CEIOPS/CESR conducted a stock take on and analysis of existing internal governance requirements applicable in the areas of banking, insurance and securities and have produced a report containing the result of this stock-take that was performed and an analysis of the differences identified, as well as some proposed options to achieve a higher level of harmonisation. This report is contained as an Annex to this Call for Evidence. Areas where further harmonisation could be achieved include: management of conflicts of interest; plicies, processes and procedures related to the risks covered by the risk and the supervisory review process. Responses must be received by 9 April 2010. (21/12/09) http://www.ceiops.eu/media/files/consultations/3L3-call-for-evidence-internal- governance/3L3-cross-sectoral-stock-take-and-analysis-internal-governance-v2.pdf (NB: over 70 pages long)

CEBS: Consultation paper on the management of operational risks in market-related activities Following the publication of high level principles on internal governance in 2006 and in April 2009, CEBS now introduces more specific principles and implementation measures for the identification, assessment, control and monitoring of operational risk in market-related activities. Its draft principles are divided into three different parts: governance mechanisms, internal controls and internal reporting systems. Responses are required by 31 March 2010. It is noted that CEBS expects its members to have implemented the guidelines by December 2010. An implementation review will be undertaken by the CEBS secretariat in Q1 2011. (21/12/09) http://www.c-ebs.org/documents/Publications/Consultation- papers/2009/CP35/CP35.aspx

CEBS: Consultation paper on implementation guidelines regarding instruments referred to in Article 57(a) of Directive 2006/48/EC recast CEBS: notes that the revised CRD introduces explicit rules for the treatment of instruments eligible as capital and, in particular, requirements for their inclusion in institutions’ original own funds without limits. The amendments will need to be transposed into Member States’ national law by 31 October 2010 and will then be applied from 31 December 2010. This CP is a response to Article 63a (6) of the revised CRD that requires CEBS to elaborate guidelines for the convergence of supervisory practices with regard to the instruments referred to in point (a) of Article 57. Responses are required by 31 March 2009. (17/12/09) http://www.c-ebs.org/documents/Publications/Consultation-papers/2009/CP34/CP33.aspx

CEBS: Draft guidelines for the operational functioning of colleges This CP responds to the requirements of the revised CRD according to which CEBS should elaborate guidelines for the operational functioning of colleges. In addition, the draft guidelines aim to complement the CRD provisions where additional guidance appears necessary in order to avoid inconsistencies and regulatory arbitrage, which could result from differences in the approaches and rules applied by the various colleges and the application of discretion by Member States. (17/12/09) http://www.c- ebs.org/documents/Publications/Consultation-papers/2009/CP34-(1)/CP34.aspx

CEBS: Guidelines on aspects of the management of concentration risk under the supervisory review process CEBS has published its draft revised guidelines on aspects of the management of concentration risk under the supervisory review process. These update the guidelines on technical aspects of the management of concentration risk under the supervisory review process published in December 2006. Responses are required by 31 March 2009. (14/12/09) http://www.c-ebs.org/documents/Publications/Consultation- papers/2009/CP31/Draft-revised-concentration-risk-guidelines.aspx

CEBS: Guidelines on the implementation of the revised large exposures regime CEBS has published guidelines in relation to two specific aspects of the revised large exposures regime included in the amended CRD. It has also published a feedback statement in respect of its June 2009 consultation. (11/12/09) http://www.c-ebs.org/documents/Publications/Standards--- Guidelines/2009/Large-exposures_all/Guidelines-on-Large-exposures_connected-clients-an.aspx http://www.c-ebs.org/documents/Publications/Standards---Guidelines/2009/Large- exposures_all/Guidelines-on-Large-Exposures_Feedback-Document.aspx

EC: Guidance on the implementation/application of Directive 2005/29/EC on Unfair Commercial Practices This document providesguidance on the key concepts and provisions of the Directive perceived to be problematic. It includes practical examples showing how this Directive works. It is noted that this document has no formal legal status and in the event of a dispute, the ultimate responsibility for the Directive's interpretation lies with the ECJ. The guidance is a "living document" and will be supplemented and updated on a regular basis. (4/12/09) http://ec.europa.eu/consumers/rights/docs/Guidance_UCP_Directive_en.pdf

HoC: Debate on European financial services proposals (1 December 2009) Hansards has published a transcript of the above-mentioned debate. (3/12/09) House of Commons Hansard Debates for 01 Dec 2009 (pt 0007)

ECOFIN: Council conclusions on financial stability arrangements and crisis management This sets out ECOFIN's conclusions on the above, noting "the overarching objective of the Commission's work should be to aim at exploring ways for introducing an appropriate EU framework for early intervention and resolution, which includes the exploration of a corresponding EU framework for asset transfers along with the necessary safeguards". (3/12/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/111699.pdf

ECOFIN: Council conclusions on exit strategies for the financial sector This sets out ECOFIN's conclusions on the above. It calls on Member States to follow certain principles (set out in this press release) for exit strategies from financial support schemes. (3/12/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/111703.pdf

ECOFIN: Council sets out its approach on the creation of three European supervisory authorities for financial services This press release notes that ECOFIN has agreed on a general approach on draft regulations aimed at establishing three new authorities for the supervision of financial services in the EU and has asked the presidency to start negotiations with the European Parliament with a view to enabling adoption of the texts at first reading. (2/12/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/111668.pdf

HoL Economic and Financial Affairs, and International Trade Committee: The reform of EU financial supervision The Committee has published the text of a letter it has sent to Lord Myners which sets out its points of concern in respect of ESRB and European Supervisory Authorities. (30/11/09) http://www.parliament.uk/documents/upload/20091125Myners1.pdf

TSC: Proposals for European financial supervision: further report TSC has published this follow-up report, ahead of a HoC debate to be held on 1 December, noting that it has received several further pieces of evidence and is to be also taking evidence from BoE and FSA, for which transcripts are expected to be available, before that date. It says that the evidence confirms TSC's earlier view that the timetable proposed for agreeing these proposals is "too hasty", highlighting a number of concerns, including: the matters which a single rulebook for Europe should cover and the extent to which it is appropriate to extend European regulation of securities markets. (27/11/09)

http://www.publications.parliament.uk/pa/cm200910/cmselect/cmtreasy/37/37.pdf (NB: over 40 pages long)

EC: President Barroso unveils his new team José Manuel Barroso has now announced the portfolios responsibilities for the next Commission. Michel Barnier has been named as Commissioner for Internal Market and Services, Joaquín Almunia is Competition Commissioner and John Dalli is Commissioner for the newly configured Health and Consumer Policy portfolio. (27/11/09) EUROPA - Press Releases - President Barroso unveils his new team

CEBS: Summary of the survey on the implementation of CEBS principles for internal governance This short document sets out the results of a survey on internal governance issues of EU private sector banks which was intended to identify whether there are major issues and topics arising from the financial crisis that need further detailed investigations, in order to update the CEBS Guidelines on Internal Governance. It found that the Guidelines were not thought to be deficient or inadequately adopted, but that they could in some areas (e.g. remuneration, quality of the supervisory function, internal control functions especially with regard to risk management) be spelled out in more detail. (27/11/09) http://www.c-ebs.org/documents/About-us/Key-dates/Summary-of-survey-results_Workshop-on-Internal- Gov.aspx

European Parliament: Working document on European banking authority, European securities and markets authority, macro-prudential oversight of the financial system and establishment of a European Systemic Risk Board, European insurance and occupational pensions authority This document, dated 24 November 2009, gives an overview on all of the matters above. (26/11/09) http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+COMPARL+PE- 430.734+02+DOC+PDF+V0//EN&language=EN

HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): EU financial regulation and supervision The Sub-Committee has published a transcript of a hearing held on 10 November attended by Lord Myners and Stephen Pickford of HMT. Topics include: the ESRB/ESAs. (23/11/09) http://www.publications.parliament.uk/pa/ld/lduncorr/eua101109ev1.pdf

EC: Commission takes action to ensure that 10 Member States implement EU rules The EC has decided to refer Belgium, Ireland, Greece and Luxembourg to the ECJ as they have failed to fully implement the Accounting Directive into their national laws within the prescribed deadline. The UK will also receive a reasoned opinion concerning the lack of transposition of this Directive on the territory of Gibraltar. In addition, the EC has decided to send reasoned opinions to Greece, Spain, Italy, the Netherlands, Poland, Portugal and the UK for failure to implement Directive 2007/44/EC, which lays down the procedures and criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector. If there is no satisfactory reply within two months, the EC may refer the matter to the ECJ. In addition, the EC has decided to ask Belgium for full information on its execution of a previous judgment of the ECJ concerning implementation of the Money Laundering Directive. (20/11/09) EUROPA - Press Releases - Financial services: Commission takes action to ensure that 10 Member States implement EU rules

Speech by Mario Draghi: Challenges to financial stability and the proposals of the FSB (12 November 2009) Text of the above, given at a conference in Rome, follows. He discusses FSB's role and how it is developing financial stability policies, saying that FSB has committed to propose measures to reduce the risks posed by systemically important institutions by October 2010. (19/11/09) http://www.bis.org/review/r091118a.pdf?sent=091118

Directive 2009/111/EC of the European Parliament and of the Council of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central 22

institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management This has been published in the Official Journal. (18/11/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:302:0097:0119:EN:PDF

Speech by Arnoud Vossen (Secretary General of CEBS): Towards a New Architecture for European Banking Supervision Text of the above, given at the Euro Finance Week event in Frankfurt, follows. He discusses a common EU Rule Book for banking regulation and enhanced oversight on cross-border banks. (18/11/09) http://www.c-ebs.org/documents/News---Communications/speeches/2009/17-November-2009_Euro- Finance-Week-2009_Arnoud-Vos.aspx

CESR: Half-Yearly Report for 2009 The interim report, covering January-June 2009, provides a half-yearly update on the activities of CESR to the EC, Parliament and the European Securities Committee. (18/11/09) http://www.cesr.eu/data/document/09_782.pdf (over 30 pages long)

TSC: The Committee’s Opinion on proposals for European financial supervision TSC notes that the proposals are due to be discussed at the ECOFIN meeting on 2 December and that the HoC European Scrutiny Committee has recommended they should be debated on the floor of the House before then. This Report, prepared at the request of the European Scrutiny Committee, is intended to inform that debate. TSC raises concerns on the detail of the European proposals and its planned timetable, concluding: “we believe the proposals go far beyond the ECOFIN agreement, and need to be reconsidered. Lord Myners indicated that he would be prepared to use his veto power if necessary; we set out some of the circumstances in which we believe it would be appropriate to do this. However, the financial industry should not take our recommendation that the regulations be considered in a more measured and thorough way as a signal that the world is about to return to ‘business as usual’. The events of the last two years have shown there was a real gap in national and international regulation; the question is not whether to fill that gap, but how best to do so. We will keep the European proposals under review, and we hope they can be improved”. (16/11/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/1088/1088.pdf (NB: over 100 pages long)

CEIOPS: Draft CEIOPS Work Programme 2010 and draft 3L3 Work Programme 2010// CEBS: CEBS: Work Programme 2010 and draft deliverables CEIOPS and CEBS have published their 2010 work programmes, together with a general work programme (contained in the CEIOPS document, first link below). (3/11/09) http://www.ceiops.eu/media/files/2010-Work-Programme/CEIOPS-2010-Draft-Work-Programme-and- 2010-3L3-work-programme.pdf (NB: over 30 pages long) http://www.c-ebs.org/documents/About-us/Work-programme-2010/CEBS-work-programme-2010.aspx http://www.c-ebs.org/documents/About-us/Work-programme-2010/CEBS-work-programme- 2010_Annex-1.aspx

European Council: Presidency Conclusions – Brussels, 29/30 October 2009 Paragraph 30 of this document notes that there was broad agreement in the Council on the proposals re the establishment of the European Systemic Risk Board for macro-prudential supervision. The European Council urges agreement by December 2009 on a complete package setting up a new supervisory structure in the EU. The European Council will discuss this matter at its next meeting. (2/11/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/110889.pdf

EC: Commission takes action against Spain (anti-money laundering), Estonia (statutory audit) and Luxembourg (market abuse) The EC has decided to refer Spain to the ECJ over its failure to lay down effective, proportionate and dissuasive penalties in national law in relation to the EU Regulation on payer information accompanying transfers of funds. It will also refer Estonia to the ECJ over non-implementation of the Statutory Audit 23

Directive and will send a formal request to Luxembourg concerning its implementation of the Market Abuse Directive. This formal request takes the form of a "reasoned opinion", the second stage of the infringement procedure laid down in Article 226 of the EC Treaty. If there is no satisfactory reply within two months, the EC may refer the matter to the ECJ. (29/10/09) EUROPA - Press Releases - Financial services: Commission takes action against Spain (anti-money laundering), Estonia (statutory audit) and Luxembourg (market abuse)

ECOFIN: Note of 20 October 2009 council meeting It is noted that ECOFIN adopted conclusions on the establishment of an exit strategy with regard to measures taken to tackle the economic and financial crisis, reached broad agreement on the substance of proposals to create a European Systemic Risk Board, which will provide oversight of the financial system as part of a reform of the EU's supervisory framework for banking, insurance and securities markets. Both issues will be referred to its October meeting. It also adopted conclusions on the strengthening of EU arrangements for financial stability and crisis management, taking account of lessons learnt from the current crisis. The conclusions include a "roadmap" for further work. (27/10/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/110622.pdf

EC: Commission adopts additional legislative proposals to strengthen financial supervision in Europe The EC has adopted additional legislative proposals today to further strengthen financial supervision in Europe. It proposes to make targeted changes to existing financial services legislation to ensure that the new Authorities can work effectively. In particular, these proposals lay down in detail the scope for the Authorities to exercise their powers, ensuring a more harmonised set of financial rules through the possibility to develop draft technical standards, settle disagreements between national supervisors and facilitate the sharing of micro-prudential information. The package will now be sent on to the Council and the European Parliament for consideration. It is noted that further proposals for technical amendments to sectoral Directives are envisaged by the Commission early in 2010, in particular in the insurance sector, which is not covered by the current proposal. (26/10/09) EUROPA - Press Releases - Financial services: Commission adopts additional legislative proposals to strengthen financial supervision in Europe http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20091026_576_en.pdf (NB: over 40 pages long)

Speech by Verena Ross: European Banking Roundtable - Keynote speech (14 October 2009) Text of the above, given at the European Banking Roundtable, in which she discusses the new European regulatory framework, including the issue of systemic risk in the banking sector. (15/10/09) European Banking Roundtable - Keynote speech

Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC This has now been published in the Official Journal. (12/10/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:267:0007:0017:EN:PDF

CEBS: Disclosure guidelines - lessons learned from the financial crisis This consultation discusses: general principles to be applied to high quality disclosures; principles dealing with the content of disclosures on areas or activities under stress, in particular for the following topics: business models, impacts on results and risk exposures, impacts on financial positions, risk management and sensitive accounting issues; and guidance on presentational aspects of disclosures. Responses are required by 15 January 2010. CEBS intends to hold a public hearing at its London offices on the consultation to allow stakeholders to put forward their views. (9/10/09) http://www.c- ebs.org/getdoc/bfc84fba-a46d-4f47-943c-b8e88a691e38/CP30-CEBS-Disclosure-guidelines.aspx

EC: Commission launches infringement proceedings against Belgium, Italy, Latvia, Spain, Sweden and the Netherlands The EC has sent letters of formal notice to Belgium, Italy, Latvia, Spain, Sweden and The Netherlands for inadequate transposition of Directive 2002/65/EC concerning the distance marketing of consumer financial services into their national law. It considers that the above-mentioned Member States have failed in their national laws transposing this Directive to sufficiently protect consumer's rights. For example, it would appear that, Italian consumers who withdraw from the contract have a shorter period for returning any sums or property received than provided for in the Directive. In Spain, contrary to the Directive, consumers do not seem to be able to withdraw from contracts concerning a personal pension scheme. The six Member States concerned have two months to reply to the letters of formal notice. If the EC does not receive a reply or if the observations presented by the national authorities are not satisfactory, the EC may issue reasoned opinions (the second stage in infringement proceedings) and may eventually refer the matter to the ECJ. (8/10/09) EUROPA - Press Releases - Distance marketing of financial services: Commission launches infringement proceedings against Belgium, Italy, Latvia, Spain, Sweden and The Netherlands

EC: Unfair terms in consumer contracts: infringement proceedings against the Czech Republic and Slovakia continue The EC has sent reasoned opinions to the Czech Republic and Slovakia, since it considers that their national laws do not comply with the requirements of Directive 93/13/EEC on unfair terms in consumer contracts. It considers that their national provisions do not sufficiently protect consumers' rights. For example, it would appear that, contrary to the Directive, a consumer in the Czech Republic will be bound by an unfair contract term as long as he does not actively invoke its unfairness; or a consumer in Slovakia might be bound by an unfair contract term, as national legislation does not provide for an objective assessment of the unfairness. The Czech Republic and Slovakia have two months to reply to these reasoned opinions, which are the second step in infringement proceedings. If the EC does not receive a reply, or, if the observations presented by the national authorities are not satisfactory, the Commission may bring the matter before the ECJ. (8/10/09) EUROPA - Press Releases - Unfair terms in consumer contracts: infringement proceedings against the Czech Republic and Slovakia continue

EC: The EC asks Belgium to amend its discriminatory legislation on accounts keepers/settlement institutions and investment funds The EC has formally requested Belgium to amend its tax legislation providing for more favourable taxation of bearer shares held at banks established in Belgium or dematerialised shares held in securities accounts in Belgium and of certain dividends distributed by Belgian investment companies compared with similar dividends distributed by investment companies established in other EEA countries. The EC takes the view that these regulations are incompatible with the basic freedoms laid down in Articles 49 and 56 of the Treaty establishing the European Community (and in similar provisions of the Agreement on the European Economic Area). The EC's request is in the form of a ‘reasoned opinion’, the second stage of the infringement procedure provided for in Article 226 of the EC Treaty. If Belgium does not reply satisfactorily to the reasoned opinion within two months, the Commission may refer the matter to the ECJ. (8/10/09) EUROPA - Press Releases - Direct taxation: the Commission asks Belgium to amend its discriminatory legislation on accounts keepers/settlement institutions and investment funds

may bring the matter before the ECJ. (8/10/09) EUROPA - Press Releases - Unfair terms in consumer contracts: infringement proceedings against the Czech Republic and Slovakia continue

Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability (8/10/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:263:0011:0031:EN:PDF

EC: Larosière Group report - EESC calls for a wider focus The EC highlights the EESC opinion on the de Larosière report on the supervision of European financial markets which was adopted at a plenary session on 30 Sepetember. The press release totes that EESC calls for a monetary authority to assess new financial products before they are marketed and advocates an EU-wide system of such checks. The opinion is to be published "shortly". (2/10/09) EUROPA - Press Releases - Larosière Group report: EESC calls for a wider focus

Speech by Charlie McCreevy: Supervision, solvency and capital requirements (28 September 2009) Text of the above mentioned speech follows. Topics include: Solvency II and prudential requirements for banks (including the possibility of a "CRD 4"). He comments: "do all these changes mean that we got it wrong with the CRD? I would say yes ... Financial regulation needs to ensure sound prudential standards and investor protection without unduly fettering business and stifling innovation. This is a very difficult balance to strike, and the pendulum may swing too far in either direction. The outcome will never be perfect – financial markets are too complex for that. But we need to keep trying. If that means a Solvency 3 or CRD 4, 5, and 6, so be it". (1/10/09) EUROPA - Press Releases - Mr. Charlie McCreevy European Commissioner for Internal Market and Services Supervision, solvency and capital requirements Financial Risk Solutions 10th Anniversary Dinner Dublin, 28 September

Decision No 716/2009/EC of the European Parliament and of the Council of 16 September 2009 establishing a Community programme to support specific activities in the field of financial services, financial reporting and auditing (29/09/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:253:0008:0016:EN:PDF

FSB: Charter FSB has published its Charter, which sets out its objectives, mandates, members and organisation. It took effect on 25 September 2009. (29/09/09) http://www.financialstabilityboard.org/publications/r_090925d.pdf

CEBS: Towards a system of European supervisory authorities CEBS has published the slides presented at the CEPR/ESI 2009 Annual Conference on 25 September by Giovanni Carosio, Chair of CEBS. (28/09/09) http://www.c-ebs.org/getdoc/3c2d4cf3-2bca-45ce-945c- 214958d27910/25-September-2009_-CEPR_ESI-2009-Annual-Conference.aspx

CESR: Final report of the Review Panel concerning the updated self assessment and peer review of CESR's Standard No.1 on financial information The update of Standard No.1 has been conducted in the form of a self-assessment, followed by a peer review undertaken by the Review Panel, CESR’s peer pressure group. The purpose of this work is to achieve greater supervisory convergence, market transparency, efficiency and market integrity. CESR’s Standard No. 1 was first published in March 2003 and sets out 21 principles which should contribute to achieving a common approach to the enforcement of standards on financial information which is considered an effective and important tool in securing efficient capital markets and an actual level playing field within the EU. A comparison between the results of the current re-assessment and the findings in 2006, reveals that the overall compliance with the Standard has increased compared to 2006, but, at the same time, that further harmonisation is needed. The results also show that the work of CESR’s Review Panel does effectively contribute to changes in the Members’ jurisdictions, improving compliance and delivering greater convergence over time. (25/09/09) http://www.cesr.eu/data/document/09_374.pdf (NB: over 40 pages long) 26

Decision No 716/2009/EC of the European Parliament and of the Council of 16 September 2009 establishing a Community programme to support specific activities in the field of financial services, financial reporting and auditing (25/09/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:253:0008:0016:EN:PDF

EC: Commission adopts legislative proposals to strengthen financial supervision in Europe The press release notes that the EC has adopted what it describes as an important package of draft legislation today to significantly strengthen the supervision of the financial sector in Europe. It will create the following: • European Systemic Risk Board (ESRB) to monitor and assess risks to the stability of the financial system as a whole ("macro-prudential supervision"). The ESRB will provide early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks. • European System of Financial Supervisors (ESFS) for the supervision of individual financial institutions ("micro-prudential supervision"), consisting of a network of national financial supervisors working in tandem with new European Supervisory Authorities, created by the transformation of existing Committees for the banking securities and insurance and occupational pensions sectors. There will be a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA). ESRB will have the power to issue recommendations and warnings to Member States (including the national supervisors) and to the European Supervisory Authorities, which will have to comply or else explain why they have not done so. The heads of the ECB, national central banks, the European Supervisory Authorities, and national supervisors, will participate in the ESRB. The creation of the ESRB is in line with several initiatives at multilateral level or outside the EU, including the creation of a FSB by the G20. The new Authorities will take over all of the functions of CEBS/CESR/CEIOPs and will also certain extra competences, including the following: • developing proposals for technical standards , respecting better regulation principles; • resolving cases of disagreement between national supervisor s, where legislation requires them to cooperate or to agree ; • contributing to ensuring consistent application of technical Community rules (including through peer reviews); • ESMA will exercise direct supervisory powers for credit rating agencies; • a coordination role in emergency situations. Full press release and FAQs follow – text of the proposals, a working document and impact assessment report/summary were published on the following day and are also set out below. (23 & 24/09/09) EUROPA - Press Releases - Commission adopts legislative proposals to strengthen financial supervision in Europe EUROPA - Press Releases - European System of Financial Supervisors (ESFS): Frequently Asked Questions EUROPA - Press Releases - New financial supervision architecture: Q&A on the European Systemic Risk Board / the macro-supervision part of the package CEBS/CESR/CEIOPS reaction: http://www.ceiops.eu/media/files/pressreleases/3L3-press-release-EC- Communication-23-September-2009.pdf

Proposal for a regulation on Community macro prudential oversight of the financial system and establishing a European Systemic Risk Board (ESRB) http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/com2009_499_en.pd f

Proposal for a decision entrusting the European Central Bank with specific tasks concerning the functioning of the European Systemic Risk Board http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/com2009_500_en.pd f

Proposal for a regulation establishing a European Banking Authority (EBA) http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/com2009_501_en.pd f (NB: over 70 pages long)

Proposal for a regulation establishing a European Insurance and Occupational Pensions Authority (EIOPA) http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/com2009_502_en.pd f (NB: over 70 pages long)

Proposal for a regulation establishing a European Securities and Markets Authority (ESMA) http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/com2009_503_en.pd f (NB: over 70 pages long)

EC staff working document: Accompanying document to the Proposals re EBA, EIOPA and ESMA http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/sec2009_1233_en.p df (NB: over 30 pages long)

Impact Assessment/Impact Assessment Summary http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/20090923_impact_e n.pdf http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/20090923_impact_s ummary_en.pdf

Presidency of the EU: G20 summit Further to a meeting held on 17 September, this paper sets out "agreed language" for the forthcoming G20 summit, including sections on financial reform and remuneration/governance. (21/09/09) http://www.se2009.eu/polopoly_fs/1.15282!menu/standard/file/agreed lang -- FINAL-1.pdf

FSB: Plenary meeting FSB has published a note of its plenary meeting held in Paris on 15 September. It is to submit two reports to the G20 summit in Pittsburgh on 24-25 September: an overview of progress since the London Summit in implementing the recommendations of G20 Leaders and of the FSB’s predecessor, the Financial Stability Forum; and a forward-looking assessment of next steps for improving financial regulation. It sets out an update on work being carried out under the following topics: the global capital framework; global liquidity; accounting standards; compensation practices; the OTC derivatives market; re-launching securitisation; framework to strengthen adherence to international regulatory and supervisory standards. (21/09/09) http://www.financialstabilityboard.org/press/pr_090915.pdf

Speech by Charlie McCreevy: Regulatory reform in the Irish Economy (18 September 2009) Text of the above, given at the EU Public Affairs Ireland Conference in Dublin, follows. Topics include: the proposed AIFM Directive; remuneration and bonuses in the financial sector; MiFID (it is noted that a review of the operation of MiFID is scheduled for the end of the year); the supervision; Regulation and supervision go hand in hand, and in May, following the now famous de Larosière report, the Commission published policy proposals to the new European Supervisory Authorities; the G20 summit in Pittsburgh. (18/09/09) EUROPA - Press Releases - Charlie McCREEVY European Commissioner for Internal Market and Services Towards an integrated approach to regulation across the EU Public Affairs Ireland Conference - Regulatory Reform in the Irish Economy Dublin, 18 September 20

EC: European Commission calls for united EU position for G20 summit in Pittsburgh This press release calls for, amongst other matters, "strong and coordinated action on remuneration", "a renewed commitment from the G20 to accelerating the pace of delivery on accounting standards and non- cooperative jurisdictions" at next weekend's Pittsburgh summit. (17/09/09) EU@UN - European Commission calls for united EU position for G20 Summit in Pittsburgh

CEBS: Consultation paper on the extension of the CEBS’s supervisory disclosure framework CEBS notes that the current supervisory disclosure framework covers only the legislative provisions, the supervisory application of the rules (e.g. the supervisory review process under Pillar 2) and statistical data on the implementation of the CRD, and disclosures on reporting. It has decided to develop the common framework further and extend it to other areas of community legislation during the course of 2009. Based on current regulatory and market developments, CEBS has focused the extension of the Supervisory Disclosure Framework on the following areas: Mergers & Acquisitions; Securitisation; Credit Risk Mitigation; National discretions; Pillar 2 and Pillar 3. This consultation provides a brief explanation of each area of extension with accompanying draft template(s) for supervisory disclosures and draft guidance for their population. Responses are required by 16 October 2009. CEBS is also holding a public hearing at its offices in London on 5 October 2009. (17/09/09) http://www.c-ebs.org/getdoc/4778fdd1-4b93-443e-b83c-fe83410cb547/CP29.aspx (NB: over 50 pages long)

EC: Summary of the responses to the public consultation on alternative dispute resolution in the area of financial services This document is a summary of the contributions received in response to a December 2008 consultation. It notes that many respondents agreed that ADR schemes are an effective way to resolve disputes which cannot be resolved by the consumer and the financial services provider bilaterally, but that positions differ as to how this can be achieved and at what level (national/EU). A few stakeholders suggest further research into the reasons for the existing gaps in ADR geographical and sectoral coverage. Some industry respondents raised concerns over the cost of setting them up. (14/09/09) http://ec.europa.eu/internal_market/finservices-retail/docs/redress/consultation_summary_en.pdf

EC: Seminar on Corporate Governance in financial institutions It is noted that the EC has made a commitment to produce a report on corporate governance practices in financial institutions. As part of this exercise, the Unit for Company Law, Corporate Governance and Financial Crime in DG Internal Market and Services is organising a Seminar in Brussels on Monday, 12 October 2009. Details are available via the following link. (11/09/09) http://ec.europa.eu/internal_market/company/docs/ecgforum/seminar_12102009/programme_en.pdf

CEBS: Compendium of supplementary guidelines on implementation issues of operational risk/Feedback to the consultation on the Compendium of Supplementary Guidelines on implementation issues of operational risk (CP21) CEBS has published the above documents. The Compendium serves as a regularly updated Guidebook of documents produced by CEBS to address identified issues and to support the work of the national authorities in their assessment and review of the operational risk frameworks implemented by institutions. In general respondents supported the aim of the Compendium to achieve greater convergence of supervisory practices and consistency within and across banks in operational risk, in particular in those areas which have received little attention in the CRD and previous CEBS documents. (9/09/09) http://www.c-ebs.org/getdoc/0448297d-3f85-4f7d-9fa6-c6ba5f80895a/CEBS- 2009_161_rev1_Compendium.aspx http://www.c-ebs.org/getdoc/045ce287-c834-4d0d-a27e-2430a2222afd/CEBS-2009-164-rev1- _Feedback-document-on-CP21.aspx

EC: Preparation of Eurogroup and Informal Economic and Finance Ministers Council, Brussels, 2 September 2009 This press release notes that meetings have been convened by the respective EU and Eurogroup presidents to prepare the G20 finance ministers meeting taking place on 4-5 September, ahead of the G20 Summit in Pittsburgh on 24-25 September. The main purpose of the Pittsburgh meeting will be to assess progress in meeting commitments made at the London summit in April 2009, including reform of financial market regulation. (1/09/09) EUROPA - Press Releases - Preparation of Eurogroup and Informal Economic and Finance Ministers Council, Brussels, 2 September 2009

CEPS: The road ahead after de Larosière This policy brief outlines the challenges and pitfalls that the EC faces in developing the objectives, functions, organisation, governance and funding of essentially four new entities: ESRB and a European System of Financial Supervisors (ESFS). (12/08/09) http://shop.ceps.eu/downfree.php?item_id=1893

Law Societies: EU legislation on company law and financial services (July 2009) This details the current status of various relevant Directives and European-level proposals. (23/07/09) http://www.lawsociety.org.uk/secure/file/180726/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/companylawreformupdate_july09.pdf (NB: 40 pages long)

CEBS: Peer review methodology This is a revised version of a document originally published in 2007. Changes have been prepared in accordance with the revision clause of the methodology, which requires a review within 2 years from publication in October 2007. (21/07/09) http://www.c-ebs.org/getdoc/d309b3de-d442-43d5-ba6d- d853404f4a8b/Revised-Peer-Review-Methodology.aspx

FMLC: Green Paper: Review of Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (COM (2009) 175) FMLC has published the text of its letter to the EC regarding the Green Paper and says it believes that, for the financial markets, the most important question in the Green Paper concerns the enforceability of choice of court agreements. (13/07/09) http://www.fmlc.org/papers/107FaullEC.pdf

EC: FSAP evaluation studies “Evaluation of the economic impact of the FSAP” aims to provide an economic assessment of the specific impact of the FSAP on the EU financial services sector. The study was completed in March 2009. “Survey on the cost of compliance with selected FSAP measures” is based on direct interviews of a sample of companies to obtain their estimates of the costs of compliance with the provisions of selected directives. (10/07/09) http://ec.europa.eu/internal_market/finances/docs/actionplan/index/090707_economic_impact_en.pdf (NB: over 240 pages long) http://ec.europa.eu/internal_market/finances/docs/actionplan/index/090707_cost_of_compliance_en.pdf( NB: over 150 pages long)

Speech by Boris Johnson: Mayor warns EU not to strangle world's premier financial centre As noted in today's FT, Boris Johnson has made a speech at an LDA seminar today, a synopsis of which follows. He comments on the alternative investments directive, saying "my greatest worry is that this is just the start of a flood of draft directives that will start to filter out of Brussels. London is the home of hedge funds and private equity, but having a strong hedge fund and private equity industry is not just good for London, it is good for Europe. No other European city’s financial services sector is competing on the same international level as London, and the EU Commission must recognise this. That is why I’ve decided to personally take the lead on this and lobby key figures. London’s main competitors are outside the EU, including New York and Hong Kong, so it’s blatantly obvious that this unilateralist approach will damage our competitiveness.” (9/07/09) Mayor warns EU not to strangle world's premier financial centre

ECOFIN: 7 July meeting ECOFIN has published a press release in respect of today's meeting, noting that conclusions have been adopted in respect of pro-cyclicality and its effects on financial regulation, including aspects on bank capital requirements, remuneration and accounting rules. (7/07/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/109050.pdf

Law Societies: EU legislation on civil law (June 2009) This details the current status of various relevant Directives and European-level proposals, including Rome I and II, ADR and the attachment of bank accounts and transparency of debtors’ assets. (6/07/09) http://www.lawsociety.org.uk/secure/file/180429/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/eucivilupdate-june09.pdf

CEBS: Future shape of regulation CEBS has published the slides presented at an HSBC conference by Arnoud Vossen, Secretary General of CEBS. (2/07/09) http://www.c-ebs.org/getdoc/dd0cc5eb-c6ea-4c29-be71-ef8c9bfea346/1-July-2009_- HSBC-Conference_-Arnoud-Vossen.aspx

2.3 UK domestic

Amazingly, FSA’s current objectives under the FSMA do not contain a simple objective of achieving financial stability, but only a rather opaque reference to market confidence in the financial system; ironically, the crisis was caused by too much confidence and not enough restraint!

See pages 47 to 53 of the Government’s White Paper

See Part 2 and 4 of Conservative Party alternative White Paper

FSA has announced a new operational structure which it says is "designed to better align its internal operating model to its core activities of identifying and mitigating risk, supervision and enforcement", which will come into effect from 1 October 2009: • Retail and wholesale firm supervision will be integrated into one Supervision business unit, headed by Jon Pain. • Risk identification, risk management and policy formulation will be integrated into one Risk business unit, headed by Sally Dewar. • The existing Financial Stability team will become a new, enhanced division under David Strachan, focusing on macro-prudential issues. • A new International division will be created, headed by Verena Ross. • Enforcement and Financial Crime will be integrated to form one division, headed by director Margaret Cole. • The Financial Capability division will move from the existing Retail business unit to become a standalone division, headed by Chris Pond who will report directly to Hector Sants.

See also Turner’s statement on the implications for resources at section 2.7 (iii) of The Turner Review.

See FT article “Osborne pledges to go easy in axing FSA”, 10 September 2009.

FT ADVISER AND COMPLIANCE ONLINE FEATURE PIECES

“The Conservatives have a lot to say about what is wrong with FSA and the Tripartite system,” believes Ash Saluja of City Law Firm CMS Cameron McKenna, “but they have only given a very high level sketch of the ideas for their new regime. Their alternative White Paper leaves many key questions unanswered; at this stage their plan to scrap the FSA looks distinctly “half baked”.”

“It is easy to envisage a split between financial supervision of the major firms, by the Financial Regulation Division of the Bank of England, and supervision of consumer business under conduct of business rules by the new CPA, “ believes Paul Edmondson of City Law Firm CMS Cameron McKenna. “The difficulty – and the uncertainty – comes when one starts to look at all the other areas of regulation – both European rules and under the FSA’s current Handbook. Financial regulation itself will be split – intermediaries and smaller firms will be supervised by the CPA; but who will deal with the regulation of individuals (currently under APER), the UK listing authority role, market supervision and market abuse, the non-financial side of prudential regulation, such as systems and controls, high level principles such as conflicts of interest, both in consumer areas and in commercial markets, such as insurance. The list goes on and on.”

“The Conservative plans will require primary legislation; it will take time to consult, to legislate and to implement the changes,” believes Paul Edmondson of City Law Firm CMS Cameron Mckenna. “It will involve moving FSA functions to the Bank of England and then combining the FSA rump with the OFT Consumer Credit Division to create the new CPA. It took the Labour Government four years to implement its plans to create FSA. This is probably a less complex exercise, but it is still going to run on at least into 2011 – so we face two years or more of uncertainty on policy making. This is the worse possible time for a hiatus, just as the post crisis rules are being negotiated at EU and international levels;

we would have wanted to see a strong UK team leading the international debate and looking after the UK’s particular interests as home to Europe’s leading financial centre.”

“There are already reports that FSA’s plans to hire more experienced senior staff from industry are faltering,” believes Ash Saluja of CMS Cameron McKenna. “Who wants to make a career switch to FSA just as its about to be closed down? We are also picking up worrying signs that morale in the lower ranks has been hit; it is very unsettling for everyone at FSA, particularly when the new plans are so vague. If the Tories want to be so radical, will they be happy simply to transfer all the existing staff to the new organisations? However, this was exactly what happened when the Labour opposition announced their plans for FSA before the 1997 election. It was a time of great uncertainty for the staff of all the self regulatory organisations, which were to be replaced by FSA.”

“In the short term the effect of the Tory announcement will be entirely negative”, believes Paul Edmondson of City Law Firm CMS Cameron McKenna. “In the longer run, there will be pros and cons. The Tories’ number one priority is to avoid a repeat of the banking crisis; their structure is therefore designed to achieve this objective and to deliver better macro prudential regulation and improved financial supervision of the big banks. Without the tripartite split, there should be better co-ordination with other areas, such as monetary policy and the Bank of England’s role as the provider of liquidity to the banking system. The are concerns, however, about the regulation of commercial and wholesale markets and the way in which firms are supervised. Insurers and banks will be supervised by two separate authorities. In practice this would mean the tripartite system will go, but there would need to be a new memorandum of understanding established between the Bank of England and the CPA. Hopefully financial crises won’t occur very often, but firms still have to deal with supervision on a daily basis.”

“The Tories’ plans cast a shadow of doubt over the reform agenda,” believes Paul Edmondson of City Law Firm CMS Cameron McKenna. “Much of this has to be negotiated at EU and International level, but there are a number of areas where FSA is hoping to introduce significant domestic reforms. RDR is a classic example. This has already come into conflict with European law and is now entangled with the EU’s PRIPS proposals. It is not due to take effect until the end of 2012. The reality is that we will see the European rules agreed and implemented but the domestic measures may well get overtaken by the arrival of the new CPA. Solvency II is another area where insurers are currently dealing with FSA, but may well find they are dealing with the Bank of England when the rules come into force at the end of 2012. It will take some time for insurers and the Lloyd’s and London insurance markets to get used to the idea of being supervised by the Bank of England and the CPA.”

Chronological Reports

BBA: Next steps for banking BBA has published further chapters on this, available to download via the following link, on the Financial Services Bill and Adair Turner's regulatory response to the global banking crisis. (18/12/09) BBA – British Bankers' Association - 'Next steps for banking' - a BBA series

BoE: Financial stability review Topics include: "where next for UK securitisation?”, cross-border capital flows and bank lending, sources of bank profits, capital losses in past financial crises. This is available to download in sections via the following link. (18/12/09) http://www.bankofengland.co.uk/publications/fsr/2009/fsrcontents0912.pdf

Which?: The Future of Banking Commission The Future of Banking Commission aims to put the wider interests of society at the heart of financial reform and has the support of a number of MPs and industry figures. Its aims are to listen to people's concerns about banking; listen to the views and concerns of industry and regulators and restore public trust and confidence in the banking system. Which? will be organising the "Which? Big Banking Debate", which will be solely focused on getting consumer views and feeding them into its discussions. It will also arrange three further events in early 2010 where bankers, politicians, regulators, trade unions 33

and business leaders will give evidence. A report will then be published later in the year. Which? will take its findings to the government after the 2010 general election. (18/12/09) The Future of Banking Commission - Which? Campaigns

TSC: Pre-Budget Report A link to the uncorrected oral evidence to the above hearing, held on 15 December 2009, follows. Alistair Darling comments on bank lending and bank bonuses. (17/12/09) Uncorrected Evidence 180

BoE: Speech by David Miles: The future financial landscape (16 December 2009) Text of the above, given at Bloomberg, follows. He discusses: reasons why the banking sector might become smaller. (17/12/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech418.pdf

FSA: Appointment FSA has announced the appointment of a new senior advisor. Graham Halliday, formerly of NatWest, will advise across FSA, with reference to his specialist area; retail banking. He will joins FSA on a part time basis. (11/12/09) FSA appoints a new senior advisor

HMT: Risk, reward and responsibility: the financial sector and society This discussion document highlights the importance of the financial sector to the UK economy alongside the risks it poses to society. Whilst some risk-taking is inherent in financial sector operations, the recent financial crisis has shown the high cost to taxpayers when risk-taking becomes excessive. The document considers ways in which the financial sector might contribute to the potential costs of any residual risks it poses to taxpayers and to broader social objectives and is intended to inform an IMF paper commissioned by G20 which is expected in April 2010. (10/12/09) http://www.hm- treasury.gov.uk/d/fin_finsectorandsociety.pdf (NB: over 40 pages long)

HoC Scottish Affairs Committee: Banking in Scotland A link to a transcript of the uncorrected oral evidence of a hearing which took place on 2 December, attended by execs from RBS, Clydesdale Bank and Building Societies Association and senior union representatives, 2009 follows. Topics include: incentive structures; job losses; the importance of retaining bank headquarters in Scotland. (10/12/09) Uncorrected Evidence 70

HMT: Pre-Budget Report The Pre-Budget Report sets out current work on reforming financial services and other recent developments. It has made a number of announcements, including the folllowing: • Reducing the risk and impact of systemic firm failure: The Government is to shortly announce a package of policy measures designed to reduce the impacts of any future failure of systemically important investment banks. • Banking bonuses: The Government has announced that where bank (and building society) employees are awarded discretionary bonuses, in whatever form, above £25,000 in the period from the Pre-Budget Report to 5 April 2010, the banks paying these bonuses will pay an additional bank payroll tax of 50% on the excess bonus over £25,000. After a period of consultation the Government intends to introduce a Code of Practice on taxation for banks. [See also remuneration and bonuses section in this document] • Bank charges: With regard to the recent Supreme Court case, the report notes that "the Government will work with consumer groups, the OFT and the banks in order to agree a new framework that will make bank charges fairer, simpler and more transparent in the future. The Government will take action to deliver change if a voluntary approach does not result in a fair outcome for consumers". • Complaints handling: FSA/OFT/FOS are to publish a DP in February 2010 setting out how they will improve they way they work together in order to identify conduct risks that might lead to consumer detriment, how they will identify and handle widespread issues and clarify their roles/responsibilities and of stakeholders; and increasing the focus of regulators on facilitating redress through supervision and enforcement action.

• Building societies: The Government is proposing the introduction of a specific governance code for building societies and other financial mutuals and will also consider the introduction of a regular independent review of building societies (and other financial mutuals) adherence to the Code. • Mortgage backed securities: The Government will explore ways of encouraging more sustainable, transparent and standardised UK mortgage-backed securities markets, working with BoE, FSA and through the Council for Financial Stability as well as holding discussions with issuers and investors. • Non-bank lending channels: HMT is to launch a discussion paper on developing non-bank lending channels in the UK. It will be advised by BoE and FSA, working with BERR/BIS. • Inter-bank payments systems: The Government has announced the commencement on 31 December 2009 of the new formal regulatory framework for the oversight of recognised inter-bank payment systems. • New advisory group: The Government has announced that the Chancellor will convene a new advisory group on financial and professional services, as a smaller and more focused successor to the former High-Level Group. • Financial inclusion: The Government is to explore options with the banks to improve the information available on services delivered in deprived communities. The Government and FSA will provide £20m in 2010-11 to fund the national rollout of the Money Guidance service from spring 2010. The Government also intends to commit at least 25% and up to £100m of the funds expected to be released through the Dormant Accounts Scheme over a number of years to support delivery of Money Guidance service. • Islamic finance: The Government intends to provide relief from tax on capital gains for alternative property refinance transactions, subject to satisfactory safeguards. The Government has also announced a commitment to ensure, as far as possible, a level playing field on VAT for retail consumers of Islamic finance products compared to consumers of their conventional equivalents. This includes a commitment to issue guidance on the VAT treatment of alternative finance investment bonds. • Taxation: The Government has announced the intention to legislate to ensure that those who fail to declare offshore tax liabilities will face the tough penalties attracted by deliberate tax evasion. It has also announced a new notification requirement for offshore accounts in certain jurisdictions, supported by a separate penalty regime. It is consulting on the implementation of these measures, including the potential for reforming information requirements on non-resident trusts. It has announced the closure of loopholes to take place with immediate effect which include the closure of a loophole through which fees are artificially carved out of a taxable insurance contract to avoid insurance premium tax and action to prevent tax avoidance where UK shares, intended for non-EU markets, are deliberately routed through EU clearance services of depository banks. (9/12/09) http://www.hm-treasury.gov.uk/d/pbr09_chapter3.pdf http://www.hm-treasury.gov.uk/d/pbr09_chapter5.pdf (taxes and overview of savings)

FSA: New Chairman of the Practitioner Panel appointed FSA has announced the appointment of Iain Cornish as Chairman of FSPP for two years from 1 December 2009. He takes the place of Nick Prettejohn, who stands down having completed his two year term as Chairman. Iain Cornish has been CEO of Yorkshire Building Society since July 2003, and has been a member of FSPP since March 2007. (7/12/09) New Chairman of the Practitioner Panel appointed

HoC: Financial Services Bill - Research Paper No 09/84 A paper intended to provide information to MPs re the above "in support of their parliamentary duties". (3/12/09) http://www.parliament.uk/commons/lib/research/rp2009/rp09-084.pdf (NB: over 60 pages long)

TSC: Financial Services Authority Annual Report (25 November 2009) The uncorrected evidence of the above meeting, which was attended by Adair Turner and Hector Sants, follows. Topics include: HBOS; bank charges; "intensive" supervision; narrow banking and aspects of the Financial Services Bill. (1/12/09) Uncorrected Evidence 35

TSC: Banking crisis: regulation and supervision: responses from the Government and FSA to the TSC's Fourteenth Report of Session 2008–09 Further to TSC's July report, this report comprises the responses from the Government and from FSA. The Government's response, which was submitted to the TSC a week ago, includes references to primary legislative proposals in the Financial Services Bill whilst FSA also updates the TSC on work it has undertaken since the July report. (27/11/09) http://www.publications.parliament.uk/pa/cm200910/cmselect/cmtreasy/47/47.pdf

BIS/BERR: The total benefit/cost ratio of new regulations 2008 - 2009 This reports the ratio of the benefits and costs of new regulation right across Government and makes public, for the first time, the total equivalent annual benefits and costs of regulation that will result from legislation enacted in the last financial year. Items quantified include the Banking Bill and Financial Instrument Order 2008 (re obligations under MAD). (26/11/09) http://www.berr.gov.uk/files/file53280.pdf

HMT: Financial Services Bill - additional documents HMT has published an impact assessment for the Bill, an FAQ page and a draft TOR regarding the new Council for Financial Stability. (20/11/09) http://www.hm-treasury.gov.uk/d/fin_bill_ias.pdf (NB: over 120 pages long) Frequently Asked Questions - HM Treasury (FAQ) http://www.hm- treasury.gov.uk/d/fin_bill_tor.pdf (TOR)

Financial Services Bill The Bill and Explanatory Notes have now been published. (18/11/09) http://www.publications.parliament.uk/pa/cm200910/cmbills/006/2010006.pdf (NB: over 70 pages long) http://www.publications.parliament.uk/pa/cm200910/cmbills/006/en/2010006en.pdf (NB: over 40 pages long)

HMT: Reforming financial markets - summary of responses HMT has published a document giving a summary of responses to its July consultation and notes that all views have been taken into account and incorporated into the policy development process, in some cases leading to changes to the proposals suggested in the consultation. It is noted that over 100 responses were received and the non-confidential ones are available to download via the second link. (19/11/09) http://www.hm-treasury.gov.uk/d/rfm_responses.pdf (NB: over 40 pages long) Responses to the 'Reforming financial markets' consultation - HM Treasury

Financial Services Bill Details of the Bill, as announced in the Queen's Speech, this morning, have been published. Its main elements include: establishing a new statutory Council for Financial Stability, to replace the Standing Committee, chaired by the Chancellor and comprising HMT/BoE/FSA; strengthening FSA, including through providing explicit objectives, formalising its international work, and expanding the remit of FSCS; taking action, nationally and internationally, on remuneration; living wills; rolling out a national money guidance service to be delivered by a new Consumer Financial Education Body; the creation of better routes for consumer redress, including the introduction of class actions and streamlining FSA’s powers to order a review of past business and secure compensation if there have been legal or regulatory breaches; banning unsolicited credit card cheques. (18/11/09) http://www.commonsleader.gov.uk/output/page2923.asp

TSC: Banking Crisis: Regulation and Supervision TSC has published FSA's response to the above. It highlights relevant work done by FSA since it gave evidence to TSC. (13/11/09) http://www.parliament.uk/documents/upload/FSAresponse.pdf

BBA: Next steps for banking – Why banking matters/Banking reform – the next steps This sets out how banks are working to meet the public expectation of change by overhauling their practices in conjunction with the Government, regulators and customers. It is intendedto be an authoritative account of the actions UK banks are taking to reform the industry and will be available as a 36

downloadable part-work, with new chapters added every two weeks. (23/10/09) http://www.bba.org.uk/content/1/c6/01/67/64/Next Steps - Chapters 1 and 2.pdf

BBA: Balance This online magazine produced by BBA which focuses" on the topic of regulatory reform as times are changing for bank regulation at home and abroad". It includes an article by Hector Sants on "intensive supervision". (8/10/09) http://www.bba.org.uk/content/1/c6/01/66/61/BBA Online Magazine Spreads.pdf

HMT: British banks to lead the way on G20 bonus reforms HMT has announced that Barclays, HSBC, Lloyds, RBS, and Standard Chartered have confirmed their commitment to comply with the FSA Rule on remuneration, which comes into force on 1 January 2010 and which is in line with the G20 agreement, setting global standards for the implementation of the FSB’s remuneration principles. They are committed to implementing important enhancements in disclosure, deferral, and clawback with effect from 1 January 2010 for performance year 2009. The Government will shortly hold discussions with other UK and international banks in order to gain similar commitments. (30/09/09) British banks to lead the way on G20 bonus reforms - HM Treasury

IMA: Debate on the separation of retail and wholesale financial services On 22 September, IMA held a debate on the topic of banking regulation. The motion under debate was, "This House believes that the future regulation of financial services requires the separation of retail and wholesale banking activities". The event was chaired by Sir Howard Davies, and it took place before a specially invited audience of a hundred senior figures from the financial services industry. Podcasts of sections of the debate are available via the following link (it is also possible to listen to the full podcast). (30/09/09) Investment Management Association

City of London: The Importance of Wholesale Financial Services to the European Union Economy 2009 This is the fourth edition of this annual report, produced by London Economics for the City of London, which investigates the role, structure and importance of wholesale financial services in the EU. The foreword by Stuart Fraser, chairman of the City of London's Policy and Resources Committee, notes "The industry acknowledges the need for change, and to improve financial stability. More regulation is inevitable. The precise nature of this additional regulation is becoming progressively clearer, with legislation already in the pipeline on some aspects of the new regulatory architecture, and consultations taking place over other aspects of proposed changes. It will be important for proposals to be properly thought through and evaluated to ensure they achieve the right regulatory outcomes. Regulatory controls properly applied should protect against systemic risks while not discouraging the competitive benefits from useful innovations. This is an important balance for government to get right. If well managed it will facilitate investment and transfers of know-how; if not, it will encourage unwelcome protectionist sentiment". (2/09/09) http://217.154.230.218/NR/rdonlyres/DF649F73-2F5D-4C3E-AA24- E491A280A9B5/0/BC_RS_ImportanceofWholesaleFStoEUEconomy09.pdf (NB: over 120 pages long)

FSA: Appointments FSA has announced the appointment of Julian Adams as director of the retail firms division, succeeding Sheila Nicoll, who will become director of conduct policy. Both appointments are effective from 1 October 2009. The item includes a short biog of Julian Adams. (27/08/09) FSA appoints Julian Adams as director of Retail Firms Division

FSA: Annual Public Meeting - questions FSA has now published two documents detailing questions submitted in advance and on the day. Topics include: FSA's future supervisory approach; TCF, regulatory costs for IFAs; non-exec directors' responsibilities; consumer representation on FSA's board; electronic registration of approved persons; bonuses for FSA staff; FSA's deficit various mortgage issues; "fairness" of FSA judgments; global agreement on financial regulation; financial and administrative effect of RDR on IFAs; risk management; FSA and the proposed alternative investments directive; Equitable Life; the future of the insurance sector.

(reported 20/08/09) Annual Public Meeting 2009: Questions and answers Annual Public Meeting 2009: Questions submitted in advance

LSE: Confirmation of rule amendments – AIM Secondary Market Registered Organisations In April 2007, LSE consulted on creating a Registered Organisation regime that is specific to the AIM market. The purpose was to give member firms the ability to trade AIM securities on other venues, whilst allowing LSE to maintain a level of oversight that is sufficient to enable it to fulfil its primary market regulatory responsibilities. In July 2007 FSA's DP07/3 considered the issue of third party venues trading MTF shares, such as AIM shares, where the third party venue did not itself regulate the issuers. Given the potential overlap with LSE's proposed ASMRO regime, consultation responses indicated LSE should not proceed with this concept but should instead wait for the outcome of DP07/3, which was expected to be in the form of proposed rules in an FSA CP published later that year. As such, LSE only confirmed the rule changes in relation to the APMRO regime as the APMRO regime was unaffected by the matters considered in DP07/3. Following discussions with, and the agreement of, FSA, LSE is now confirming the ASMRO proposals. Details of the rule changes, including guidance on the criteria LSE will employ in determining whether a trading venue is eligible for ASMRO status, follow. The rule changes are effective from 19 August 2009. (19/08/09) http://www.londonstockexchange.com/traders-and- brokers/rules-regulations/change-and-updates/stock-exchange-notices/2009/n3809_attach1.pdf

LSE: Rule changes LSE has announced a number of rule changes. Attachment 1 summarises and explains each amendment to the rules and Attachment 2 sets out the full text of all amendments to the rules and associated guidance in tracked form. The most significant changes in respect of appeals and complaints, trade publication and required content of trade reports. These come into force on 19 August 2009. (18/08/09) http://www.londonstockexchange.com/traders-and-brokers/rules-regulations/change-and-updates/stock- exchange-notices/2009/n3709_attach1.pdf http://www.londonstockexchange.com/traders-and- brokers/rules-regulations/change-and-updates/stock-exchange-notices/2009/n3709_attach2.pdf

FSSC: Professional Standards Advisory Group agrees draft core units for RDR qualification Following collaborative process with representative bodies, FSSC has announced that it is to consult next week on proposed new core units as part of its role to develop new standards for qualifications in relation to the RDR behalf of FSA. (18/08/09) http://www.fssc.org.uk/professional_standards_advisory_group_agrees_draft_core_units_for_rdr_qualific ation_1.pdf

FSA: Restatement of its approach to giving guidance and the status of guidance FSA has published a page on its website (in a Q&A format) setting out its approach re guidance, including clarification on how firms can rely on guidance and supporting material. (12/08/09) The Financial Services Authority (FSA) restates below its approach to giving guidance and the status of guidance

Speech by Nick Prettejohn – FSA Public Meeting Topics include: FSA's Supervisory Enhancement Programme; Cost Benefit Analysis and its role in FSA decision making and transparency. He remarks: "we recognise that the FSA has a perennially difficult task and that, self evidently, it has failed to meet the challenge in a number of respects. Nonetheless we support the FSA leadership in recognising those failures and putting in place the actions both to avoid a repeat performance and to create the strong risk-based regime we all want (and need) to see". (23/07/09) Practitioner Panel Chairman Annual Public Meeting Speech

FSPP: Annual Report 2008/09 FSPP highlights FSA's work in improving the quality of supervision through the Supervisory Enhancement Programme and on various retail thematic work. It also raises concerns on cost benefit analysis, proposals re transparency and FSA's regulatory philosophy. It also suggests that "FSA’s practical assessment of ‘burden of proof’ seems in danger of shifting. Given the increasingly personalised public atmosphere surrounding banking and financial services, and the increasing focus of the FSA on 38

individuals (Approved Persons, the role of the Non-executives), this is a potentially worrying development". (21/07/09) http://www.fs-pp.org.uk/docs/annual_reports/annualreport2009.pdf

OFT: Transparency OFT has published a consultation document aimed at exploring how it can become increasingly open and transparent in the way it conducts its work. The document sets out how it thinks it can make improvements to its current practices and its provisional thinking, which takes into account views already collated from stakeholders. Responses are required by 21 October 2009. (15/07/09) http://www.oft.gov.uk/shared_oft/consultations/oft1101.pdf

FSA: FSA announces final stage of operational reforms with new integrated operating structure FSA has announced a new operational structure which it says is "designed to better align its internal operating model to its core activities of identifying and mitigating risk, supervision and enforcement", which will come into effect from 1 October 2009: • Retail and wholesale firm supervision will be integrated into one Supervision business unit, headed by Jon Pain. • Risk identification, risk management and policy formulation will be integrated into one Risk business unit, headed by Sally Dewar. • The existing Financial Stability team will become a new, enhanced division under David Strachan, focusing on macro-prudential issues. • A new International division will be created, headed by Verena Ross. • Enforcement and Financial Crime will be integrated to form one division, headed by director Margaret Cole. • The Financial Capability division will move from the existing Retail business unit to become a standalone division, headed by Chris Pond who will report directly to Hector Sants. (2/07/09) Financial Services Authority announces final stage of operational reforms with new integrated operating structure

3.1 Macro-prudential

See Section III: Building a European System of Supervision and Crisis Management (pg 43) of the De Larosiere Report ,

See Annex I (page 3) of the Communication for the Spring European Council: Volume II , And Chapter 3 of the Budget Report 2009

See Table 4A of the Government’s White Paper

See sections 2.1 and 2.6 of The Turner Review and Chapter 5 of DP09/2: A Regulatory Response to the Global Banking Crisis.

See pages 30-33 of the House of Lords select committee on economic affairs report Banking Supervision and Regulation

See section 4 of the House of Commons Treasury Committee report Banking Crisis: regulation and supervision

See pages 37-39 of the Conservative White Paper

See section A of the FSA’s Financial Risk Outlook 2009.

See age 48 of the Bank of England’s Financial Stability Report June 2009

See Paul Tucker’s speech of 30 June 2009 – “Restoring Confidence – Moving Forward”.

See speech by Andrew Haldane of BoE, made at the Federal Reserve Bank of Chicago 45th Annual Conference on 8 May 2009: Small Lessons from a Big Crisis

See speech by Andrew Haldane, BoE Executive Director of Financial Stability, made at the Financial Student Association in Amsterdam on 28 April 2009: Rethinking the Financial Network

See remarks by Paul Tucker at the Panel session at The Turner Review Conference on 27 March 2009

See speech by Mervyn King, 17 March 2009: Finance: A Return from Risk

See speech by Sir John Gieve of BoE, made at the London School of Economics, London on 19 February 2009: Seven Lessons From The Last Three Years

See speech by Timothy Besley of BoE, made at the London School of Economics on 17 February 2009: Opening Remarks for an LSE Panel on the Global Economic Crisis: Meeting the Challenge

See also the Bank of England’s June 2009 Financial Stability Report: section 3.3 on“Improved management of risk arising from interactions among firms and with the real economy” (pages 46 to 52). The BoE believes that improved management of risk should be achieved “through: • better information on connections between firms in the financial network; • capital and liquidity buffers gauged to firms’ systemic importance; • more realistic stress testing that factors in feedback effects from firms’ responses to shocks; • expansion of the use of central counterparties for the clearing of vanilla over-the-counter (OTC) instruments; • strengthening the structure of critical markets, including through more trading on exchange or on similar platforms;

• use of countercyclical prudential policy in order to limit the growth of financial imbalances; and • developing an international monetary system that limits the build-up of international imbalances”. (see page 36).

See also sections entitled “Better data on interconnections with the financial system are needed…” (page 46/47) and “Additional tools are needed to offset procyclicality in the financial system…” (page 48), and Box 5 (page 31), Box 6 (page 35) and Box 7 (page 50/51).

The Bank of International Settlements (BIS)

Basel II: Revised international capital framework Committee on the Global Financial System Committee on Payment and Settlement Systems

The Financial Stability Board (FSB)

FSA September09 Report of Financial Stability Board to G20 Leaders Financial Stability Board FSB april09 cross-border cooperation on crisis management FSB April09 enhancing market and institutional resilience 12 Key Standards for Sound Financial Systems designated by the FSF.

See FT articles of 27 August 2009, on Adair Turner’s comments on the ‘Tobin’ tax: “FSA chief backs City curbs with global tax”, “Treasury frowns on ‘Tobin’ proposal” and “Lord Turner’s pay provocation deserves proper hearing” See speech given by Alistair Darling on 3 September 2009: “Check against Delivery”

Chronological Reports

BIS: Consultative proposals to strengthen the resilience of the banking sector announced by the Basel Committee The consultation documents cover the following key areas: • Raising the quality, consistency and transparency of the capital base. In addition to raising the quality of the Tier 1 capital base, BIS is also harmonising the other elements of the capital structure. • Strengthening the risk coverage of the capital framework. BIS is proposing to strengthen the capital requirements for counterparty credit risk exposures arising from derivatives, repos and securities financing activities. The strengthened counterparty capital requirements will also increase incentives to move OTC derivative exposures to central counterparties and exchanges. BIS will also promote further convergence in the measurement, management and supervision of operational risk. • Introducing a leverage ratio as a supplementary measure to the Basel II risk-based framework with a view to migrating to a Pillar 1 treatment based on appropriate review and calibration. • Introducing a series of measures to promote the build-up of capital buffers in good times that can be drawn upon in periods of stress. • Introducing a global minimum liquidity standard for internationally active banks that includes a 30- day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio. • BIS is also reviewing the need for additional capital, liquidity or other supervisory measures to reduce the externalities created by systemically important institutions. BIS is initiating a comprehensive impact assessment of the capital and liquidity standards proposed in the consultations. In a number of proposals, it is still considering different options, which will be included in the impact assessment to be carried out in the first half of 2010. On the basis of this assessment, BIS will then review the regulatory minimum level of capital and the reforms proposed. The fully calibrated set of standards will be developed by the end of 2010 to be phased in as financial conditions improve and the economic recovery is assured, with the aim of implementation by end of 2012. The closing date for responses is 16 April 2010. (17/12/09) Consultative proposals to strengthen the resilience of the banking

sector announced by the Basel Committee http://www.bis.org/publ/bcbs164.pdf (NB: 80 pages long) http://www.bis.org/publ/bcbs165.pdf?noframes=1 (NB: over 40 pages long)

BoE: The role of macroprudential policy In this DP, BoE considers how macroprudential instruments might be designed and deployed to help to restrain the build-up of risks within the financial system. (23/11/09) http://www.bankofengland.co.uk/publications/other/financialstability/roleofmacroprudentialpolicy091121 .pdf

TSC: Proposals for European macro and micro prudential financial regulations TSC has published a transcript of the uncorrected evidence of the hearing held on 4 November. Lord Myners and other representatives from HMT gave evidence. (6/11/09) Uncorrected Evidence 1088

TSC: Proposals for European macro and micro prudential financial regulations TSC has published a transcript of the uncorrected oral evidence for the hearings held on 3 November 2009. Attendees included a number of economists. (3/11/09) Uncorrected Evidence 1088.

HMT: HoL EU Committee report on the future of financial regulation The text of a letter from Paul Myners in response to HoL's report in which he responds to the Committee's recommendations on the AIFM Directive and macro/micro-prudential supervision has been published. (28/10/09) http://www.parliament.uk/documents/upload/GovernmentresponseEUFRS.pdf

TSC: Proposals for European macro and microprudential financial regulation TSC is launching an inquiry into the EC's proposals for financial regulation and supervision and, in particular, the detailed proposals for a European Systemic Risk Board and three European supervisory bodies. It is seeking evidence on the proposals, and in particular, on: the interaction between EU, national and international regulatory and supervisory arrangements; the composition and internal structures of the supervisory authorities and the ESRB; whether the powers proposed for these bodies are appropriate; the proposals' effect on the competitiveness of the European financial industry in general and the City of London in particular; the timescale for agreeing the legislation. Responses are required by 13 November 2009. (28/10/09) UK Parliament - TC0809PressNotice64

BoE: Speech by Paul Tucker: The debate on financial system resilience: - macroprudential instruments (22 October 2009) In this speech, he highlights the need for banks to hold more capital, which is properly loss-absorbing, and high-quality liquidity. He also favours reviving a supervisory culture centred on making forward- looking judgments about an institution’s management and business resilience, describes the international plan of work on living wills and discusses the case for macroprudential instruments to address sources of instability that are beyond the circumstances and regulation of individual firms. (23/10/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech407.pdf

BoE: Speech by Charles Bean: The Great Moderation, the Great Panic and the Great Contraction (25 August 2009) Text of a speech given at the Annual Congress of the EEA follows, in which Charles Bean discusses the causes of the financial crisis and subsequent recession. (26/08/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech399.pdf (NB: over 50 pages long)

CEPS: Macro-prudential regulation This commentary defines and advocates macro-prudential regulation. (12/08/09) http://shop.ceps.eu/downfree.php?item_id=1892

British Academy: Letter to the Queen re causes of the credit crunch As noted in the press, here is the text of the letter in response to the Queen's question as to why had nobody noticed that the credit crunch was on its way. The British Academy convened a forum on 17 June 2009 to debate the question, with contributions from a range of experts from business, the City, its 42

regulators, academia, and government. This letter summarises the views of the participants and the factors that they cited in the discussion. It notes "Everyone seemed to be doing their own job properly on its own merit. And according to standard measures of success, they were often doing it well. The failure was to see how collectively this added up to a series of interconnected imbalances over which no single authority had jurisdiction. This, combined with the psychology of herding and the mantra of financial and policy gurus, lead to a dangerous recipe. Individual risks may rightly have been viewed as small, but the risk to the system as a whole was vast. So in summary, Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole". The British Academy is to give "some thought to how your Crown servants in the Treasury, the Cabinet Office and the Department for Business, Innovation & Skills, as well as the Bank of England and the Financial Services Authority might develop a new, shared horizon- scanning capability so that you never need to ask your question again. The Academy will be hosting another seminar to examine the 'never again’ question more widely" (27/07/09) British Academy -crisis causes

4.1 Supervision of firms and individuals

The new regulatory approach is relevant to all financial institutions; it is not limited to the rules for, and supervision of, banks. It is particularly relevant to firms, which pose greater risk (to FSA’s current objectives and the enhanced systemic priority) and those, which act as a counterparty such as insurers and reinsurers.

See section 2.7(ii) of The Turner Review and Chapter 11 of DP09/2: A Regulatory Response to the Global Banking Crisis. Intensive supervision includes more frequent ARROW visits for high impact firms and complex banks; more supervisory focus on business risks and outcomes and the sustainability of business models and strategies; a willingness to vary capital and liquidity requirements to address excessive risk; more intensive analysis of information to identify risks; a focus on remuneration policies and investment in specialist skills at the FSA.

See pages 26/27 of the Conservative White Paper which envisages higher quality staff, increased industry levy to pay for this and a requirement to support an industry secondment scheme.

Chronological Reports

Speech by Hector Sants: Intensive Supervision: delivering the best outcomes (9 November 2009) Text of the above, given to Bloomberg, follows. He outlines FSA's approach to intensive supervision, including its approach to the building society and insurance sectors and recent enforcement work. He highlights a forthcoming DP on senior management, noting that "FSA will not presume that the firms we supervise have learned the lessons of the past. There remains, I believe, an absence of the acceptance of collective responsibility for what has happened. I personally remain unconvinced that all senior management have taken on board the need to change and operate in a genuinely different manner". (9/11/09) Intensive Supervision: delivering the best outcomes

PS09/17: Close links - feedback on CP07/21 FSA notes that it will be: removing the annual report requirement for those firms that report their close links on a monthly basis; allowing groups to submit a single close link notification on behalf of all firms in the group; introducing mandatory forms for event-driven or monthly close link notifications for individual firms and groups; and allowing firms who choose to report on a monthly basis to submit a post-change organisational chart on a quarterly basis. Rules come into force on 1 June 2010. (6/11/09) http://www.fsa.gov.uk/pubs/policy/ps09_17.pdf

PS09/14: The approved persons regime - significant influence function review - feedback on CP08/25 and final rules FSA has confirmed an extension of the approved persons regime for those that perform a ‘significant influence’ function at firms. In particular, FSA has: • extended the scope and application of CF1 and CF2 to include those persons employed by an unregulated parent undertaking or holding company, whose decisions or actions are regularly taken into account by the governing body of a regulated firm; • extended the definition of CF29 to include all proprietary traders who are not senior managers but who are likely to exert significant influence on a firm; and, • amended the application of the approved persons regime to UK branches of overseas firms based outside the EEA. Changes will come into effect on 6 August 2009 with a transitional period of six months. Firms are advised to begin assessing which individuals require approval and submit timely applications to comply with the end of the transitional period. It is noted that the original proposals included clarifying the role of NEDs to make clear that FSA will look at NEDs more closely where it believes they should have intervened more actively within a firm’s management. Before making a final decision on this issue, FSA wishes to consider the relevant recommendations of the Walker Review and the FRC's review of the

Combined Code. The results of this consideration will be included in a further CP on governance which FSA expects to publish in Q4 2009. (27/07/09) FSA confirms changes to the rules for approved persons FSA PS 09/14

4.2 Enforcement (civil and criminal)

See speech by Margaret Cole on Delivering Credible Deterrence on 27 April 2009.

See speech by Hector Sants, CEO of the FSA on 12 March 2009 and Box 11.3: Enforcement in FSA discussion paper DP09/2: A Regulatory Response to the Global Banking Crisis

See FSA consultation paper CP09/19 on enforcement financial penalties

See FSA Press Release on the first prison sentence for insider dealing, 27 March 2009.

See pages 46/47 of the Conservative Party alternative White Paper.

Chronological Reports

SFO: British ex-pats lose £2 million in sham investment scheme SFO reports on a case by which five men were jailed after using overseas IFAs to attract investments in a supposed commercial property loans business. Around £1.93 million was defrauded from 56 investors. Operating under the name Prudential Commercial Investments the scheme was a fraud from inception. Investors were led to believe that funds would be channelled into a lending scheme for commercial property buyers in the UK secured by mortgages. Two of the defendants pleaded guilty. Verdicts on the other three were returned at Worcester Crown Court yesterday and HHJ McCreath, Recorder of Worcester, passed sentenced on all five. (22/12/09) British ex-pats lose £2 million in sham investment scheme | Our work | SFO - Serious Fraud Office

SFO: Six charged in £50 million 'mortgage fraud' SFO reports that six individuals have been charged with offences in connection with a series of high value commercial mortgage frauds. The case has been sent to Southwark Crown Court for a preliminary hearing on 4 January 2010. The investigation was referred to SFO in March 2006 by West Midlands Police following a complaint from the Cheshire Building Society. It is alleged that the defendants participated in a series of frauds whereby they dishonestly obtained loans from banks or building societies that were secured on six commercial investment properties. Each property was transferred between companies controlled by one of the defendants and his associates at highly inflated prices in a series of back to back transactions. On the basis of the grossly inflated prices, fraudulent valuations and forged leases, the defendants applied for and obtained mortgage advances totalling nearly £50 million. The mortgages were quickly defaulted on and the lenders suffered significant losses. (22/12/09) Six charged in £50 million 'mortgage fraud' | Our work | SFO - Serious Fraud Office

FSA: Arrest made as FSA continues clamp down on share fraud On 5 November, FSA took action against two individuals and seven businesses suspected of involvement in boiler room share fraud activity. Full details in this press release. (6/11/09) Arrest made as FSA continues clamp down on share fraud

Speech by Margaret Cole: Setting out the FSA's strategy and approach to fighting fraud (10 September 2009) Text of the above, given at the Fraud Advisory Panel AGM, follows. Topics include: criminal prosecutions in insider dealing cases ("everyone should take note of an important change to our culture and emphasis. We start on the basis that we will prosecute criminal conduct unless there is a reason not to do so. We are determined to make full use of our criminal prosecution tool in the interests of gaining maximum deterrent effect") and unauthorised business fraud. (14/09/09) Setting out the FSA's strategy and approach to fighting fraud

FSA: Mortgage broker fined £6,000 by court in FSA's first criminal prosecution for change of control failures This press release notes that Vijay Kumar Sharma, sole director of mortgage broker Exetra (UK) Limited, pleaded guilty yesterday at City of Westminster Magistrates Court to charges of acquiring a controlling interest in the firm without giving FSA prior notice of the acquisition and of making false or misleading statements to FSA. He was also ordered to make a contribution towards FSA’s costs. The link also includes a witness statement from FSA’s director of permissions, reporting and decisions, Graeme Ashley-Fenn, about the importance of FSA rules on change in control at regulated firms which was heard at court. It is noted that this is the first criminal prosecution brought by FSA for failing to notify the regulator about a change in control at a regulated firm. (10/09/09) http://www.fsa.gov.uk/pages/Library/Communication/PR/2009/120.shtml

Tribunals Service: Consultation on amendments to the Tribunal Procedure (Upper Tribunal) Rules 2008 to accommodate the transfer of the Financial Services and Markets Tribunal to the Upper Tribunal This consultation seeks views on whether amendments to the existing rules for the Upper Tribunal will be required in order to incorporate the jurisdiction of FSMT into the Upper Tribunal in early 2010. It is noted that the Tribunal Procedure Committee will not submit rules to the Lord Chancellor unless and until the Government receives Parliamentary approval for the transfer of the functions of FSMT. Responses are required by 23 November 2009. (8/09/09) http://www.tribunals.gov.uk/Tribunals/Documents/Rules/FINSMATconsults.pdf

SFO to bring UK Madoff charges in the Autumn The FT Adviser has reported that the SFO is likely to bring charges against those involved in the UK business operations of Bernard Madoff in the Autumn. The SFO launched an investigation in Madoff's UK business operations in January 2009, focusing on UK victims and any criminal offences which may have been committed in the UK. (5/08/09) FTAdviser.com - SFO to bring UK Madoff charges in the Autumn

SFO: Approach of SFO to dealing with overseas corruption SFO has published this document which notes that it is responsible for enforcing the current law and will be responsible for enforcing the provisions of the Bribery Bill in respect of overseas corruption if the Bill is enacted. It has set up a separate work area (the Anti-Corruption Domain), will be moving significant skills into this area (both from within the SFO and recruited externally) and investing heavily in training. The document sets out guidance in respect to SFO's policies on self reporting cases of overseas corruption (22/07/09) http://www.sfo.gov.uk/news/downloads/SFO-COP-dealing-with-overseas-corruption.pdf

SFO: Annual Report 2008/2009 This report sets out reports on SFO's work for the year, including chapters on buy-to-let frauds and tackling corruption. (14/07/09) http://www.sfo.gov.uk/publications/pdfs/SFO-AnnualReport-2008- 09.pdf

CP09/19***: Enforcement financial penalties Under new proposals outlined in this CP, fines will be linked more closely to income and be based on: up to 20% of the company’s income from the product or business area linked to the breach over the relevant period; up to 40% of an individual’s salary and benefits (including bonuses) from their job relating to the breach in non-market abuse cases and a minimum starting point of £100,000 for individuals in market abuse cases. The total fine imposed will also take into account other factors, such as the desired deterrent effect and any settlement discount. FSA is also proposing a minor change to EG to clarify the situations when it is likely to publicise its action in criminal investigations. The consultation will close on 21 October 2009 and any new policy is likely to apply to breaches committed after February 2010. (6/7/09) http://www.fsa.gov.uk/pubs/cp/cp09_19.pdf

CESR: Final report on CESR’s peer review of the implementation of Standard No 2 on Financial Information - coordination of enforcement activities/Summary of CESR’s self assessment of the implementation of Standard No 2 on financial information - coordination of enforcement activities The review of Standard No. 2 has been conducted by 26 out of 29 CESR Members who assessed themselves their application of the Standard. This self-assessment showed that less than half (45%) of CESR’s Members fully apply the Standard in their day-to-day enforcement. Two Members, Austria and Iceland, were classified as “not contributing”, and one Member, the Czech Republic, did not implement Transparency Directive to which the CESR Standard refers. CESR conducted a peer review on how CESR Members implemented the Standard No. 2 on financial information. This peer review revealed that slightly less than one third of CESR Members were fully applying the Standard, and that significantly more than half of the Members did not apply the principles overall. Belgium, Denmark, Finland, France, Germany, Italy, Norway, Portugal and Spain fully apply CESR’s Standard No. 2. This implies that these 9 Members fully apply all four principles of the Standard. Cyprus and Romania partially apply the Standard; which means that, as a minimum, Cyprus and Romania partially apply all four principles. An overall rating of non-implementation of the Standard by a Member generally requires that one of the principles is not applied. This applies to 16 CESR Members, Bulgaria, the Czech Republic, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Slovakia, Slovenia, Sweden and the UK, who have not yet applied the Standard No. 2. Austria and Iceland are classified as not contributing as they did not respond to the peer review. Based on these findings CESR will continue the dialogue with CESR Members on whether compliance with and implementation of the Standard can be further improved and how convergence can be enhanced. Following the peer review methodology, the information provided by CESR Members can be updated on a regular basis, following which CESR will assess whether a full reassessment of the updated information might be appropriate. (6/07/09) [CESR] - Document; [CESR] - Document

5.1 Too big to fail

Banks are more likely to fall in the category of institutions “too big to fail” because of their key economic role (as lenders and holders of deposits) and the inherent liquidity risk (i.e. in the economics of providing maturity transformation by borrowing short and lending long) and leverage involved in banking; this is not a feature of other sectors such as insurance which are not inherently illiquid.

Some advocate a distinction between, on the one hand, firms that are fundamentally ‘too important’ (probably big banks) and, on the other hand, a much larger number of firms whose systemic significance is more limited such as smaller leveraged firms (such as banks) which might have to be supported/guaranteed in a major crisis (which is effectively which happened last year) and large non- banks which hold a large amount of client investments (such as major life office). See reference to the Geneva report at page 73 of the White Paper.

See Chapter 5 of the White Paper, paragraph 2.9 of The Turner Review and Chapter 7 of DP09/2: A Regulatory Response to the Global Banking Crisis. The FSA has acknowledged that the Government’s actions in stepping in to ‘bail out’ banks implicitly indicate that some firms are ‘too big to be allowed to fail’. However, whether a firm is considered too big or systemically important to fail will vary over time depending on the firm itself and the economic conditions it is operating in. However, the FSA still operates a ‘non – zero failure’ regime and in more benign market conditions it may be possible to let even a large firm fail.

See also the Bank of England’s June 2009 Financial Stability Report: section 3.4, “Banks should not be too big or complex” (pages 53-55) – in particular see section entitled “Authorities must ensure that groups providing economically critical functions are capable of being supervised and resolved” (page 53). The BoE believes that “Banks should not be too big or complex: The size and structure of the financial system needs to be compatible with maintaining financial stability through:

• simpler, more transparent legal structures that are capable of being supervised and resolved; and • potential changes to the structure or size of the banking system” (see p.37).

Chronological Reports

TSC: Financial institutions "too important to fail" TSC has announced this new inquiry and is seeking evidence on the extent to which the structure of the current financial system should be reformed, and certain activities regulated, on the grounds of systemic risk. In particular, it is looking at: the extent to which banks operating in the UK are interconnected; the relationship between size and risk, and business model (including mutual models) and risk; the pros and cons of narrow banking; the pros and cons of alternative methods of preventing financial institutions from being ‘too important to fail’; the challenges posed by cross-border financial institutions and the extent to which individual nations, or regional groups, can or should act alone on the regulation of cross-border entities. The deadline for written evidence is 12 noon on 14 January 2010. (9/12/09) UK Parliament - TCPN070910

Speech by Adair Turner: Large systemically important banks: addressing the too-big-to-fail problem (2 November 2009) Text of the above, given at the Turner Conference, follows, together with a link to accompanying slides. He discusses the narrow banking debate and the appropriate approach to the risks created by cross-border operations. He concludes that "there is a strong case for tighter capital and perhaps liquidity standards for systemically important banks. These could be combined with greater focus on standalone national subsidiaries, and there may be a tradeoff here - between greater internal separation and higher levels of whole group capital. We need to dramatically reduce interconnectedness in wholesale traded markets, via the use of central counterparties and better capital and margin arrangements for bilateral contracts. We

need a fundamental review of the trading book capital regime and a bias to conservatism for riskier and purely proprietary activities. And our resolution and recovery plans need to drive internal structure simplification, which could lead to something close to an internal Glass Steagall divide, and with a potential trade-off between the implications of the living will for the feasibility of orderly wind down and the capital surcharge required at whole group level" (2/11/09) Large systemically important banks: addressing the too-big-to-fail problem http://www.fsa.gov.uk/pubs/other/turner_review_2_slides.pdf

DP09/4: Turner Review Conference Discussion Paper This DP focuses on two key issues: systemically important banks and, how to assess the cumulative impact of capital and liquidity reforms. Section 3 covers the issue of how to deal with systemically important banks which are seen as ‘too-big’ or ‘too-inter-connected-to-fail’a nd considers how systemic importance can be defined and assesses policy options. Annex 1 sets out a more in-depth consideration of how recovery and resolution plans will be applied in the UK, potentially serving as a blueprint for international initiatives. Section 4 examines a potential approach to assessing the cumulative impact of reforms to the global capital and liquidity regime and considers the case for banks and investment banks conserving capital now, in anticipation of higher international regulatory requirements (22/10/09) http://www.fsa.gov.uk/pubs/discussion/dp09_04.pdf (NB: over 60 pages long)

Speech by Mervyn King: Speech to Scottish business organisations (20 October 2009) Text of this speech follows. He discusses banking reform, including the “too big to fail” issue, and comments “It is hard to see how the existence of institutions that are ‘too important to fail’ is consistent with their being in the private sector. Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don’t, distorts the allocation of resources and management of risk”. (20/10/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech406.pdf

5.2 Systemically important firms

See page 7 of the Sassoon Tripartite Review.

See FT article “Blaming individuals is no substitute for acknowledging the failure of a system, of a certain type of banking”, 17 June 2009.

See box 7 at pages 33/34 of the Conservative Party alternative White Paper.

See Chapter 5 and pages 74 to 76 of the Government’s White Paper, paragraph 2.9 of The Turner Review and Chapter 7 of FSA consultation paper DP09/2: A Regulatory Response to the Global Banking Crisis. Turner and the Treasury do not think it practical to separate utility banks from investment banks. He does, however, recognise that some sort of regulatory response is needed to deal with the issues raised. Turner suggests that the key tools to tackle these issues will be putting in place a regulatory regime for trading book capital, putting in place remuneration principles and intensifying the supervision of liquidity risks. These proposals are broadly in line with the Group of 30 Report on Financial Reform: A Framework for Financial Stability

See statement from The White House - Press Office - President Obama to Announce Comprehensive Plan for Regulatory Reform

The issue of how to determine which firms qualify as “systemically important” and what additional requirements ought to apply to them was addressed by The Turner Review and accompanying FSA discussion paper DP09/2: A Regulatory Response to the Global Banking Crisis. The FSA says that it intends to apply the same supervisory regime applied to high impact banks to shadow banks and any firm, which is considered systemically important. The example cited is hedge funds, which although not currently considered systemically important have the potential to become so in the future.

See also the Bank of England’s June 2009 Financial Stability Report: section 3.3, “Improved management of risks arising from interactions among firms and with the real economy through capital and liquidity buffers gauged to firms’ systemic importance”. See in particular section entitled “…and regulatory standards calibrated to firms’ contribution to systemic risk” (page 47/48).

See also section 3.4 of the BoE report, “Banks should not be too big or complex” (pages 53-55) – in particular see section entitled “Authorities must ensure that groups providing economically critical functions are capable of being supervised and resolved” (page 53). The BoE believes that “Banks should not be too big or complex: The size and structure of the financial system needs to be compatible with maintaining financial stability through:

• simpler, more transparent legal structures that are capable of being supervised and resolved; and • potential changes to the structure or size of the banking system” (see p.37).

5.3 FSCS

See HMT’s Progress report of the independent review of British off-shore financial centres published in April 2009.

See summary at para 8.72, and pages 66 and 67 of the Government’s White Paper.

See page 36 of the Conservative Party alternative White Paper

See European Commission’s Consultation Document: Review of Directive 94/19/EC on Deposit Guarantee Schemes (DGS)

See the BIS Core Principles for Effective Deposit Insurance Systems - final paper

See FSA policy statement PS09/7 Financial Services Compensation Scheme: review of limits

See European Commission’s communication: “Driving European recovery”.

See Paul Tucker’s speech of 30 June 2009 – “Restoring Confidence – Moving Forward”.

See also the Bank of England’s June 2009 Financial Stability Report: section 3.1, “Stronger market discipline – risk based, pre-funded deposit insurance” (page 37-40). See in particular section entitled “…and through risk-based premia for deposit insurance” (page 39/40).

FSA interim rules allowing separate compensation cover for customers with deposits in two merging building societies, for customers of a building society which merges with a subsidiary of another mutual society, and for customers whose deposits are transferred from a failed firm to another deposit taker where they already have an account, will expire on 31 December 2010.

Chronological Reports

FSCS: Keydata update for Category 2 investors FSCS has published a press release in which it announces that it is discussing details of a process with HMRC and PwC by which it will pay compensation due to Category 2 investors. It intends to write to these invstors early in the new year. (23/12/09) The Financial Services Compensation Scheme - FSCS - Consumer home page - Latest News - 2009 - December - Keydata Update for Category 2 Investors

FSCS: New compensation limits This press release gives an overview of the new limits applying to eligible claims from 1 January 2010. (23/12/09) The Financial Services Compensation Scheme - FSCS - Consumer home page - Latest News - 2009 - December - New compensation limits

FSCS: New Director of Operations Kate Bartlett is joining FSCS as its new Director of Operations on 1 February 2010. It is noted that, as this is also a Board position, FSA has appointed her as an Executive Director. (21/12/09) http://www.fscs.org.uk/Download.ashx?id=12902

FSCS: NDF/DRL and ARC - FSCS considering claims for structured products FSCS notes that it is ready to consider individual compensation claims relating to some structured products sold by NDF Administration Limited (NDF), Defined Returns Limited (DRL) and Arc Capital and Income plc (Arc). All three firms were recently declared in default by FSA. FSCS has identified two broad categories of products for the three firms: Capital Secure products and Capital At Risk products. FSCS's investigations indicate that Capital Secure products may have been mis-sold by NDF, DRL and Arc. FSCS will be sending application forms to investors with Capital Secure products before the end of December 2009. FSCS further notes that levy implications of these failures are still under consideration 52

and it will update the industry with more news when it publishes its Plan and Budget for 2010/11 early in 2010. (15/12/09) The Financial Services Compensation Scheme - FSCS - Industry home page - Latest industry news - 2009 - December - NDF/DRL and ARC - FSCS considering claims for structured products The Financial Services Compensation Scheme - FSCS - Consumer home page - Latest News - 2009 - December - NDF Administration Ltd / Defined Returns Ltd and Arc Capital and Income PLC

FSA: Modification by consent of COMP 16.3.1R FSA has highlighted that it has made a modification by consent available to deposit takers who do not have branches. COMP 16.3.1R is due to come into effect on 1 January 2010 (and ends on the earlier of 31 December 2010; or when FSA amends COMP 16.3.1R for firms subject to this rule who do not have branches). It prescribes that a deposit taker is required to highlight the protection provided to depositors by FSCS. The purpose of the rule is to draw customers' attention to the firm’s basic contact information and how to find out more information on their FSCS rights. The rule provides wording referring customers to their local branch. For businesses that do not operate any branches this could be deemed to be giving customers misleading information. (10/12/09) http://www.fsa.gov.uk/pages/Doing/Regulated/Notify/Waiver/pdf/direction_comp.pdf

FSCS/HMRC: Keydata Investment Services (in administration) update FSCS advises that the firm is now in default and that FSCS can start sending application forms to customers of the firm, and consider claims for compensation. It notes that "a number of complicated legal issues surrounding Keydata" have prolonged the process and has identified two categories of potential claims, detailed in its press release. HMRC is taking steps to ensure that customers who invested in Keydata ISA products will not be out of pocket as a result of the company selling ISAs that are not compliant with the law. (16/11/09) The Financial Services Compensation Scheme - FSCS - Consumer home page - Latest News - 2009 - November - Keydata Investment Services (in administration) Update http://www.hmrc.gov.uk/isa/keydata.pdf

CP09/26**: Regulatory fees and levies: policy proposals for 2010/11 Following a review of its approach for determining the annual fees that firms pay, FSA is consulting on a number of measures to ensure that fees continue to be set in a fair way, and to make the basis for calculating fees easier for firms to understand. This includes setting a standard 'minimum fee' that all firms will have to pay to cover the basic cost of being regulated (based on 2009/10 costs, this minimum fee will be approximately £1000 - however, smaller credit unions will continue to pay a lower minimum fee, of either £160 or £540 depending on size) and ensuring that 'variable' fees over and above this basic minimum amount increase in direct relation to a firm’s size – with the result that fees for the largest firms reflect the greater regulatory engagement they receive. FSA intends to publish a Fees Calculator which will enable firms to assess what these proposals mean for them by the end of November 2009. Responses to the consultation are required by 11 January 2010. In February 2010, depending on the outcome of this consultation, FSA plans to consult on fee levels for 2010/11 using this new fee model. (11/11/09) http://www.fsa.gov.uk/pubs/cp/cp09_26.pdf (NB: over 100 pages long)

PS09/18: Financial Services Compensation Scheme reform Single customer view - verification This PS contains policy, feedback to consultation responses and made rules on how FSA will verify and supervise a deposit takers SCV system. Formal verification requirements will start from July 2010 and the SCV needs to be implemented by 31 December 2010. Smaller deposit takers can send us their notification from 6 December 2009. (NB: over 40 pages long) 6/11/09) http://www.fsa.gov.uk/pubs/policy/ps09_18.pdf

FSCS: Loretta Minghella to step down This press release notes that Loretta Minghella is to step down as CEO at the end of February 2010. She will stay with FSCS as Special Adviser to the Board until the end of August 2010. (6/10/09) http://www.fscs.org.uk/Download.ashx?id=12137

FSCS: Keydata Investment Services Limited update FSCS notes that it is at an advanced stage of its investigations and analysis into issues arising out of the Keydata administration. FSCS has engaged external experts to assist with the ongoing analysis into the categories of claim that might be brought against the firm and is focusing work on two broad categories of potential claims that might be brought against Keydata. The first category relates to the Keydata Secure Income Bond issues 1, 2 and 3 where shortfalls have been confirmed by the administrators. The second category relates to potential tax liabilities arising from those Keydata investments that were incorrectly promoted as ISAs. FSCS anticipates being able to confirm whether or not it is likely to be able to help in November, if not before. (1/10/09) Home - Consumer home page - Latest News - 2009 - September - Keydata Investment Services Limited - Update

FSCS: FSCS invites members of four failed credit unions to claim compensation FSCS has started compensating customers of four credit unions (Eastbourne Community Credit Union Limited, Irvine North Credit Union Limited in Irvine, South West Durham Credit Union and St Brendan’s Credit Union Limited). There are approximately 1,500 members in all four credit unions. Application forms have been issued to all members, but to date FSCS has only received around 700 claims. The press release urges customers who have not yet sent back their application forms to get in touch with FSCS in order to make their claim. (1/09/09) http://www.fscs.org.uk/Download.ashx?id=11777

FSCS: Keydata Investment Services Limited FSCS has published an update re the above firm, which went into administration in June 2009. FSCS is investigating the potential compensation claims that investors may have to determine the extent of FSCS’s potential involvement (if any) in relation to the firm. It notes that PwC have found "certain problems" with investments sold by firm (FSCS understands from PwC that the underlying assets associated with Secure Income Bond issues 1, 2 and 3 appear to have gone missing and some other products sold as ISAs have been found not to be ISA-qualifying). FSCS is looking at whether Keydata can be held legally liable for the losses that may have been suffered by investors as a result of the problems identified by PwC. (27/08/09) Home - Consumer home page - Latest News - 2009 - August - Keydata Investment Services Limited - Update

FSCS: Picture Financial Services Plc FSCS has declared Picture Financial Services Plc in default and has set out details on the claims process. (12/08/09) Home - Consumer home page - Latest News - 2009 - August - Picture Financial Services Plc

BBA: British Bankers Association publishes response to DGS Directive consultation by EC BBA has published its response to the EC consultation on the review of the Deposit Guarantee Schemes Directive (94/19/EC). (3/08/09) BBA response to the directive on Deposit-Guarantee Schemes

FSCS: 2008/09 interest levy for the bank failures FSCS notes that firms in the deposit class will be levied £406m later this week for initial interest charges and related management expenses in respect of the bank failures in 2008/09. The costs will not affect any other class or sub-class. The total levy firms will pay now is the same as announced by the FSCS in March. FSCS has published the text of the joint FSA/FSCS letter to firms giving details (second link below). (29/07/09) Interest levy for the bank failures 2008/9 interest levy for the bank failures

PS09/11: Banking and compensation reform - including feedback on CP08/23, CP09/3, CP09/11 and CP09/16 FSA highlights the following key changes in the new rules: ensuring that firms keep up-to-date information on customers to allow quick processing of claims by FSCS if needed (the 'Single Customer View'); changing the payout of compensation to avoid customers who hold loans and deposits with the same firm having any debt deducted from their compensation (gross payout); widening eligibility of the scheme to include more individuals; introducing a requirement that deposit takers must disclose the existence of FSCS and the level of protection it offers to help familiarise consumers with the services it provides, and if a firm operates under a number of trading names, it must tell its customers which of the 54

different trading names are covered by a particular authorisation. FSA has introduced changes to the calculation of payment of compensation on term accounts, which will mean that compensation is calculated as at the date of default. FSA has also extended, until 30 December 2010, its interim rules which allow separate compensation cover for customers with deposits in two merging building societies. The same extension has been made for customers of a building society which merges with a subsidiary of another mutual society, and for customers who deposits are transferred from a failed firm to another deposit taker where they already have an account. Fast payout rules, which come into force on 31 December 2010, will mean many individuals and small businesses will receive compensation within a target of seven days, and all payments within 20 days as required under the Deposit Guarantee Schemes Directive. (24/07/09) http://www.fsa.gov.uk/pubs/policy/ps09_11.pdf (NB: over 100 pages long)

Speech by Simon Bolam – FSA Public Meeting Topics include: fees and FSCS. He notes: “It cannot be under estimated that, unless very carefully managed, these levies could potentially wipe out many thousands of smaller firms who have never put a foot wrong, but are nonetheless very likely to be required to cross-subsidise the very significant failures of larger organisations". (23/07/09) Smaller Business Practioner Panel Annual Public Meeting speech

EC: Possible models for calculating risk-based contributions to EU deposit guarantee schemes The EC Joint Research Centre, in close cooperation with the European Forum of Deposit Insurers, has investigated potential models and assessed their potential impact across Member States. The present report illustrates three possible approaches for calculating contributions on the basis of the risk profile of the DGS members (i.e. banks). (20/07/09) http://ec.europa.eu/internal_market/bank/docs/guarantee/2009_06_risk-based-report_en.pdf

CEIOPS: Insurance guarantee schemes This letter and report set out CEIOPS' recommendations to the EC re the above. (2/07/09) http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS_Reply_to_EC_letter_on_IGS _20090630.pdf; http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-DOC-18-09 _Input_to_EC_work_on_IGS-approved_clean_.pdf (NB: over 30 pages long)

5.4 Funeral planning

See Paul Tucker’s speech of 28 May 2009 – “The Repertoire of Official Sector Interventions in the Financial System: Last Resort Lending, Market-Making, and Capital”.

See Paul Tucker’s speech of 30 June 2009 – “Restoring Confidence – Moving Forward”.

See HMT May 2009 consultation: Developing Effective Resolution Arrangements for Investment Banks.

See also the Bank of England’s June 2009 Financial Stability Report: section 3.2, “Greater self- insurance” (page 40-46). See in particular section entitled “Firms should actively consider and plan for their own failure” (page 43/44).

See speech given by Alistair Darling on 3 September 2009: “Check against Delivery”

See FT article of 3 September 2009: “Turner backs banks’ living wills”

See speech given by Paul Myners on 18 September 2009: “Developing a new financial architecture: lessons learned from the crisis”

Chronological Reports

Speech by Thomas Huertas: Resolution and contagion (26 February 2010) FSA has now published the text of the above, given at a CCBS/FMG Conference. Topics include: risk and resolution; the consequences of the Washington Mutual resolution in 2008; lessons of the Lehman Brothers bankruptcy; the pilot exercise on living wills and its likely recommendations. (10/03/10) Resolution and Contagion http://www.fsa.gov.uk/pubs/other/th_26feb10.pdf

Speech by Thomas Huertas: Living wills - how can the concept be implemented? (12 February 2010) Text of the above, given at the Wharton School of Management, University of Pennsylvania in Philadelphia, has now been placed on FSA's website. Topics include: definition of "living wills"; recovery plans; resolution plans. (2/03/10) Living Wills: How Can the Concept be Implemented?

Speech by Thomas Huertas: Improving bank capital structures (18 January 2010) FSA has now published the text of the above, given at the London School of Economics. Topics include: living wills and capital requirements for banks. Accompanying slides appear at the second link. (3/02/10) Improving bank capital structures http://www.fsa.gov.uk/pubs/other/th_18jan10.pdf

5.5 Rescues and administration/Special Resolution

See Paul Tucker’s speech of 28 May 2009 – “The Repertoire of Official Sector Interventions in the Financial System: Last Resort Lending, Market-Making, and Capital”.

See Paul Tucker’s speech of 30 June 2009 – “Restoring Confidence – Moving Forward”, page 9 (cross border resolutions).

Read our response to the 2008 consultation on the Banking Act Special Resolution Regime, which has been published by HM Treasury.

See HMT May 2009 consultation: Developing Effective Resolution Arrangements for Investment Banks

See the European Commission’s communication: “Driving European recovery”.

See Volume II of House of Lords report: “The future of EU financial regulation and supervision”.

See Paul Tucker’s speech of 28 May 2009 – “The Repertoire of Official Sector Interventions in the Financial System: Last Resort Lending, Market-Making, and Capital”.

See Paul Tucker’s speech of 30 June 2009 – “Restoring Confidence – Moving Forward”, page 9 (cross border resolutions).

See HMT consultations Special resolution regime: The Building Societies (Insolvency and Special Administration) Order 2009 and related insolvency and administration rules, and financial assistance to building societies and Special resolution regime: The FSMA (Contribution to Costs of Special Resolution Regime) Regulations 2009.

See the Bank of England’s June 2009 Financial Stability Report section 3.1, “Stronger market discipline through creating a credible threat of closure/wind-down for all financial firms”. See in particular section entitled “…through creation of a credible threat of closure or wind-down” (page 38/39). See also section 3.5, “Clear principles for public safety nets” (page 56/57). The BoE believes that “[w]here self- protection fails, a safety net is needed that encourages prudent behaviour and contains risks to the public finances through:

• clear principles guiding the authorities’ interventions in financial markets; and • principles for public sector provision of capital support” (page 37)

Chronological Reports

HMT: Dunfermline Building Society Compensation Scheme - appointment of the independent valuer HMT has announced that Ian Burns, head of Smith & Williamson’s transaction services and valuations practices, has been appointed as independent valuer for the purposes of the compensation arrangements put in place following the resolution of Dunfermline Building Society. The press release includes a link to a document detailing the terms of his appointment. It is also noted that he will be supported by a group of individuals from Smith & Williamson as well as Fenchurch Advisory Partners. Brodies LLP will be engaged to advise on Scottish law matters and Simmons & Simmons will advise on English law issues. (24/12/09) Dunfermline Building Society Compensation Scheme: Appointment of the independent valuer - HM Treasury

HMT: Establishing resolution arrangements for investment banks This report outlines a package of more than 30 policy initiatives, designed to mitigate the impact of any future investment banking failure. The core of these proposals, as set out in Chapters 2 and 3, is a set of 57

measures to enable the managed wind-down of an investment firm. These include the development of resolution plans for firms, a set of special administration objectives and new responsibilities to be placed upon the board. These resolution proposals underpin specific initiatives designed to achieve better outcomes for key groups affected by the failure of an investment firm. These aim to: speed up the return of client money and assets (Chapters 4 and 5); address counterparty exposures to the firm (Chapter 6); and ensure creditors are sufficiently protected (Chapter 7). The Government is seeking stakeholder feedback on its proposals, to be received by 16 March 2010. A further document with final proposals, and draft secondary legislation as necessary, will be published in 2010. A link to Lord Myners' launch speech appears at the second link. (16/12/09) http://www.hm- treasury.gov.uk/d/consult_investmentbank161209.pdf (NB: over 160 pages long) Thomson Reuters launch of consultation on Investment Bank Resolution - HM Treasury

HMT: Northern Rock/The Northern Rock plc Transfer Order 2009/3226/The Northern Rock plc (Tax Consequences) Regulations 2009/3227 HMT has announced that the restructure of Northern Rock will take place on 1 January 2010. The Northern Rock plc Transfer Order 2009 was made by HMT and laid before Parliament this morning (see second link below - in addition, SI 3227 was published today, see third link below). The restructuring of Northern Rock will result in two separate companies to be called Northern Rock plc and Northern Rock (Asset Management) plc (see the SIs for further details). As a result of the restructuring, government guarantees in relation to Northern Rock have been restated to apply to the two entities and details of these are available via the first link. (8/12/09) http://www.hm- treasury.gov.uk/d/northernrockassetmanagement_guarantee_agreement.pdf http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093226_en.pdf http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093227_en.pdf

HMT: Asset Protection Scheme HMT has published its final agreement with the Royal Bank of Scotland on the bank’s participation in the Asset Protection Scheme, along with a number of documents covering the scheme’s operation and the assets it covers. It has also announced the launch of the Asset Protection Agency that will administer the scheme in order to protect the taxpayer’s interest. (7/12/09) Treasury publishes details of Asset Protection Scheme - HM Treasury The Asset Protection Agency - HM Treasury http://www.hm- treasury.gov.uk/d/rbs_aps_apa.pdf (NB: 100 pages long) APS legal framework - HM Treasury

NAO: Maintaining financial stability across the United Kingdom's banking system This report provides Parliament with an explanation of the measures taken since the nationalisation of Northern Rock, the role of HMT in designing and implementing the measures, and the nature of the costs, risks and liabilities falling on the taxpayer. It does not consider the causes of the credit crisis or the regulatory regime operated by FSA. The report concludes that "if the support measures had not been put in place, the scale of the economic and social costs if one or more major UK banks had collapsed is difficult to envision. The support provided to the banks was therefore justified, but the final cost to the taxpayer of the support will not be known for a number of years". (4/12/09) http://www.nao.org.uk/idoc.ashx?docId=99ee9a41-99a2-4cbb-b7b1-df61f035e427&version=-1 (NB: over 50 pages long)

BoE: Speech by Andrew Bailey: The UK bank resolution regime (26 November 2009) Text of the above, give at the ICAEW Financial Services Faculty, follows. He discusses the history and framework of the UK bank resolution regime and issues arising, including funding of FSCS and UK banks with subsidiaries abroad/foreign banks with subsidiaries in the UK. (26/11/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech414.pdf

HMT Special assistance for HBOS and RBS - October 2008/Statement on emergency liquidity assistance HMT has published the texts of letters sent on 23 November 2009 from Alistair Darling to John McFall (chairman of TSC) and Edward Leigh (chairman of the Public Accounts Committee) explaining the action taken in October 2008 in respect of the above-mentioned banks. Alistair Darling’s statement to 58

HoC re the above appears in the last link below. (24/11/09) http://www.hm- treasury.gov.uk/d/letter_chx_to_johnmcfall.pdf http://www.hm- treasury.gov.uk/d/letter_chx_to_edwardleigh.pdf Statement on emergency liquidity assistance - HM Treasury

BoE: Speech by Andrew Bailey: Recovery and resolution plans (17 November 2009) In this speech, which was made at the Santander International Banking Conference in Madrid, Andrew Bailey discusses the role of RRPs as part of the response to the banking crisis. He notes that "we need better fire prevention and better fire-fighting.” He uses the examples of Northern Rock and Lehman Brothers to illustrate the role recovery and resolution plans might play. He concludes that “…the UK authorities are very keen to see real implementation of RRPs, alongside the continuing international work on them.” (17/11/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech412.pdf

BoE: Speech by Paul Tucker: The crisis management menu (16 November 2009) In this speech, made at a conference in Brussels, Paul Tucker reviews the various components of a crisis management package for financial institutions, including: central bank liquidity insurance for viable firms and markets; firm recovery plans and contingent capital; resolution plans for winding down failed institutions; and official-sector support operations, including Capital of Last Resort. (16/11/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech410.pdf

The Banking Act 2009 (Commencement No. 4) Order 2009/3000 (C.129) This Order brings into force various provisions of the Banking Act 2009 (“the Act”). Article 2 enables secondary legislation to be made on or after 12 November 2009, although any such secondary legislation may not come into force before the dates specified in paragraphs (a) and (b) (as the case may be). Article 3 specifies that Part 6 of the Act (s207 to 227) is brought into force on 23 November 2009. Part 6 of the Act repeals existing provisions about permission to issue banknotes in Scotland and Northern Ireland (a) and replaces those provisions in respect of banks with permission to issue banknotes. Article 4 specifies that the remaining provisions of Part 5 of the Act (inter-bank payment systems)(b) are brought into force on 31 December 2009. Part 5 of the Act makes provision for a new regulatory regime for the oversight by BoE of inter-bank payment systems specified by HMT as recognised systems under s184(1) of the Act. (12/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092998_en.pdf

The Banking Act 2009 (Exclusion of Insurers) Order 2009 (Draft) This Order excludes insurers from the definition of “bank” in Parts 1 and 2 of the Banking Act 2009, ensuring that they fall outside the scope of the provisions of that Act in relation to the special resolution regime and bank insolvency. (12/11/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111487532_en.pdf

TSC: UK Financial Investments Limited TSC has published a transcript of the uncorrected evidence of the hearing held on 4 November at which UKFI representatives gave evidence. (6/11/09) Uncorrected Evidence 1090

HMT: Implementation of financial stability measures for Lloyds Banking Group and Royal Bank of Scotland It has been announced that Lloyds will not participate in the APS and instead will raise additional private sector capital and pay a fee to the taxpayer for the implicit protection provided to date and RBS will participate in the APS under revised terms. The banks will also be required to make divestments of significant parts of their businesses over the next four years. Lloyds has announced plans to raise £21bn through a combination of a £13.5bn rights issue, and £7.5bn by swapping existing debt for contingent capital. It will also pay the Government a fee of £2.5bn.. The Government will take up its rights as a shareholder in Lloyds to participate in the planned capital raising, investing £5.7bn net of an underwriting fee. The Government’s shareholding in Lloyds remains at 43%. With regard to RBS, HMT notes that all material commercial issues have now been agreed and that full legal documents are being finalised and will be signed shortly. These arrangements remain subject to final approvals, including by the EC. The final agreement involves: a larger first loss to RBS than agreed in February; a capital injection by the 59

Government of £25.5bn and removing the undertaking, agreed by RBS in February, to forego for up to five years certain tax losses and allowances. The Government’s economic interest in RBS will rise to 84%, consistent with the agreement in February, but the Government’s ordinary shareholding will not exceed 75%. To reflect the £18 billion increase in the first-loss borne by the company, the Government will no longer require RBS to give up its tax losses and allowances. The Government will provide a contingent capital commitment of up to £8 billion to be drawn down in two tranches and only in exceptional circumstances where RBS’s Core Tier 1 capital ratio fell below 5%. In return RBS will pay a fee of 4% a year for the contingent capital. FSA has confirmed that, with these measures, RBS complies with its stress testing framework. The Government has also agreed that RBS will pay a minimum exit fee when it leaves the APS. Both banks have agreed, amongst other matters, not to pay discretionary cash bonuses in relation to 2009 performance to any staff earning above £39,000 and executive members of both boards have agreed to defer all bonuses payments due for 2009 until 2012, to ensure that their remuneration is better aligned with the long-term performance of their banks. Following EC approval, expected over the next few weeks, the Government will publish: comprehensive details of the agreements; detailed scheme rules and further information on the assets. The text of Alistair Darling’s statement to HoC appears in the second link below. (3/11/09) Implementation of Financial Stability Measures for Lloyds Banking Group and Royal Bank of Scotland - HM Treasury Statement on banking reform - HM Treasury

HoC Communities and Local Government Committee: Local authority investments - Government, CIPFA, FSA and Audit Commission Response to the Committee's Seventh Report of Session 2008– 09 The Committee has published responses received to its June 2009 report considering local authority investments. In its response, FSA comments “we understand that your main concern centres on the decision by local authorities to place deposits in Icelandic banks and on the advice that local authorities received to make this decision. As we explain in this memorandum, advising on deposits is not a regulated activity and therefore we do not monitor the activities of regulated firms in this area. We understand … that you believe that we were seeking to be deliberately unclear in our answers to your questions and that you also believe that we were not discharging our regulatory duties under FSMA. You ask that the FSA take a more active role in the regulation of treasury management advisors and conduct an investigation into the services they provide. … the application of FSMA regulation to the activities with which the Committee’s inquiry was concerned is limited, and not straightforward. For this reason it would not be appropriate for the FSA to carry out the investigation, recommended by the Committee, of the services provided by local authority treasury management advisers. An investigation of this kind by the FSA would be appropriate only if the FSA’s scope were extended to cover many more of the activities in question. This would be a matter for Government to decide”. (29/10/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmcomloc/1013/1013.pdf

UKFI: New CEO UKFI has announced the appointment of Robin Budenberg as the new CEO of UKFI. He will succeed John Kingman shortly following an appropriate handover period. He joins from UBS where he is currently responsible for senior UK client relationships. It is noted that he was closely involved in the Government Bank Recapitalisation Scheme in October 2008. (28/10/09) http://www.ukfi.gov.uk/releases/20091028 UKFI CEO Appointment.pdf

HMT: Banking Liaison Panel minutes HMT has published the minutes of the BLP's meeting held on 10 July. Topics include: terms of reference, building society insolvency and insurance companies. (28/10/09) http://www.hm- treasury.gov.uk/d/blp_meeting_minutes_100709.pdf

UKFI: Investment mandate The mandate, effective from 25 September 2009, describes the scope of UKFI’s decision-making responsibilities with respect to its management of investments in the listed investee companies; the extent to which decision-making requires the prior approval of HMT before being taken or implemented; and the

anticipated dialogue between UKFI and HMT in relation to UKFI’s responsibilities under this Investment Mandate. (15/10/09) http://www.ukfi.gov.uk/releases/UKFI Mandate.pdf

HMT: Asset Protection Agency HMT has announced the appointment of Stephan Wilcke as CEO of the Asset Protection Agency with effect from 28 September 2009. He joins from credit asset manager Cairn Capital where he was a senior advisor. He will be taking over from Jeremy Bennett who had agreed to act as Chief Executive up to the point of the establishment of the Agency. (25/09/09) New Chief Executive – Asset Protection Agency - HM Treasury

FMLC: Issue 135: Insolvency law reform FMLC has published the text of a letter it has sent to the Insolvency Service re its consultation on encouraging company rescue which sets out its concerns on both legal uncertainties and the lack of proposal clarity. (18/09/09) http://www.fmlc.org/papers/Ltr2InsolvencyServiceSept09.pdf

BIS: Report and recommendations of the Cross-border Bank Resolution Group The report sets out 10 recommendations to improve the resolution of a failing financial institution that has cross-border activities. The recommendations fall into three categories: strengthening national resolution powers and their cross-border implementation; firm-specific contingency planning and risk mitigation. Responses are required by 31 December 2009. (18/09/09) http://www.bis.org/publ/bcbs162.pdf?noframes=1 (NB: over 40 pages long)

HMT: Developing effective resolution arrangements for investment banks HMT has published responses to the above-mentioned consultation. Respondents include AIMA, FOA and LIBA. These can be downloaded individually via the following link. (2/09/09) Developing effective resolution arrangements for investment banks: consultation responses - HM Treasury

HMT: Banking Liaison Panel minutes HMT has now published the minutes of the BLP's meeting held on 7 April. Topics include: terms of reference, how derivative counterparties are treated by the Dunfermline transfer order; Banking Act 2009 (Restrictions of Partial Property Transfers) Order 2009; Code of Practice. (27/08/09) http://www.hm-treasury.gov.uk/d/blp_meeting_minutes_070409.pdf

FMLC: Issue 144 - Investment Banking Insolvency Panel proposals This paper considers the recent HMT consultation re developing effective resolution arrangements for investment banks. It focuses specifically on issues concerning the return of client monies and assets in the event of the commencement of insolvency proceedings of an investment bank and responds to the questions in the consultation which are relevant to such issues. (31/07/09) Fmlc - HMT investment banks response

HoC Scottish Affairs Committee: Dunfermline Building Society Although the report concludes that the ultimate responsibility for Dunfermline's plight lay with its board, it argues that "whilst the nature of the Special Resolution Regime will be that the Tripartite Authorities have to move quickly and confidentially to preserve market confidence, it is regrettable that, in the first instance it was used, the banking institution at the heart of the negotiations felt that it was kept in the dark about the very standards and criteria it was having to meet to guarantee its future independence. If any bank or building society is unfortunate enough to suffer the same fate as the Dunfermline Building Society, the Tripartite Authorities must consider whether it is necessary to hold the banking institution at arm’s length, or whether a more beneficial outcome might be achieved if all parties are fully aware of the standards expected to be met". It goes on to heavily criticise FSA for having "failed to provide the necessary level of supervision over the Dunfermline Building Society and to issue clear and specific warnings ... [FSA] failed wholly to discharge its duties to protect the interests of investors and savers". It recommends that the Tripartite undertake a review of how the SRR operated to look at the interaction between the authorities and the decision making processes. (30/07/09) HoC - TSC Dumfermline 61

BoE: Asset purchase facility: secured commercial paper BoE has published details of the above following the consultative paper on the proposed extension to the asset purchase facility (see 8 June 2009 update). The SCP will offer to buy securities backed by assets such as trade receivables consistent with the APF’s aim to purchase high-quality assets of broadly investment grade. The Facility will be available from Monday, 3 August, although transactions will not take place until SCP programmes have been approved as eligible. (30/07/09) BoE - asset purchase extension

HMT: Asset Protection Scheme - FOI disclosures HMT has published the lending commitment deed polls entered into by the Royal Bank of Scotland plc and Lloyds Banking Group plc in connection with their participation in the Asset Protection Scheme. It is noted that parts of the information in the deed polls have been withheld under the exemption in s43(2) FOIA that relates to information where disclosure would, or would be likely to, prejudice the commercial interests of any person (29/07/09) BoE/HMT - asset purchase RBS lending commitments HMT/BoE - asset purchase Lloyds lending commitments

BoE: The UK Special Resolution Regime for failing banks in an international context This paper seeks to place in an international context the UK SRR for failing banks which came into effect in February 2009 with the adoption of the Banking Act. It concludes that the SRR "is at the forefront of best practice internationally. This perhaps explains why some other countries are looking at the United Kingdom’s SRR closely as they seek to reform their own approaches. Greater harmonisation of approaches may help to address some of the difficulties of resolving cross-border banks and other complex financial institutions". (28/07/09) BoE - SRR in international context

The Banking Act 2009 (Commencement No. 3) Order 2009/2038 (C.92) This Order brings into force on 4 August 2009 various provisions of the Banking Act 2009 (“the Act”). Article 2 and the Schedule to this Order specify the provisions of Part 5 of the Act (inter-bank payment systems) that are brought into force on 4 August 2009. Part 5 of the Act (ss 181 to 206) makes provision for a new regulatory regime for the oversight by BoE of “recognised” inter-bank payment systems. Section 181 provides an overview of Part 5 of the Act. Sections 184 to 187 make provision for the recognition by HMT (by way of a recognition order) of inter-bank payments systems and the derecognition of such systems. Section 204 is commenced in part. Subsection (1)(a) enables BoE, by written notice, to require a person to provide information which BoE thinks will help HMT in determining whether to make a recognition order. Subsections (2) and (3) make provision in relation to requirements that may be imposed in a notice requiring information to be provided. Subsection (4)(a) and (b) enable BoE to disclose information obtained by virtue of that section to HMT and FSA. Subsection (5) provides that subsection (4) overrides a contractual or other requirement to keep information in confidence, and is without prejudice to any other power to disclose information. Subsections (6) and (8) enable HMT to make regulations about the disclosure of information by BoE and the manner and extent of publication. Subsection (10) provides that it is an offence for a person to fail, without reasonable excuse, to comply with a requirement under this section or to knowingly or recklessly provide false information. Section 205 provides that it is an offence for the operator of a non-recognised inter-bank payment system to assert that the system is recognised or to do anything which suggests that the system is recognised. (24/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092038_en.pdf

TSC: Banking crisis: dealing with the failure of the UK banks: Government, UK Financial Investments Ltd and Financial Services Authority - responses to the seventh report from the Committee TSC has published responses to its seventh report from HMT, UKFI and FSA. (24/07/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/956/956.pdf

HMT: Special Resolution Regime: The FSMA (Contribution to Costs of Special Resolution Regime) Regulations 2009/ Draft SIs: The Building Society Special Administration (England and Wales) Rules 2009/The Building Society Insolvency (England and Wales) Rules/The Building Society Insolvency (Scotland) Rules This consultation seeks views on the Financial Services and Markets Act 2000 (Contribution to Costs of Special Resolution Regime) Regulations 2009 which were made on 29 March 2009 in order to enable HMT to require FSCS to make payments in connection with the exercise of SRR powers by BoE in relation to the Dunfermline Building Society. The consultation notes that, although these regulations had to be made sooner than originally envisaged, they are complete and the Government does not have any specific proposals at this stage for their revision or amendment. Comments are therefore sought on all aspects of the regulations. However, Chapter 3 of this consultation document sets out a number of points regarding the regulations that have come to HMT's attention, and on which views would be particularly welcome. Following the consultation, HMT will consider whether to bring forward proposals to amend the regulations. Any amending regulations would be subject to the draft affirmative procedure. Responses are required by 30 October 2009. (21/07/09) http://www.hm-treasury.gov.uk/d/consult_srr_fsma_regs2009_pu820.pdf http://www.hm- treasury.gov.uk/d/buildingsocs_specialadmin_engwales_rules2009.pdf http://www.hm- treasury.gov.uk/d/buildingsocs__insolvency_engwales_rules2009.pdf(NB: over 50 pages long) http://www.hm-treasury.gov.uk/d/buildingsocs__insolvency_scotland_rules2009.pdf (NB: over 30 pages long)

HMT: Special Resolution Regime: The Building Societies (Insolvency and Special Administration) Order 2009 and related insolvency and administration rules, and financial assistance to building societies This consultation builds on the July 2008 consultation paper on the SRR, and asks for views on the Government’s detailed proposals for applying the bank insolvency procedures and bank administration procedures to building societies. This consultation refers to the secondary legislation made on 29 March 2009 in relation to Dunfermline Building Society and also refers also refers to proposed rules, which have not yet been made and which are published in draft: In respect of the two instruments that have already been made, the Government will consider in the light of the responses to this consultation whether the instruments should be amended and will bring forward amending instruments in due course should they be needed. In respect of the instruments that are published in draft, the Government will consider in the light of the responses to this consultation whether the draft instruments should be revised and will make instruments incorporating those revisions in due course. Responses are required by 30 October 2009. (21/07/09) http://www.hm-treasury.gov.uk/d/consult_srr_buildingsocs_order2009_pu819.pdf

HMRC: Impact assessment of reinvesting compensation paid to Icesave investors and minor changes to the ISA regulations On 8 October 2008, FSA declared the UK branch of the Icelandic bank Landsbanki Islands hf in default for the purposes of FSCS. The Government committed to a full payout of depositors with Icesave accounts at the branch; however, ISA investors were unable to transfer their ISAs to another provider and benefit from the tax free status of their accounts because the existing ISA regulations do not allow individuals to transfer an ISA to a different provider themselves; it has to be done by means of a direct provider transfer. The Government is introducing legislation that will allow affected individuals to put the compensation payments back into an ISA with another provider by 5 October 2009. It is also intended to take this opportunity to make four further minor amendments to the ISA regulations which are detailed in this document. (21/07/09) http://www.hmrc.gov.uk/ria/isas-minor.pdf

The Individual Savings Account (Amendment No. 2) Regulations 2009/1994 These Regulations amend the Individual Savings Account Regulations 1998 (S.I. 1998/1870: “the principal Regulations”). The main effect of these Regulations is to allow individuals who had ISAs with Icesave Bank (suspended on 8th October 2008) to reinvest up to the closing balance of their accounts in an ISA managed by another account manager, not later than 5th October 2009. Such reinvestments have already taken place under the terms of ISA Bulletins 6, 9 and 13. The new regulation 5A therefore has 63

effect from 8th October 2008 (before these Regulations are made) and makes provision which does not impose or increase any liability to tax. In these circumstances, authority to make retrospective provision is conferred by s701(4) of the Income Tax (Trading and Other Income) Act 2005 (inserted by s40 of the Finance Act 2008). (21/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091994_en.pdf

UKFI: Strategy: Market Investments and Annual Report and Accounts UKFI has published its strategy for managing the Government’s stakes in RBS and Lloyds alongside its first annual report. It notes that "will not interfere in the day-to-day running of the banks, but will continue to engage strongly on strategic issues which could impact value including board membership, risk management and remuneration policy" and that it "does not set any fixed timetable for disposing of the shares but says it expects to undertake a number of capital markets transactions over a sustained period". (13/07/09) http://www.ukfi.gov.uk/releases/UKFI Annual Report 2008-2009.pdf

The Banking Act 2009 (Restriction of Partial Property Transfers) (Amendment) Order 2009/1826 (previously reported on when in draft) This Order amends the Banking Act 2009 (Restriction of Partial Property Transfers) Order 2009 (the “Principal Order”). Article 3 makes a number of changes to the definitions in article 1(3) of the Principal Order. Article 3(b), (e) and (h) narrow the scope of paragraphs (c) and (d) of the definition of “excluded rights”. Article 3(b) widens the scope of the activities in respect of which rights and liabilities may be protected under Article 3(1) of the Principal Order. Article 3(e) and (h) respectively extend the definition of “financial instrument” and “relevant financial instrument”. Article 3(d) adds a further item to the definition of “excluded rights”, namely rights in respect of transferable securities to the extent that they are not referred to or described in a set-off arrangement, netting arrangement or title transfer financial collateral arrangement. Article 5 amends article 5 of the Principal Order to provide expressly that the benefit of security may not be transferred without the liability it secures. Article 6 restricts the provision that can be made in a property instrument under s34(7)(a) of the Banking Act 2009 in relation to property held on trust. (Date in force: 9/7/09) (9/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091826_en.pdf

The Dunfermline Building Society Independent Valuer Order 2009/1810 This Order is made under the Banking Act 2009 (c. 1) (“the Act”). This Order makes provision in relation to the independent valuer appointed in accordance with article 5(2) of the Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009 (S.I. 2009/***) (“the Dunfermline Compensation Order”). The Dunfermline Compensation Order requires the independent valuer to assess the compensation, if any, payable to third parties affected by the application of s38(6) of the Act(6) (by virtue of paragraph 6 of the Dunfermline Building Society Property Transfer Instrument 2009(7)), and to pre-transfer creditors of Dunfermline Building Society(8). The Dunfermline Compensation Order also requires the independent valuer to make assessments in relation to the Dunfermline Resolution Accountt (9) (established in accordance with article 6 of that Order) and FSCS (10). This Order makes various provisions in connection with the independent valuer. Articles 3 and 4 make provision for the remuneration of, and payment of allowances to, the panel appointed in accordance with article 5(1)(b) of the Dunfermline Compensation Order, the independent valuer, and the person appointed in accordance with article 3(2) of this Order to monitor the operation of the arrangements for the remuneration and payment of allowances to the independent valuer. Article 5 makes provision for the arrangements for the remuneration of, and payment of allowances to, any staff appointed by the independent valuer in exercise of the power conferred by s55(4) of the Act. Article 6 makes provision for the independent valuer’s records and accounts. Article 8 makes provision for the making of rules as to the procedure to be adopted by the independent valuer. Article 9 provides that the independent valuer may apply to the court to require a person to supply information relevant to the independent valuer’s functions under article 4(a) or (c) of the Dunfermline Compensation Order. Article 10 provides that a person who supplies information to an independent valuer is not, by reason only of the provision of information to the independent valuer, liable in any proceedings relating to breach of an obligation of confidence. Article 11 makes provision for the disclosure of information by the independent valuer. Article 12 provides that a person affected by the determination of the independent valuer set out in an assessment notice issued under paragraph 4 or 10 of Schedule 2 to the Dunfermline Compensation Order may require the 64

independent valuer to reconsider his or her determination and to produce a revised assessment notice. Article 13 provides that a person affected by the determination of the independent valuer set out in a revised assessment notice may refer the matter to FSMT (11). Articles 14 to 27 provide that Part 9 of, and Schedule 13 to, FSMA (c. 8) and the Financial Services and Markets Tribunal Rules 2001 (S.I. 2001/2476) apply to a reference to the Tribunal made under article 13, subject to the modifications set out in those articles. In particular, new functions are conferred on the President of the Tribunal (appointed from one of the members of chairman in accordance with paragraph 2(1) of Schedule 13 to FSMA). (Date in force: 30/7/09) (8/07/09) The Dunfermline Building Society Independent Valuer Order 2009 No. 1810

The Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009/1800 (previously reported on when in draft) This Order is made under the Banking Act 2009 (c. 1) (“the Act”). This Order makes provision for the compensation arrangements to be put in place in respect of the transfers of property, rights and liabilities from Dunfermline Building Society (“Dunfermline”) to Nationwide Building Society and to a bridge bank (wholly owned by BoE) by virtue of the Dunfermline Building Society Property Transfer Instrument 2009 (“the Transfer Instrument”). The Transfer Instrument was made by the BoEland on 30th March 2009 in exercise of the powers conferred on it by ss11(2) and 12(2) of the Act. Article 3 makes provision for a compensation scheme. HMT is required to make provision for a compensation scheme where the Bank of England has exercised its power to transfer property, rights and liabilities to a private sector purchaser (s50(2) of the Act). Articles 4 and 5 make provision for an independent valuer to be appointed to perform certain functions under this Order. Articles 6 to 8 and Schedule 1 make provision for the Dunfermline Resolution Fund. Section 52(2) requires HMT to make a resolution fund order where BoE has made a transfer to a bridge bank. Articles 9 and 10 and Schedule 2 make provision for third party compensation. HMT is required to make provision for third party compensation as BoE has made transfers of some, rather than all, of Dunfermline’s property, rights and liabilities (ss50(4) and 52(4) of the Act). Article 9(2) and Part 2 of Schedule 2 make provision for the assessment by the independent valuer of the compensation, if any, to be paid to persons affected by the application of s38(6) of the Act (by virtue of paragraph 6 of the Transfer Instrument)(a). Article 9(3) and Part 3 of Schedule 2 make provision for the assessment by the independent valuer of the compensation, if any, to be paid to pre- transfer creditors of Dunfermline. These provisions include the mandatory provision for third party compensation arrangements prescribed in the Banking Act 2009 (Third Party Compensation Arrangements for Partial Property Transfers) Regulations 2009 (S.I. 2009/319). Article 11 provides that the independent valuer must perform the function specified in regulation 8(1) of the Financial Services and Markets Act 2000 (Contribution to Costs of the Special Resolution Regime) Regulations 2009 (S.I. 2009/807), which requires the independent valuer to assess the amount FSCS would have received from the insolvency estate had Dunfermline entered into insolvency immediately before the transfers. This is relevant to the calculation of the amount the FSCS may be required to contribute to the costs of the resolution of Dunfermline. (Date in force: 7/7/09) (7/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091800_en.pdf

The Amendments to Law (Resolution of Dunfermline Building Society) (No. 2) Order 2009/1805 This Order amends the Dunfermline Building Society Property Transfer Instrument 2009 (“the Property Transfer Instrument”), by providing a new definition of "commercial loan” (in place of the definitions of “commercial loan” and “commercial mortgage loan”). This definition is used to exclude property, rights and liabilities that would otherwise have been transferred to Nationwide Building Society by paragraph 3 of the Property Transfer Instrument. The amendments are made with retrospective effect from the time at which the Property Transfer Instrument came into force (which was 8 a.m. on 30th March 2009: Property Transfer Instrument, paragraph 1(2)). The Property Transfer Instrument will accordingly be treated as having contained the new definition of commercial loan at the time at which it operated to transfer part of Dunfermline Building Society’s business to Nationwide Building Society under paragraph 3. (Made: 7/7/09) (7/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091805_en.pdf

BoE: Dunfermline Resolution: completion of the sale of the social housing lending business to Nationwide Building Society BoE has completed the sale and transfer of the social housing loans (and related deposits from housing associations) held by its wholly-owned subsidiary, DBS Bridge Bank Limited, to Nationwide Building Society and other loans remaining in Dunfermline that form part of the social housing book. (1/07/09) Bank of England|Publications|News|2009|News Release - Dunfermline Resolution: Completion of the Sale of the Social Housing Lending Business to Nationwide Building Society, 01 July 2009

HMT: Banking Liaison Panel - Subgroup on The Banking Act 2009 (Restriction of Partial Property Transfers) Order 2009 This Subgroup has published the text of its advice to HMT on aspects of the above Order, including small companies carve-out, treatment of publicly traded securities, definition of "relevant financial instruments" and trusts. (1/7/09) http://www.hm-treasury.gov.uk/d/bankingliaisonpanel_advice250609.pdf

6.1 Groups, colleges of supervisors and local entity regulation

Chronological Reports

EC: Review of Directive 2002/87/EC on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate This consultation addresses the review of the FCD. The EC is asking for comments on the effectiveness of potential options, on compliance costs, impacts on competition and other implied costs as well as benefits. Responses are required by 15 January 2010. (11/11/09) http://ec.europa.eu/internal_market/financial- conglomerates/docs/20091106_questionnaire_fcd_review.pdf

CEBS/CEIOPS: Advice to the EC on the review of the Financial Conglomerates Directive CEBS and CEIOPS have published advice on issues related to the current application in the areas of definitions and terminology, scope and internal control requirements of the FCD, together with their feedback statement following a three month public consultation with stakeholders. The report recommends legislative amendments to address specific areas where the FCD does not meet its objectives in the current framework. These include a change to the definition of holding companies to ensure that the application of the sectoral group directives is supplemented by the FCD and a change to enable supervisors to waive the application of the FCD for small and heterogeneous groups if their risk profile justifies exemption. (30/10/09) http://www.ceiops.eu/media/docman/public_files/consultations/consultationpapers/FCD-Review/JCFC- advice-on-FCD-Review.pdf (NB: over 70 pages long) http://www.ceiops.eu/media/docman/public_files/consultations/consultationpapers/FCD-Review/JCFC- advice-on-FCD-Review-Feedback-Statement.pdf (NB: over 50 pages long)

6.2 Extending regulation – holding companies, bank-like activities, systemically important off-shore entities

See Section 6 of DP09/2: A Regulatory Response to the Global Banking Crisis , and Section 2.3 of the Turner Review .

See page 36 of the IOSCO Interim Recommendations .

See pages 83 to 85 of the Government White Paper.

See Paul Tucker’s speech of 28 May 2009 – “The Repertoire of Official Sector Interventions in the Financial System: Last Resort Lending, Market-Making, and Capital”.

See the Bank of England’s June 2009 Financial Stability Report, sections entitled “Appropriate standards should be set for institutions performing ‘bank-like’ functions…” (page 45), and “…and institutions posing potential systemic threats” (page 45/46).

Chronological Reports

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) (Over the Counter) Regulations 2009/3088 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer, traded securities made in the course of trading in those securities over the counter. The transfers and agreements exempted by the Regulations are those involving European Central Counterparty Limited (“EuroCCP”) (and nominees of that clearing house), through whom transactions are cleared, or clearing participants in EuroCCP (and their nominees). (Date in force: 18/12/09) (27/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093088_en.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 13) 2009/2975 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer, traded securities made in the course of trading in those securities on the multilateral trading facility operated by NASDAQ OMX Europe Limited (“the facility”). The transfers and agreements exempted are those involving SIX X-CLEAR AG (“X-CLEAR”) and/or European Multilateral Clearing Facility NV (“EMCF”) and/or LCH.Clearnet Limited (“LCH”) (and nominees of any of those clearing houses), through whom transactions on the facility are cleared, or clearing participants in X-CLEAR, EMCF or LCH (and their nominees). These Regulations also exempt transactions on the facility among X-CLEAR and EMCF and LCH. (Date in force: 2/12/09) (11/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092975_en.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 14) 2009/2976 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer traded securities made in the course of trading in those securities on the NYSE Arca Europe Facility (“the Facility”). The transfers and agreements exempted are those involving EuroCCP and/or LCH.Clearnet and/or X-CLEAR (and nominees of those clearing houses), through whom transactions on the Facility are cleared, or clearing participants in EuroCCP or LCH.Clearnet or X- CLEAR (and their nominees). These Regulations also exempt transactions on the Facility between EuroCCP, LCH.Clearnet and X-CLEAR. (Date in force: 4/12/09) (11/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092976_en.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 15) 2009/2977 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer traded securities made in the course of trading in those securities on the SmartPool Multilateral Trading Facility (“the Facility”). The transfers and agreements exempted are those involving European Central Counterparty Limited (“EuroCCP”) and/or SIX X-CLEAR AG (“X-CLEAR”) (and nominees of those clearing houses), through whom transactions on the Facility are cleared, or clearing participants in EuroCCP and/or X-CLEAR (and their nominees). (Date in force: 4/12/09) (11/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092977_en.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No.12) 2009/2954 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer traded securities made in the course of trading in those securities on the Irish Stock Exchange (“the Exchange”). The transfers and agreements exempted are those involving Eurex Clearing AG (and nominees of that clearing house), through whom transactions on the Exchange are cleared, or clearing participants in Eurex Clearing AG (and their nominees). (Date in force: 29/11/09) (6/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092954_en.pdf

Finance Act 2009 Among the clauses relevant to FS: corporation tax amendments in respect of loan relationships and derivatives, offshore funds, various amends in relation to insurance; stock lending agreements. (22/07/09) http://www.opsi.gov.uk/acts/acts2009/pdf/ukpga_20090010_en.pdf (NB: over 450 pages long)

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 8) 2009/1827 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer traded securities made in the course of trading in those securities on the Facility. The transfers and agreements exempted are those involving EuroCCP and/or LCH.Clearnet Limited and/or SIX X-CLEAR AG (“X-CLEAR”) (and nominees of either clearing house), through whom transactions on the Facility are cleared, or clearing participants in EuroCCP or LCH.Clearnet Limited or SIX X-CLEAR AG (and their nominees). These Regulations also exempt transactions on the Facility between EuroCCP, LCH.Clearnet Limited and SIX X-CLEAR AG. (Date in force: 4/8/09) (9/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091827_en.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 9) 2009/1828 These Regulations replace the Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations 1997/2429. The 1997 Regulations prescribed LIFFE A&M as a recognised investment exchange for the purposes of section 116 and 117 of the Finance Act 1991 and exempted from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers and agreements to transfer traded securities made in the course of trading in those securities on LIFFE (“the Exchange”) where the transfers were cleared by The London Clearing House Limited. LIFFE A&M is authorised by the FSA to act as a recognised investment exchange capable of providing clearing services. LIFFE A&M will now use this authorisation to act as a “self-clearing” recognised investment exchange. These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) both LIFFE A&M and LCH.Clearnet Limited for certain issues and transfers of, or agreements to issue or transfer traded securities made in the course of trading in those securities on the market operated by LIFFE A&M. The transfers and agreements exempted are those involving LIFFE A&M or LCH.Clearnet Limited (or nominees of LIFFE A&M or LCH.Clearnet Limited), through whom transactions on the Exchange are cleared, or clearing participants in LIFFE A&M or LCH.Clearnet Limited (or their nominees). (Date in force: 30/7/09) (9/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091828_en.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 10) 2009/1831 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer traded securities made in the course of trading in those securities on the multilateral trading facility operated by NASDAQ OMX Europe Limited (“the Facility”). The transfers and agreements exempted are those involving SIX X-CLEAR AG (“X-CLEAR”) and/or European Multilateral Clearing Facility NV (“EMCF”) (and nominees of either clearing house), through whom transactions on the Facility are cleared, or clearing participants in SIX X-CLEAR AG or European Multilateral Clearing Facility NV (and their nominees). These Regulations also exempt transactions on the Facility between SIX X-CLEAR AG and European Multilateral Clearing Facility NV. (Date in force: 3/8/09) (9/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091831_en.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 11) 2009/1832 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer traded securities made in the course of trading in those securities on the Baikal Multilateral Trading Facility (“the Facility”). The transfers and agreements exempted are those involving Cassa di Compensazione e Garanzia S.p.A. (“CC&G”) or European Multilateral Clearing Facility N.V. (“EMCF”) (and nominees of either clearing house), through whom transactions on the Facility are cleared, or clearing participants in CC&G or EMCF (and their nominees). These Regulations also exempt transactions on the Facility between CC&G and EMCF. (Date in force: 3/8/09) (9/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091832_en.pdf

CEPS: Bringing hedge funds into the regulatory mainstream This commentary considers the EC’s draft proposals on hedge funds. (1/07/09) http://shop.ceps.eu/downfree.php?item_id=1861

6.3 Offshore havens and tax

See Progress report of the independent review of British off-shore financial centres published in April 2009.

OECD summary showing the progress of the implementation of internationally agreed standards on exchange of information for tax purposes by financial centres around the world.

Latest on HM Treasury’s review of British Offshore Financial Centres

HMRC’s New Disclosure Opportunity

HMRC’s Liechtenstein Disclosure Facility

Consultation document on the Code of Practice on tax for banks and the Chartered Institute of Taxation’s response to the consultation on the Code of Practice on tax for banks.

The Offshore Funds (Tax) Regulations 2009/3001 (coming into force on 1/12/09)

Chronological Reports

HMRC: Foreign currency bank accounts This technical note gives a detailed explanation of proposed legislation to prevent certain capital gains tax losses on foreign currency bank accounts. (24/12/09) http://www.hmrc.gov.uk/cnr/fcba-technical- note.pdf

HMRC: A code of practice on taxation for banks HMRC has published a document setting out responses to the June 2009 consultation together with a supplementary guidance note. In the light of comments received, the Government decided to make changes to the wording of the Code to better target it, and enable it to lead to better relationships between banks and HMRC. It asks banks to ensure that they: have proper governance around tax, integrated into business decision-making; establish an appropriate relationship with HMRC, following the principles set out in the Review of Links with Large Business; and undertake tax planning only to support their business operations, not to achieve unintended and unexpected tax advantages. The updated Code is at Annex A of the first item below. (9/12/09) HM Revenue & Customs: A Code of practice on taxation for banks consultation response document http://www.hmrc.gov.uk/pbr2009/tax-banks-supp-0040.pdf

HMRC: Modernising powers, deterrents and safeguards - tackling offshore tax evasion The consultation is intended to explore the implementation of options to tackle tax evasion linked to assets held offshore more effectively. Comments are invited on how best to implement measures announced at the 2009 Pre-Budget Report: increased sanctions on offshore evasion and a notification requirement for certain new offshore bank accounts. Views are also sought on the potential for going further and considering the information HMRC receives on non-resident trusts. Responses are required by 3 March 2009. (9/12/09) http://www.hmrc.gov.uk/pbr2009/offshore-tax-evasion-5350.pdf (NB: 30 pages long)

HMRC: Simplifying transactions in securities legislation HMRC has published a document setting out responses to the July 2009 consultation. It is noted that nearly all the respondents and contributors welcomed the package of proposals. Most provided specific comments on each of the individual proposals and many provided additional ideas for simplifying the transactions in securities legislation. (9/12/09) HM Revenue & Customs: Simplifying Transactions in Securities legislation

HMRC: Index-linked gilt-edged securities This document sets out a technical note, draft legislation and draft explanatory note relating to legislation that will be introduced in Finance Bill 2010 to counter avoidance using index-linked gilt-edged securities. Comments are invited and must be received by 31 January 2010. (9/12/09) http://www.hmrc.gov.uk/pbr2009/gilt-edged-securities-0253.pdf

HMRC: Risk transfer schemes Legislation is to be included in Finance Bill 2010, effective from 1 April 2010, to stop excessive Exchequer risk from overhedging and underhedging transactions (‘risk transfer schemes’). This document provides revised draft clauses and explanatory notes. Comments are invited and must be received by 31 January 2010. (9/12/09) http://www.hmrc.gov.uk/pbr2009/risk-transfer-0310.pdf

The Offshore Funds (Tax) (Amendment) Regulations 2009/3139 These Regulations amend the Offshore Funds (Tax) Regulations 2009 which make provision for the tax treatment of participants in offshore funds. These Regulations have effect from the same days as the Offshore Funds (Tax) Regulations 2009 have effect. Authority for this limited retrospective effect is provided by s42(5) of the Finance Act 2009. Regulation 3 amends regulation 54 (form, timing and withdrawal of application) to extend the time allowed to a fund to make an application to become a reporting fund. Regulation 4 amends regulation 94 (reported income: general provisions) so that the exception from the charge to tax in regulation 17 applies in relation to the excess of the reported income of a fund over the income of the fund attributed to a participant where regulation 30 (rights in certain holdings) applies to the participant’s rights in the fund. Regulation 5 amends Schedule 1 (transitional provisions and savings). The amendment to paragraph 3 permits new funds launched on or after 1 December 2009 which are under the same umbrella arrangements as existing distributing funds or part of arrangements comprising more than one class of interest and with the same accounting dates to apply for the same treatment as a distributing fund as the existing fund. This regulation also inserts three new paragraphs into Schedule 1. New paragraph 3A makes provision for the treatment of income of a reporting fund in relation to an interest in a distributing fund. New paragraph 3B makes provision for the treatment of income of a distributing fund in relation to an interest in a reporting fund. New paragraph 3C makes provision in relation to an exchange of an interest in a distributing fund for an interest in a reporting fund. (Date in force: 22/12/09) (1/12/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093139_en.pdf

The Offshore Funds (Tax) Regulations 2009/3001 Sections 41 and 42 of the Finance Act 2008 (c. 9), (which have since been amended and supplemented by provisions contained in Part 1 of Schedule 22 to the Finance Act 2009 (c. 10)), make provision for the tax treatment of participants in offshore funds. Section 41(1) of the Finance Act 2008 provides that HMT may by regulations make provision about the treatment of participants in an offshore fund for the purposes of enactments relating to income tax, capital gains tax or corporation tax; and s42(3) of the Finance Act 2008 (as amended) envisages that the previous legislation relating to offshore funds (to be found in Chapter 5 of Part 17 to the Income and Corporation Taxes Act 1988 (c. 1)) may be repealed. These Regulations make provision accordingly. (Date in force: 1/12/09) (13/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093001_en.pdf

HMT: Final report of the independent review of British offshore financial centres The final report of Michael Foot’s review of the opportunities and challenges facing the British Crown Dependencies (Guernsey, Isle of Man, Jersey) and six Overseas Territories (Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Turks and Caicos Islands) has now been published. The recommendations made to these jurisdictions cover: the quality and extent of economic planning; meeting international standards on tax transparency, financial sector regulation, and tackling financial crime; ensuring that deposit protection schemes can be understood by depositors; considering whether an Ombudsman scheme is justified; and crisis prevention and resolution measures. These recommendations provide benchmark standards against which each of the jurisdictions can assess their performance and consider what action may be necessary to ensure a sustainable future. The report suggests that the

jurisdictions should periodically publish reports on how the benchmark standards are being met, or on how and when they will be met. (29/10/09) http://www.hm-treasury.gov.uk/d/foot_review_main.pdf

The Offshore Funds (Tax) Regulations 2009 (Draft) These Regulations make new provision for the taxation of UK resident investors in offshore funds and are intended to modernise the rules for the taxation of investors in offshore funds in line with the new definition in Finance Act 2009 so that, as far as possible, UK investors make their investment decisions for commercial reasons and not to obtain unintended tax advantages. The Regulations will define certain offshore funds, as "reporting funds". UK resident investors in these funds will be taxable on their share of the fund’s reported income each year. Any gain or loss on disposal will be treated as a capital gain or loss. In particular it is intended to provide a facility for offshore reporting funds to enable UK investors to accumulate their taxed income in the fund, thus providing economic parity with the ownership of accumulation units in UK authorised investment funds. (Date in force: 1/12/09) (27/10/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111486313_en.pdf (NB: over 60 pages long)

FMLC: Issue 146 - Proposed Inland Revenue Code FMLC has published a report in which it sets out "elements of significant uncertainty that arise from" HMRC's consultation, regarding taxes to be paid by banks and their customers, and the drafting of the Code. (14/10/09) http://www.fmlc.org/papers/Issue146Oct09.pdf

HMRC: The Offshore Funds (Tax) Regulations 2009: Draft guidance for consultation HMRC has published draft guidance as three documents: ‘Draft Offshore Funds Manual – Introduction’, ‘Draft Offshore Funds Manual – UK Investors in Non-Reporting Funds’ and ‘Draft Offshore Funds Manual – Reporting Funds & UK Investors’, together with a guidance map all available via the following link. Comments are required by 7 November 2009. (2/10/09) HM Revenue & Customs: The Offshore Funds (Tax) Regulations 2009: Draft guidance for consultation

HMRC: Stamp duty and stamp duty reserve tax: implications of the ECJ Decision in HSBC Holdings Plc and Vidacos Nominees Ltd v Commissioners for Her Majesty's Revenue & Customs (C560-07) HMRC notes that, with immediate effect, it will not seek to apply a 1.5% SDRT on the issue of shares into a clearance service within the EU to which a 1.5% charge would have previously applied. It further notes that legislation will be brought forward intended to prevent exploitation of the rules applying to transfers of shares between different clearance services and depositary receipts systems. (2/10/09) HM Revenue & Customs: Stamp Duty and Stamp Duty Reserve Tax: Implications of the ECJ Decision

HMRC: Consultation on draft guidance relating to The Authorised Investment Funds (Tax) (Amendment) Regulations 2009 (SI2009/2036) This draft guidance explains new regulations contained in SI 2009/2036, which take effect from 1 September 2009 and makes amendments to The Authorised Investment Funds (Tax) Regulations 2006. Apart from guidance on the QIS rules, it is open for consultation until 16 October 2009. (25/08/09) http://www.hmrc.gov.uk/consultations/ctm48000.pdf (NB: over 100 pages long)

HMRC: Finance Bill 2009: loan relationships, derivative contracts and interest Comments are invited on the draft guidance, to go into the Corporate Finance Manual, on the foreign exchange anti-avoidance provisions inserted into CTA 2009 by Schedule 21 of Finance Act 2009. (14/08/09) http://www.hmrc.gov.uk/drafts/cfm63100-forex-avoidance.pdf

The Authorised Investment Funds (Tax) (Amendment No.2) Regulations 2009/2199 These Regulations amend the Authorised Investment Funds (Tax) (Amendment) Regulations (S.I. 2009/2036) to correct an error in those Regulations. Regulation 30 of those Regulations purports to amend regulation 95 of the Authorised Investment Fund (Tax) Regulations 2006 (S.I. 2006/964), but that regulation was revoked by Part 1 of Schedule 3 to the Corporation Tax Act 2009. These Regulations therefore omit regulation 30. (Date in force: 31/8/09) (13/08/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092199_en.pdf 73

CESR: Letters to IASB and EFRAG CESR has published the text of a letter to IASB re revenue recognition in contracts with customers, and the text of its response to an EFRAG comment letter re IASB’s income tax exposure draft. (31/07/09) CESR letter to IASB CESR response re IASB

The Alternative Finance Investment Bonds (Stamp Duty Land Tax) (Prescribed Evidence) Regulations 2009/2052 This Statutory Instrument contains regulations that prescribe the evidence that must be provided to HMRC in relation to claims for relief from Stamp Duty Land Tax on the issue of Alternative Finance Investment Bonds. (Date in force: 13/8/09) (24/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092052_en.pdf

The Authorised Investment Funds (Tax) (Amendment) Regulations 2009/2036 These Regulations amend the Authorised Investment Funds (Tax) Regulations 2006 (SI 2006/964) (“the principal Regulations”) by inserting new Parts 1A, 2B and 4B into the principal Regulations. New Part 1A defines the general diversity of ownership condition (“the GDO condition”) which details the conditions that must be fulfilled in order for the GDO condition referred to in Parts 2A, 2B, 4A and 4B of the principal Regulations to be satisfied. New Part 2B contains provisions to give certain funds (diversely owned authorised investment funds) certainty in relation to the tax treatment of investment transactions. New Part 4B, which is divided into 7 Chapters, deals with a particular type of authorised investment fund, Tax Elected Funds. (Date in force: 1/9/09) (23/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092036_en.pdf (NB: over 30 pages long)

The Lloyd’s Underwriters (Equalisation Reserves) (Tax) Regulations 2009/2039 These Regulations allow tax relief to corporate and partnership members of the Lloyd’s insurance market who create equalisation reserves equivalent to those required by FSA to be made by general insurance companies. (Date in force: 1/9/09) (23/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092039_en.pdf

The General Insurers’ Technical Provisions (Appropriate Amount) (Tax) Regulations 2009/1926 The amount of technical provisions stated in the accounts of a general insurer (which includes members of Lloyd’s underwriting syndicates carrying on general insurance business) for a period of account is taken into account in the calculation for tax purposes of the profits of the general insurer’s trade for that period unless that amount exceeds the appropriate amount. Where the amount stated in the accounts exceeds the appropriate amount the excess is not taken into account when computing the profits: see paragraphs 1(2) and (3) of Schedule 11 to the Finance Act 2007. These Regulations make provision specifying how the appropriate amount of a general insurer’s technical provisions is to be determined for this purpose. (Date in force: 1/9/09) (20/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091926_en.pdf

HMT: Simplification review - capital gains rules for groups of companies - a discussion document In the 2007 Pre-Budget Report, the Government renewed its commitment to tax simplification, launching three reviews to evaluate how a range of tax policies could be simplified. The simplification reviews cover VAT, anti-avoidance legislation and the corporation tax rules for related companies. This discussion document arises out of the related companies simplification review. Responses are required by 31 July 2009. (7/07/09) http://www.hm-treasury.gov.uk/d/consult_capitalgains070709.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 7) 2009/1601 These Regulations exempt from stamp duty and stamp duty reserve tax (“SDRT”) certain transfers of, or agreements to transfer traded securities made in the course of trading in those securities on the multilateral trading facility operated by Chi-X Europe Limited (“the Facility”). The transfers and agreements exempted are those involving LCH.Clearnet Limited and/or SIX X-CLEAR AG (“X- CLEAR”) and/or European Multilateral Clearing Facility NV (“EMCF”) (and nominees of either clearing 74

house), through whom transactions on the Facility are cleared, or clearing participants in LCH.Clearnet Limited or SIX X-CLEAR AG or European Multilateral Clearing Facility NV (and their nominees). These Regulations also exempt transactions on the Facility between LCH.Clearnet Limited, SIX X- CLEAR AG and European Multilateral Clearing Facility NV. (Date in force: 3/8/09) (2/07/09) The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 7) 2009 No. 1601

7. Financial regulation (general)

See the Bank of England’s June 2009 Financial Stability Report: section 3.2, “Greater self-insurance” (pages 40-46) – in particular see box entitled “Greater self-insurance” on page 40.

CEBS consultation on guidelines for the revised large exposures regime closes on 11 September 2009.

Chronological Reports

BIS/BERR: ICO - a Hampton Implementation Review Report This review is one of a series of reviews of regulatory bodies focusing on the assessment of regulatory performance against the Hampton principles and Macrory characteristics of effective inspection and enforcement. (9/11/09) http://www.berr.gov.uk/files/file53510.pdf

CEBS: Compendium of supplementary guidelines on implementation issues of operational risk/Feedback to the consultation on the Compendium of Supplementary Guidelines on implementation issues of operational risk (CP21) CEBS has published the above documents. The Compendium serves as a regularly updated Guidebook of documents produced by CEBS to address identified issues and to support the work of the national authorities in their assessment and review of the operational risk frameworks implemented by institutions. In general respondents supported the aim of the Compendium to achieve greater convergence of supervisory practices and consistency within and across banks in operational risk, in particular in those areas which have received little attention in the CRD and previous CEBS documents. (9/09/09) http://www.c-ebs.org/getdoc/0448297d-3f85-4f7d-9fa6-c6ba5f80895a/CEBS- 2009_161_rev1_Compendium.aspx http://www.c-ebs.org/getdoc/045ce287-c834-4d0d-a27e- 2430a2222afd/CEBS-2009-164-rev1-_Feedback-document-on-CP21.aspx

FSA: MoU between FSA and Stichting Autoriteit Financiele Marketen and De Nederlandsche Bank NV This MoU, signed on 25 May 2009 and recently placed on FSA's website, sets out how these entities will cooperate in their capacity as supervisors of clearing services providers in the UK and the Netherlands. (26/08/09) http://www.fsa.gov.uk/pubs/mou/fsa_afm_dnb.pdf

FSA: MoU with the Florida Office of Insurance Regulation The purpose of this MoU, signed on 15 July 2009, is to establish a formal basis for consultation, cooperation and coordination between the entities and to provide for the exchange of information relevant to their supervisory, regulatory and examination responsibilities. (26/08/08) http://www.fsa.gov.uk/pubs/mou/fsa_floir.pdf

Commission Directive 2009/83/EC of 27 July 2009 amending certain Annexes to Directive 2006/48/EC of the European Parliament and of the Council as regards technical provisions concerning risk management. (28/07/09) CRD amends - risk management - off-balance sheet

EC: Commission Services staff working document re possible further changes to CRD This document seeks views on further possible changes to the CRD which will supplement the two sets of revisions that have already been adopted or proposed: that is, the amendments that agreed by Member States and the European Parliament in April 2009, and the proposal adopted by the Commission on 13 July. The possible changes set out in this document deliver commitments made by the EC in its Communication of 4 March for the Spring European Council, which included undertakings to mitigate excessive procyclicality through counter-cyclical provisioning; to work on measures supplementary to the risk-based requirements of the CRD to address leverage or liquidity risk; to explore measures to ensure responsible lending and borrowing; and to remove the exceptions, derogations and discretions which give

rise to differences in national implementing legislation from the current directives. (27/07/09) EU -CRD amends staff working doc

CEPS: Mind the Basel gap This CEPS commentary argues that "policy-makers and regulators seem intent on further complicating the already complex maze of financial market rules" and calls for fundamental reform of the capital adequacy system (17/07/09) http://shop.ceps.eu/downfree.php?item_id=1875

BIS: Enhancements to the Basel II framework At its 8-9 July meeting, the newly expanded Basel Committee on Banking Supervision approved a final package of measures to strengthen the 1996 rules governing trading book capital and to enhance the three pillars of the Basel II framework. The package is part of the Basel Committee's broader programme to strengthen the regulatory capital framework. The programme aims to introduce new standards to promote the build-up of capital buffers that can be drawn down in periods of stress, strengthen the quality of bank capital and introduce a leverage ratio as a backstop to Basel II. (14/07/09) http://www.bis.org/publ/bcbs157.pdf?noframes=1

7.1 Liquidity

See BCBS Principles for Sound Liquidity Risk Management and Supervision.

See details of BIS work on the BIS website.

See CEBS Technical Advice to the EC on Liquidity Risk Management – 1st part and 2nd part

See European Commission communication “Driving European recovery” (4 March 2009)

See FSA consultation papers CP08/22: Strengthening Liquidity Standards (in particular page 18, which contains a handy table showing which firms the liquidity requirements apply to), CP 09/13: Strengthening Liquidity Standards 2: Liquidity Reporting and CP 09/14: Strengthening Liquidity Standards 3: Liquidity Transitional Measures. See also FSA’s timeline and scheduling of liquidity modifications

See section 2.2(vii) Turner Review and Section 3 “The absence of minimum standards for funding liquidity”

See FSA discussion paper DP00/9: A regulatory Response to the Global Banking Crisis

Simpler firms can use a standardised liquidity buffer ratio. A simplified ILAS firm is any bank or building society that meets the following criteria - the firm has no foreign currency assets or liabilities; wholesale funding is no more than 30% of total funding; and the material majority of assets are mortgages secured on residential property. See chapter 5 of CP08/22 Strengthening Liquidity Standards for more details on the standardised approach.

See also the Bank of England’s June 2009 Financial Stability Report: section 3.3, “Improved management of risks arising from interactions among firms and with the real economy through capital and liquidity buffers gauged to firms’ systemic importance”. See in particular section entitled “…and regulatory standards calibrated to firms’ contribution to systemic risk” (page 47/48).

See also section 3.2, “Greater self-insurance – larger liquidity buffers comprising high quality, government bonds” (pages 40-46). In particular see sections entitled “Firms’ resilience to liquidity risk needs to improve…” (page 42/43), “…through holding larger buffers of reliably liquid assets” (page 43), and “…and ensuring that contingency funding plans can be used in times of stress” (page 43).

See speech by Nigel Jenkinson, an Adviser to the Governor of the BoE, given at University of Frankfurt Conference on 15 May 2009: Containing System-Wide Liquidity Risks: Some Issues and Challenges

Chronological Reports

CEBS: Guidelines on liquidity buffers & survival periods The guidelines elaborate on the appropriate size and composition of liquidity buffers to enable credit institutions to withstand a liquidity stress for a period of at least one month without changing their business models. CEBS has also published a feedback document on this following its July 2009 consultation. (9/12/09) http://www.c-ebs.org/documents/Publications/Standards---Guidelines/2009/Liquidity-Buffers/Guidelines- on-Liquidity-Buffers.aspx http://www.c-ebs.org/documents/Publications/Standards--- Guidelines/2009/Liquidity-Buffers/Guidelines-on-Liquidity-Buffers_Feedback-document.aspx

BIS: Ten propositions about liquidity crises The paper is organised around ten propositions, including: following the growing reliance on funding liquidity in a market-based financial system; the role of payment and settlement systems and the proper role of (retail) deposit insurance schemes. (8/12/09) http://www.bis.org/publ/work293.pdf?noframes=1

Speech by Sally Dewar: Liquidity Conference - Keynote address/Strengthening liquidity standards (9 October 2009) Text of the above, given at today's FSA conference, follow. Topics include: the new regime and calibration of the liquid assets buffer and international developments. The slides presented by David Morgan, Manager – Liquidity PolicyPrudential Policy Division, appear in the second link. (9/10/09) Liquidity Conference - Keynote address http://www.fsa.gov.uk/pubs/international/morgan_slides.pdf

PS09/16: Strengthening liquidity standards including feedback on CP08/22, CP09/13, CP09/14 FSA has published its final rules on the liquidity requirements expected of firms which include: an updated quantitative regime coupled with a narrow definition of liquid assets; over-arching principles of self-sufficiency and adequacy of liquid resources; enhanced systems and controls requirements; granular and more frequent reporting requirements; and a new regime for foreign branches that operate in the UK. FSA notes that it will not tighten quantitative standards before economic recovery is assured and plans to phase in the quantitative aspects of the regime in several stages, over an adjustment period of several years. The precise amount of liquidity that each firm will need to hold will be refined over time to ensure that the combined impact of higher capital and liquidity standards is proportionate. Qualitative aspects of the regime will be put into place by December 2009. (5/10/09) FSA finalises far-reaching overhaul of UK liquidity regulation http://www.fsa.gov.uk/pubs/policy/ps09_16.pdf (NB: over 300 pages long) FSA also published separately Handbook Notice 93, which details the 30 September Board meeting at which these rules were passed. http://www.fsa.gov.uk/pubs/handbook/hb_notice93.pdf (NB: over 40 pages long)

SIFMA: Paper on displayed and non-displayed liquidity SIFMA notes that concerns have been raised, particularly in the last several months, by regulators and others regarding dark pools, flash quotes, and high frequency trading. The paper is intended to clarify the definition of many terms and reduce the confusion surrounding them. (2/09/09) http://www.sifma.org/regulatory/pdf/SIFMA-Paper-Displayed-Non-Displayed-Liquidity.pdf

FSA: Liquidity modifications This webpage offers a commentary following recent consultations and includes links to additional information on the process of applying for liquidity modifications and the expected timescales. FSA intends to give an update alongside the final rules and guidance, which it expects to issue in late September. (21/08/09) Liquidity Modifications

7.2 Capital

CEBS consultation on guidelines for regulating hybrid capital instruments closed on 23 September 2009 – see below for details of its feedback statement.

See section 2.2 (i) and 2.2(iv) of Turner Review , and section 5.30 of FSA discussion paper DP09/2: A Regulatory Response to the Global Banking Crisis. The FSA is likely to scrutinise firms’ IRB models more closely to ensure ‘through-the-cycle’ measures of risk are used instead of ‘point-in-time’ measures.

On 16 January 2008, the Basel Committee on Banking Supervision (BCBS) announced a range of enhancements to Basel 2 for consultation. The proposed changes to capital requirements cover trading book exposures, certain complex securitisations in the banking book and exposures to off-balance sheet vehicles.

See the European Commission’s Commission Services staff working document on possible changes to the CRD and the Commission’s CRD potential changes co-decision comitology.

See Paul Tucker’s speech of 28 May 2009 – “The Repertoire of Official Sector Interventions in the Financial System: Last Resort Lending, Market-Making, and Capital”, page 5 (central bank provision of liquidity insurance, and LOLR).

See Paul Tucker’s speech of 30 June 2009 – “Restoring Confidence – Moving Forward”.

See Paul Tucker’s speech of 9 June 2009 to the Association of British Insurers’ 2009 Biennial Conference, page 7 (bank capital instruments).

See also the Bank of England’s June 2009 Financial Stability Report: section 3.3, “Improved management of risks arising from interactions among firms and with the real economy through capital and liquidity buffers gauged to firms’ systemic importance”. See in particular section entitled “…and regulatory standards calibrated to firms’ contribution to systemic risk” (page 47/48).

See also section 3.2 of the Bank of England’s June 2009 Financial Stability Report, “Greater self- insurance through larger, higher quality capital buffers consisting of common equity” (pages 40-46). In particular see sections entitled “Aggregate levels of capital in the banking system need to rise…” (page 40/41), “…should incorporate countercyclical buffers…” (page 41) and “…need to comprise common equity alone…” (page 41/42).

Chronological Reports

CP09/30***: Capital planning buffers This CP clarifies FSA’s approach to capital planning buffers, which are set for BIPRU firms as part of Pillar 2 capital planning, in order to help firms understand better how this buffer may be drawn down during adverse external circumstances. (11/12/09) http://www.fsa.gov.uk/pubs/cp/cp09_30.pdf

CP09/29***: Strengthening capital standards 3 This CP sets out FSA’s proposals for implementing changes that are required following amendments to the CRD and also address some of the lessons learned from the financial crisis and follows up on aspects of the Turner Review. Proposals include: • improving the quality of firms’ capital by establishing clear EU-wide criteria for assessing the eligibility of hybrid capital to be counted as part of a firm’s overall capital. The proposals specify the features that hybrid capital must have regarding permanence, flexibility of payments and loss absorbency to be eligible as tier one capital;

• strengthening the capital requirements for the trading book to ensure that a firm’s assessment of the risks connected with its trading book better reflects the potential losses from adverse market movements in stressed conditions; • enhancing the management of large exposures by restricting a firm’s lending beyond a certain limit to any one party; • improving the risk management of securitisation, including a requirement to ensure that a firm does not invest in a securitisation unless the originator retains an economic interest • imposing higher capital requirements for re-securitisations to make sure that firms take proper account of the risks of investing in such complex financial products; • upgrading disclosure standards to increase market confidence. The consultation period closes on 10 March 2010. FSA plans to issue feedback with a PS confirming the final rules later on in 2010. The rules must come into effect on 1 January 2011. (10/12/09) http://www.fsa.gov.uk/pubs/cp/cp09_29.pdf (NB: over 300 pages long)

CEBS: Implementation guidelines for hybrid capital instruments The guidelines respond to the request in Article 63(a) of the current revised CRD that call on CEBS to elaborate guidelines for the convergence of supervisory practices with regard to hybrid instruments. The guidelines are structured in five main parts covering the topics of permanence, flexibility of payments, loss absorbency, limits and SPV issuances. The focus is on particular aspects where CEBS sees a need for further guidance in order to achieve convergent implementation and application of the new CRD provisions. The guidelines also provide additional guidance on a few issues which are not explicitly addressed by the CRD (e.g. buy-backs and SPV issuances). In addition, CEBS has published a feedback statement in respect of its June consultation. (10/12/09) http://www.c- ebs.org/documents/Publications/Standards---Guidelines/2009/Hybrids/Guidelines-on-Hybrids.aspx (NB: 30 pages long) http://www.c-ebs.org/documents/Publications/Standards--- Guidelines/2009/Hybrids/Guidelines-on-Hybrids_Feedback-document.aspx

European Council: Council agrees a general approach on strengthened capital requirements and remuneration policies in the banking sector The Council agreed on a general approach, pending the European Parliament's opinion in first reading, on a draft directive amending directives 2006/48/EC and 2006/49/EC (CRD) aimed at strengthening disclosure and capital requirements for the trading book and resecuritisation; instruments in the banking sector; and preventing remuneration policies that generate unacceptable levels of risk. It requested the presidency to pursue negotiations with the Parliament on the basis of its general approach, with a view to adopting the Directive in first reading. (10/11/09) http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/111006.pdf

FSA: Bank regulation, capital and credit supply: Measuring the impact of Prudential Standards This paper examines the evidence for a "bank capital channel" and focuses on providing measures of the effects of more stringent capital policies on bank lending and other measures of the scale of a bank’s intermediation activity such as off-balance sheet assets. Using a sample of almost 200 UK banking institutions for the period 1996 to 2007, it considers whether regulatory capital requirements affect banks’ target capital ratios and whether the level of a bank’s capital relative to this target lead to adjustments in lending (or other asset categories) and/or capital growth. (21/09/09) http://www.fsa.gov.uk/pubs/occpapers/op36.pdf (NB: over 40 pages long)

CEBS: Position paper on a countercyclical capital buffer The objective of this paper is to outline possible practical tools for supervisors to assess banks’ capital buffers under Pillar 2. It focuses on the cyclicality of credit risk in the banking book of IRB banks as these banks cover a substantial share of banking assets and as the use of internal models makes them more prone to pro-cyclical effects. (17/07/09) http://www.c-ebs.org/getdoc/715bc0f9-7af9-47d9-98a8- 778a4d20a880/CEBS-position-paper-on-a-countercyclical-capital-b.aspx

EC: Commission proposes further revision of banking regulation to strengthen rules on bank capital and on remuneration in the banking sector The EC has put forward a proposal amending the CRD, which now passes to the European Parliament and Council for further consideration. The main changes proposed include: capital requirements for resecuritisations; disclosure of securitisation exposures; capital requirements for the trading book and remuneration policies and practices within banks. (13/07/09) EUROPA - Press Releases - Commission proposes further revision of banking regulation to strengthen rules on bank capital and on remuneration in the banking sector (full press release) http://ec.europa.eu/internal_market/bank/docs/regcapital/com2009/Leg_Proposal_Adopted_1307.pdf (proposal - NB: over 30 pages long) EUROPA - Press Releases - Capital Requirements Directive - Frequently Asked Questions (FAQs)

7.3 Trading book capital

See Section 2.2(ii) of Turner Review and section 5.30 – 5.46 of FSA discussion paper DP09/2: A Regulatory Response to the Global Banking Crisis.

At international level, the BCBS has done some work to improve the capital regime in relation to the trading book. It has proposed that the VaR model is supplemented with an incremental risk charge (IRC). BCBS has published guidelines on how this is to be applied.

See also BIS webpage: Overview - Enhancements to the Basel II Framework, including the capital regime for trading book positions

Chronological Reports

BIS: Analysis of the trading book quantitative impact study - October 2009 The Basel Committee on Banking Supervision has issued the results of its recent trading book quantitative impact study, which assesses the impact of the revisions to the 1996 rules. (16/10/09) http://www.bis.org/publ/bcbs163.pdf?noframes=1

BIS: Guidelines for computing capital for incremental risk in the trading book At its 8-9 July 2009 meeting, BIS approved a final package of measures to strengthen the 1996 rules governing trading book capital and to enhance the three pillars of the Basel II framework. The programme aims to introduce new standards to promote the build-up of capital buffers that can be drawn down in periods of stress, strengthen the quality of bank capital and introduce a leverage ratio as a backstop to Basel II. (14/08/09) http://www.bis.org/publ/bcbs158.pdf?noframes=1

7.4 Accounting

See section 2.7 (ii), section 2.2 (v) and Box 2D (Current Accounting Practices for Trading and Banking Books) of Turner Review.

See also Turner’s reference in his Presentation on the review to the need to “anticipate future likely losses in published accounts” (in the “Capital, accounting and liquidity” section).

See paragraphs 5.39 –5.45 of FSA discussion paper DP09/2: A Regulatory Response to the Global Banking Crisis.

Chronological Reports

CEBS: Guidelines for implementation of the framework for consolidated financial reporting CEBS has published its revised guidelines on financial reporting which provide for a maximum data model that will ensure a greater degree of harmonisation of regulatory reporting requirements in Europe. Agreed changes in IFRS have been incorporated into the revised FINREP. In 2010, further major changes to the accounting standards are expected which will impact FINREP. CEBS will review the revised FINREP in due course to take account of the changes that may arise in IAS 39, as well as IAS 1. The application date for the revised FINREP will be 1 January 2012. (15/12/09) http://www.c- ebs.org/documents/Publications/Standards---Guidelines/2009/FINREPrev2/FINREPrev2- instructions.aspx (NB: over 30 pages long)

Commission Regulation (EC) No 1164/2009 of 27 November 2009 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Interpretations Committee's (IFRIC) Interpretation 18 This has been published in the Official Journal. (2/12/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:314:0015:0020:EN:PDF

Commission Regulation (EC) No 1165/2009 of 27 November 2009 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standard (IFRS) 4 and IFRS 7 This has been published in the Official Journal. (2/12/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:314:0021:0026:EN:PDF

Commission Regulation (EC) No 1171/2009 of 30 November 2009 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Interpretations Committee's (IFRIC) Interpretation 9 and International Accounting Standard (IAS) 39 This has been published in the Official Journal. (2/12/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:314:0043:0046:EN:PDF

CEBS: Part 2 of the IASCF constitution review proposals for enhanced public accountability CEBS has published the text of a letter it has sent to IASCF re the above. (1/12/09) http://www.c-ebs.org/documents/Publications/Other-Publications/Comment-letters-by- CEBS/Accounting/2009-11-30-(CEBS-CL-Constitution-Review-II).aspx

CEBS: Exposure draft: improvements to IFRS CEBS has published the tezt of a letter it has sent to IASB in which it comments on IASB’s exposure draft on improvements to IFRS. (27/11/09) http://www.c-ebs.org/documents/Publications/Other-

Publications/Comment-letters-by-CEBS/Accounting/2009-11-24-(ED-2009-11-Improvements-to- IFRS).aspx

Commission Regulation (EC) No 1136/2009 of 25 November 2009 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standard (IFRS) 1 (26/11/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:311:0006:0020:EN:PDF

FRC: Amendments to FRS 25 (IAS 32) - Financial Instruments Presentation The proposed amendment follows the issue of ‘Classification of Rights Issues - Amendment to IAS 32’ published by IASB which is concerned with how rights issues are classified. This draft proposes amendments to FRS 25 in order to ensure that FRS 25 remains fully converged with IAS 32. Responses are required by 15 December 2009. (17/11/09) http://www.frc.org.uk/images/uploaded/documents/FRED - rights issues Web Optimised.pdf

IASB: Financial instruments: amortised cost and impairment IASB has published an exposure draft on the amortised cost measurement and impairment of financial instruments. Comments are required by 30 June 2009. (6/11/09) http://www.iasb.org/NR/rdonlyres/888CC00C-5D55-4A90-9718- 372F91D1BD72/0/EDFIImpairmentNov09.pdf (NB: over 40 pages)

CESR: Application of disclosure requirements related to financial instruments in the 2008 financial statements CESR has published an analysis regarding the compliance of European financial institutions with disclosure requirements related to financial instruments. The findings revealed that, in some areas, a significant proportion of companies failed to comply with mandatory disclosure requirements relating to financial instruments, for example regarding the use of valuation techniques and on relationships with special purpose entities. (2/11/09) http://www.cesr.eu/data/document/09_821.pdf

CESR: Adoption of international standards on auditing In a comment letter to the EC, CESR underlines the growing international acceptance of international standards on auditing, as published by IAASB. CESR also stressess the attention to the potential benefits of having broadly harmonised standards on auditing that may arise with the introduction of ISAs into the EU. (22/10/09) http://www.cesr.eu/data/document/09_776.pdf

CEBS: International Standards on Auditing CEBS has published its comments on the EC's consultation on the adoption of ISAs. (7/10/09) http://www.c-ebs.org/getdoc/06b481f7-5c8e-4ca1-b1f5-10c0db4b2b7d/2009-10-05-(CEBS-CL-EC- Consultation-on-the-Adoptio.aspx

Auditing Practices Board: Consultation on audit firms providing non-audit services to listed companies that they audit The APB, which is part of the FRC, has published this report in response to TSC's May 2009 "Banking Crisis" report, which had called for the appropriateness of the provision of non-audit services by auditors to the entities that they audit to be revisited. It includes an analysis of the nature of non-audit services provided by auditors; the reasons why the provision of such services can have the potential to impact the independence, and therefore the objectivity, of the auditor; the approach to auditor independence that has been taken by the APB since 2004; developments in the provision of non-audit services in the UK since the APB issued Ethical Standards for Auditors in October 2004 and information on the approach taken internationally. Responses are required by 29 January 2010. (6/10/09) http://www.frc.org.uk/images/uploaded/documents/APB ES NAS Consultation (October 2009).pdf (NB: 40 pages long)

CESR: Exposure draft discount rate for employee benefits CESR has published the text of a letter it has sent to EFRAG regarding the proposal contained in IASB's exposure draft. (2/10/09) http://www.cesr.eu/data/document/09_807.pdf

CEBS: Exposure Draft ED/2009/5 Fair Value Measurement CEBS has published its response in respect of the above to IASB. (29/09/09) http://www.c-ebs.org/getdoc/c517e4f6-385f-4545-9b30-05913e818e2f/2009-09-28-(CEBS-CL-ED-Fair- Value-Measurement).aspx

IOSCO: Consultations concerning audit services and auditors IOSCO has launched three related consultation reports prepared by its Task Force on Audit Services on: (i) the transparency of firms that audit public companies; (ii) auditor communications and (iii) exploration of non-professional ownership structures for audit firms. Links below. (21/09/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD302.pdf (NB: over 30 pages long) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD303.pdf (NB: over 40 pages long) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD304.pdf

CESR: Comment letters CESR has published letters to (i) IASB re Financial Instruments: Classification and Measurement, and (ii) EFRAG regarding its draft comment letter on the IASB’s Exposure Draft ‘Financial Instruments: Classification and Measurement'. Links follow. (17/09/09) http://www.cesr.eu/data/document/09_86.pdf http://www.cesr.eu/data/document/09_796.pdf

CEIOPS: Letter of comments on IASB's exposure draft on financial instruments - classification and measurement CEIOPS has published the above letter to IASB. This focuses on issues that are of particular relevance for the insurance sector, especially under the Solvency II project, in an attempt to highlight the insurance specificities that should be taken into account by IASB when publishing a final standard on financial instruments. (15/09/09) http://www.ceiops.eu/media/files/publications/lettersofcomments/CEIOPS-letter- to-IASB-on-IAS-39-Exposure-Draft-20090914.pdf

FRC: Board for Actuarial Standards - Insurance This consultation sets out proposals for a specific technical actuarial standard on insurance. Responses are required by 20 November 2009. (7/09/09) http://www.frc.org.uk/images/uploaded/documents/TAS I CP final.pdf (NB: over 80 pages long)

CESR: Draft comment letter on the IASB’s Exposure Draft Classification of Rights Issues CESR has published its response to EFRAG re the above. (3/09/09) http://www.cesr.eu/data/document/09_787.pdf

CESR: Response to EFRAG’s draft comment letter on the IASB’s discussion paper on credit risk in liability measurement (1/09/09) [CESR] - Document

CESR: Sixth extract from EECS’s database of enforcement decisions EECS is a forum in which all EU National Enforcers of financial information meet to exchange views and discuss experiences of enforcement of IFRS. CESR has developed a confidential database of enforcement decisions taken by individual EECS members as a source of information to foster appropriate application of IFRS and has committed to publish extracts of the database to provide issuers and users of financial statements with similar assistance. (1/09/09) [CESR] - Document

BIS: Guiding principles for the revision of accounting standards for financial instruments issued by the Basel Committee The Basel Committee on Banking Supervision has released today a set of high level guiding principles to assist the IASB in addressing issues related to provisioning, fair value measurement and related disclosures. (1/09/09) http://www.bis.org/publ/bcbs161.pdf?noframes=1 86

FCAG: Report of the Financial Crisis Advisory Group This report makes recommendations relating to effective financial reporting, limitations of financial reporting, convergence of accounting standards, and standard setter independence and accountability. (28/07/09) IASB - financial crisis issues

CESR: Derecognition/Preliminary views on leases CESR has published two comment letters to European Financial Reporting Advisory Group, one on EFRAG's draft comment letter on the IASB's Exposure Draft Derecognition and another on draft comment letter on the IASB/FASB’s joint DP Preliminary Views on Leases. Links below. (15/07/09) http://www.cesr.eu/popup2.php?id=5802 http://www.cesr.eu/popup2.php?id=5803

EC: International audit market - consultation respondents recognise need to remove barriers to entry The EC has published a summary of the replies received to the public consultation on control structures in audit firms and their consequences on the audit market. It notes that the vast majority of respondents favoured removing all barriers that may prevent new firms from entering the international audit market and successfully establishing themselves. (15/07/09) http://ec.europa.eu/internal_market/auditing/docs/market/consultation2008/summary_report_en.pdf

7.5 Stress testing

See FSA consultation paper CP08/24: Stress and scenario testing.

The FSA has published a statement, which clarifies how stress tests have been used in the UK.

See “Why Banks Failed the Stress Test” – basis for a speech made by Andrew Haldane of BoE at the Marcus-Evans Conference on Stress-Testing, 9-10 February 2009

See also the Bank of England’s June 2009 Financial Stability Report: section 3.3, “Improved management of risks arising from interactions among firms and with the real economy through more realistic stress testing that factors in feedback effects from firms’ responses to shocks” – in particular see section entitled “…with improvements in firms’ stress testing…” (page 47).

Chronological Reports

CEBS: Guidelines on stress testing CEBS has published the draft of its revised Guidelines on stress testing for consultation. These update the guidelines on technical aspects of stress testing published on 14 December 2006. They are supplemented by a number of annexes that focus on the stress testing of specific risks (market risk, securitisation, credit risk, operational risk, interest rate risk in the banking book, and concentration risk). Responses are required by 31 March 2010. (14/12/09) http://www.c-ebs.org/documents/Publications/Consultation- papers/2009/CP32/Draft-revised-guidelines-on-stress-testing.aspx (NB: over 40 pages long)

FSA: Stress and Scenario Testing - Feedback on CP08/24 and final rules FSA has announced an integrated approach to stress testing which consists of three main elements: firms' own stress testing; FSA stress testing of specific firms and simultaneous system-wide stress testing. This PS focuses primarily on improvements FSA expects to see in firms’ own stress testing and provides additional comments where appropriate to explain its requirements. In particular it comments on the following aspects in some detail: stress testing infrastructure; Pillar 2 stress testing; reverse stress-testing and specific concerns from insurers. FSA will be recommending scenarios to help firms improve capital planning in 2010. (11/12/09) http://www.fsa.gov.uk/pubs/policy/ps09_20.pdf (NB: 100 pages long)

CEBS: EU wide stress testing exercise CEBS has published a short synopsis of the presentation given to ECOFIN ministers and governors on 1 October regarding the outcome of the EU-wide stress test on an aggregated basis. (2/10/09) http://www.c-ebs.org/getdoc/629d8941-3f2a-4a7c-a180-c68208f8b005/CEBS-2009-180-Annex-2-(Press- release-from-CEBS).aspx

7.6 Securitisation

The BCBS have proposed measures in relation to securitisations in their enhancements programme. The Committee is proposing enhanced disclosure requirements for securitisations and sponsorship of off- balance sheet vehicles, which should provide market participants with a better understanding of an institution's overall risk profile.

On 6 May, IOSCO also suggested that originators of securitisations retain a long-term economic exposure to their securitised products.

See information on the Regulatory Capital page of the European Commission’s website for details of the CRD amendments package (see the final text of new Article 122A of the CRD).

See the Commission Services staff working document on possible changes to the CRD.

See the Crosby report: Mortgage Finance: Final report and recommendations November 2008.

See Budget report Chapter 3, section 3.33: “Asset-Backed Securities Guarantee Scheme” and the European Commission’s press release on its approval of the Asset-Backed Securities Guarantee Scheme.

See European Parliament's Legislative Observatory for details of the progress of the amendments to the CRD.

See section 1.1 of the Turner Review

See also the Bank of England’s June 2009 Financial Stability Report: section 3.3, “Improved management of risks arising from interactions among firms and with the real economy” (pages 46-52) – in particular see section entitled “…including measures to improve the robustness of securitisation markets” (page 52).

7.7 Credit rating agencies

Firms use credit ratings as part of their PD calculation in their own IRB models. Credit ratings are used as part of the prudential framework in the calibration of the standardised approach for corporate exposures, the standardised and IRB approaches for structured finance exposures and indirectly through the IRB approach for corporate exposures.

See section 2.5 (i) of Turner Review and FSA discussion paper DP09/2:A Regulatory response to the Global Banking Crisis (section 10 “Market Issues”).

The European Parliament and the European Council approved the proposed Regulation on credit rating agencies (CRAs) in April 2009 (see the European Commission’s Press release). The EC’s rules will supersede IOSCO’s Code of Conduct Fundamentals for Credit Rating Agencies (CRAs), which were revised in 2008 in light of the CRA’s role in the financial turmoil. See the Rating Agencies page of the European Commission’s website.

See section 3.2 of the Bank of England’s June 2009 Financial Stability Report, “Greater self-insurance” (pages 40-46). In particular see section entitled “…and banks should rely less on external credit ratings” (page 42)

See FT editorial “Rating agencies”, 4 September 2009.

Chronological Reports

Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies This has been published in the Official Journal. (17/11/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:302:0001:0031:EN:PDF

CESR: Guidance on registration process, functioning of colleges, mediation protocol, information set out in Annex II, information set for the application for certification and for the assessment of CRAs systemic importance/CESR’s consultation on CRAs Central Repository CESR has published a feedback statement on its consultation for a central repository for credit rating agencies (second link below) and issued a CP detailing the proposed registration and supervision process for CRA in Europe (first link below). The feedback statement provides a summary of the main suggestions received by CESR regarding the setting of common standards for presentation of historical and performance information and the potential output design of the repository along with an explanation of CESR’s decision on some of the most significant issues raised. The purpose of the consultation document is to seek comments on the conclusions CESR has drawn for setting guidelines for the registration process, the functioning of colleges, the mediation protocol, the common standards on presentation of information for registration and endorsement (Annex II) and the information for the application of certification and for the assessment for CRAs systemic importance. Responses for the consultation are required by 30 November 2009. (21/10/09) http://www.cesr.eu/data/document/09_955.pdf (NB: over 60 pages long) http://www.cesr.eu/data/document/09_822a.pdf

CESR: Fact finding exercise of the use in the EU of ratings issued by third countries credit rating agencies CESR has published the responses to the above consultation, which are available to download individually. (20/08/09) CESR [The Committee of European Securities Regulators]

CESR: Consultation on a central repository for credit rating agencies CESR has now published the responses to the above, which can be downloaded individually via the following link. (12/08/09) CESR [The Committee of European Securities Regulators] 90

CESR: CRAs Central Repository The purpose of this consultation document is to seek comments on the conclusions CESR has drawn for setting common standards for presentation of historical and performance information and for the design of the potential output from the central repository. The deadline for responses is 7 August 2009. (9/07/09) http://www.cesr.eu/data/document/09_579.pdf

EC: Request for CESR technical advice on third country equivalence and the regulatory regime for credit rating agencies The EC has published this, which asks CESR to provide technical advice on the equivalence between certain legal and supervisory frameworks of third countries and the framework for credit rating agencies introduced by the Credit Rating Agencies Regulation (it notes that formal adoption of this is expected by the end of September 2009). (2/07/09) http://ec.europa.eu/internal_market/securities/docs/cesr/cesr_mandat20090612_en.pdf

7.8 MiFID and securities regulation (inc market abuse and short selling)

See paragraphs 4.79 and 4.80 of the Government’s White Paper.

See CESR’s 6 August 2009 update of short selling measures taken by its members.

See FSA consultation paper CP09/01: Temporary short selling measures and subsequent policy statement PS09/1: Temporary short selling measures – feedback.

See FSA discussion paper DP09/01: Short selling and consultation paper CP09/15: Extension of the short selling disclosure obligation.

EC intends to review Market Abuse Directive –see page 8 of its Communication for the Spring European Council volume 1: “Driving European recovery”.

Chronological Reports

IOSCO: Approaches to market surveillance in emerging markets This report examines the current approaches adopted by exchanges and/or regulators in conducting surveillance of markets. These include the role of the regulator versus the exchange in conducting the surveillance function, surveillance systems and mechanisms used, the importance of human capital and surveillance skills and supplementary efforts to complement the surveillance function. This report also examines the current methods used to intervene once market abuse is detected and international cooperation with foreign exchanges and/or regulators on matters involving market surveillance. It is also the intention of this report to provide emerging market regulators with a greater understanding of the key regulatory issues and challenges affecting market surveillance, and identify critical issues specific to emerging markets that could shape regulatory responses. (21/12/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD313.pdf

CESR: Waivers from pre-trade transparency obligations under MiFID The updated table includes information on a new assessments made at CESR level regarding an application for a waiver to be granted on the basis of the MiFID Implementing Regulation that CESR considered not to be compliant with MiFID. (21/12/09) http://www.cesr.eu/data/document/09_324_Update_17122009.pdf

CESR: Measures recently adopted by CESR members on short-selling CESR has updated this document, with new items marked in red. (17/12/09) http://www.cesr.eu/data/document/08_742.pdf

CESR: Waivers from pre-trade transparency obligations under MiFID This updated document includes information on a new assessments made at CESR level regarding an application for a waiver to be granted on the basis of the MiFID Implementing Regulation that CESR considered not to be compliant with MiFID. (9/12/09) http://www.cesr.eu/data/document/09_324_Update_091209.pdf

Financial Services and Markets Act 2000 (Market Abuse) Regulations 2009/3128 These Regulations amend ss118 and 118A of the Financial Services and Markets Act 2000 (c.8) (“the 2000 Act”) which were substituted, together with ss118B and 118C, for the original s118 by the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2005, S.I. 2005/381 as from 1 July 2005. Such Regulations implemented, in part, Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (a) (MAD). Subsections 118(4), 118(8), 118A(2) and 118A(3) of the 2000 Act retain the definitions of market abuse which are broader than those in Articles 1 to 5 of MAD and were already in the original s118. Section 118(9) (as amended by SI 2008/1439) provides that these provisions will cease to have effect on 31 December 2009; s118A(6) 92

(as also amended by S.I. 2008/1439) does the same for the related provisions in s118A. Regulations 2(2) and 2(3) amend ss118(9) and 118A(6) of the 2000 Act to change the date on which the provisions affected by those sections will cease to have effect. The result of these amendments is that subsections (4) and (8) of s118 of the 2000 Act and related ancillary provisions will remain in force until 31 December 2011. (Date in force: 31/12/09) (1/12/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093128_en.pdf

CESR: MiFID complex and non complex financial instruments for the purposes of the Directive’s appropriateness requirements CESR has published a feedback statement and a Q&A to its consultation on MiFID's complex and non- complex financial instruments. (3/11/09) http://www.cesr.eu/data/document/09_558.pdf http://www.cesr.eu/data/document/09_559.pdf

CESR: Waivers from Pre-trade Transparency Obligations under MiFID This updated document includes information on a new assessments made at CESR level regarding an application for a waiver to be granted on the basis of the MiFID Implementing Regulation that CESR considered not to be compliant with MiFID. (30/10/09) http://www.cesr.eu/data/document/09_324_Update_102009.pdf

CESR: Inducements: Good and poor practices This consultation paper highlights some of the observed industry practices on the MiFID inducements rules and provides investment firms with an understanding of how CESR views such practices. Responses are required by 22 December 2009. (23/10/09) http://www.cesr.eu/data/document/09_958.pdf (NB: over 40 pages long)

CESR: Protocols on operation of database, supervision of branches and passport notifications CESR has published updates of three MiFID Protocols. The first Protocol deals with the operation of the CESR MiFID Database which now includes an Annex 2 which provides information on how CESR Members will make the calculations to be published in the database on the first trading day of March 2010. In addition to the currently used regulated market data, CESR Members will include in these calculations the trading data from the three most relevant MTFs in terms of overall market share. The second Protocol updated focuses on the Supervision of Branches under MiFID which has been modified by noting that Standing Requests for Assistance will refer to both present and future branches. The third Protocol updated is on MiFID Passport Notifications and has been amended to include information about investment services provided through tied agents in the standard notification forms. Some of the contact details in the Annexes of this Protocol have also been updated. (15/10/09) http://www.cesr.eu/data/document/09_172b_update.pdf http://www.cesr.eu/data/document/07_672b_update.pdf http://www.cesr.eu/data/document/07_317c_update.pdf (NB: over 40 pages long)

CESR: Understanding the definition of advice under MiFID CESR has published this consultation which seeks to clarify and illustrate situations where firms will, or will not, be considered as providing investment advice. Among the topics considered in the consultation are: the provision of personal recommendations; the presentation of recommendations; perimeter issues around the definition of personal recommendation and issues around the form of communication. Responses are required by 14 December 2009. (14/10/09) http://www.cesr.eu/data/document/09_665.pdf

CESR: Measures recently adopted by CESR members on short-selling CESR has updated this document, with new items marked in red. (9/10/09) http://www.cesr.eu/data/document/08_742.pdf

Speech by Mike Wood: The Continuing Obligations Regime - current issues and challenges (9 October 2009) Text of the above, given at the Institute of Directors, follows. Topics include: UKLA's experiences of the ongoing impact of market conditions; some technical aspects of disclosures; key issues that arise from routine case enquiries or public disciplinary actions and UKLA's approach to oversight of directors’ 93

dealings in listed securities. (9/10/09) The Continuing Obligations Regime ¿ current issues and challenges

FS09/4: Short selling: Feedback on DP09/1 FSA has published the above and notes that, given that important international initiatives on short selling remain ongoing, it does not plan to publish any proposed rule changes at this stage. Instead, it is using the FS to set out its policy stance in light of the responses received and relevant developments since the DP was published. FSA notes that CESR's proposals on a short selling disclosure regime - published since the DP came out - include the idea for private disclosures to regulators at 0.1%. FSA states that it is open to the possibility of requiring private disclosures at the lower threshold. FSA will continue to work with CESR to develop an agreed European disclosure policy for short selling. (1/10/09) FSA sets out policy on short selling http://www.fsa.gov.uk/pubs/discussion/fs09_04.pdf

Commodity Markets Update – Issue 2 Topics include: policy and international work; Missing Trader Intra-Community fraud; market abuse commodities roundtable and commodity markets update. (1/10/09) http://www.fsa.gov.uk/pubs/newsletters/cm_newsletter2.pdf

CESR: Measures recently adopted by CESR members on short-selling CESR has updated this document, with new items marked in red. (22/09/09) http://www.cesr.eu/data/document/08_742.pdf

FSA: Transaction Reporting User Pack This document, valid from 21 September 2009, has been produced this pack in conjunction with various firms and trade bodies. It aims to bring together the detailed instructions and guidelines FSA has published previously, providing firms with a consolidated point of reference to help them understand and comply with their transaction reporting obligations. Firms are advised to use information contained in this guide together with any subsequent guidance issued on our website or through MarketWatch. (16/09/09) http://www.fsa.gov.uk/pubs/other/trup.pdf (NB: over 40 pages long)

IOSCO: Unregulated financial markets and products - final report This report examines ways to introduce greater transparency and oversight in unregulated financial markets and products and improve investor confidence in, and the quality of, these markets. It makes recommendations about regulatory approaches to be considered by financial market regulators and then implemented as appropriate with respect to securitisation and CDS markets and then goes on to discuss the broader unregulated financial markets. (4/09/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD301.pdf (NB: over 40 pages long)

CEBS: Guidelines for passport notifications Following a three month consultation period, the guidelines are intended to provide a framework for the co-operation of competent authorities with regard to the notification provisions of the Banking Directive and MiFID following a three month public consultation. They address co-operation and exchange of 94

information between the competent supervisory authorities and call for the harmonisation of documents exchanged. (28/08/09) http://www.c-ebs.org/getdoc/364b9c1a-c8c4-4e84-8b20-1195707c08f9/CEBS- Passporting-Guidelines.aspx (NB: over 40 pages long)

FSA: MarketWatch Issue 33 Topics include: manipulation of the order book; Suspicious Transaction Reports; Article 57 request for information; short selling (it is noted that FSA intends to issue its FS to DP09/1 in early October); Alternative Instrument Identifier (the implementation date has been postponed); the forthcoming new transaction reporting user pack; common transaction reporting issues; transaction reporting forum and data quality. (28/08/09) http://www.fsa.gov.uk/pubs/newsletters/mw_newsletter33.pdf

FSA: List! Issue 22 Topics include: issues faced during the daily work of UKLA on transactions, black lining; comfort letters for schemes of arrangement and restrictions on transfer in ETFs vehicles; compliance with the Listing Principles, Continuing Obligations (noting "It is generally not acceptable for issuers to attempt to choreograph the assessment and possible disclosure of various and offsetting information that may individually meet the tests for inside information. In this context we have, in our capacity as the UK Listing Authority, recently privately warned an issuer as a result of concerns that it may have delayed announcing inside information until it was ready to announce other, off-setting news"); Equity Markets Group webpage. (28/08/09) http://www.fsa.gov.uk/pubs/ukla/list_aug09.pdf

ACT: Consultation document: Possible initiatives to enhance the resilience of OTC derivatives markets SEC(2009) 914 ACT has published its response to the above-mentioned EC consultation. It expresses concern that "legislation will prohibit companies from using tailored OTC derivatives including many straightforward transactions such as FX forwards, currency, interest rate and commodity swaps, options and forwards ... The ACT does not want to stand in the way of improvements to streamline OTC processes and potentially to reduce overall risk but at the same time we do not want to see convenient and flexible hedging instruments for non-financial sector companies banned". (28/08/09) http://www.treasurers.org/system/files/ACTresponsetoEUOTCderivativesproposals.pdf

FSA: Clarity for activist shareholders The press release notes that FSA has clarified how its rules apply to activist shareholders who wish to work together to promote effective corporate governance in companies in which they have invested in a letter sent to the ISC (full text appears in the second link). It sets out its approach on key areas of its rules: • market abuse rules do not prevent investors from engaging collectively with the management of an investee company. However, trading on the basis of knowing another investor’s intentions or working jointly to avoid disclosure of shareholdings could constitute market abuse; • FSA rules on disclosure of major shareholdings require that investors who have agreed to pursue the same long-term voting strategy should aggregate their shareholdings when considering whether their shareholdings reach the threshold for disclosure. However, this disclosure would be unlikely to be triggered by ad hoc discussions between investors on particular corporate issues; and • Under the EU Acquisitions Directive, where investors are “acting in concert” they require FSA approval if they reach a controlling shareholding in a regulated firm. “Acting in concert” is not defined in the Directive but FSA does not view the requirement as preventing ad hoc discussions or understandings between investors that are intended solely to promote generally accepted principles of good corporate governance in firms in which they have invested. (19/08/09) FSA provides clarity for activist shareholders http://www.fsa.gov.uk/pubs/other/shareholder_engagement.pdf

CESR: Update on the assessment of the proposals for MiFID pre-trade transparency waivers CESR has published information on new assessments made at CESR level regarding an application for a waiver to be granted on the basis of Article 18(1)(a) of the MiFID Implementing Regulation (Reference

Price Waiver) that CESR considered not to be compliant with MiFID. (10/08/09) CESR pre-trade transparency waivers

CESR: CESR publishes answers received to the consultation on MiFID complex and non-complex financial instruments for the purposes of the Directive's appropriateness requirements The Markets in Financial Instruments Directive (MiFID) includes conduct of business requirements applying to a range of investment services. In certain respects, concerning investment firms' obligations to their clients and the information they must ask of clients, the approach and detail of these requirements differs according to the nature of the service; in particular whether or not the firm is providing investment advice to the client or is managing the client's portfolio on a discretionary basis. MiFID lays down three sets of requirements in this area, and the consultation paper published by CESR in May deals with the way in which the requirements apply to particular types of MiFID financial instruments. The responses to this consultation were published by CESR today. (5/08/09) CESR complex/non-complex instruments

BoE: Bank of England updates securities borrowing and lending guidance BoE’s Securities Lending and Repo Committee has published a revised version of the Securities Borrowing and Lending Code of Guidance which includes new sections on best execution under MiFID which sets out a summary of the basic procedures which UK based participants in securities lending observe as a matter of good practice. (3/08/09) bankofengland stock borrowing

FSA: Financial Advisers and Passporting FSA has published this factsheet for financial advisers who wish to advise their clients who are living in Europe. (31/07/09) FSA factsheet - passporting

HMT: Notifying trading suspensions in the market This HMT consultation proposes to simplify the means by which FSA notifies the market that it has suspended trading, or removed a financial instrument from trading. To enable FSA to ensure that a decision to suspend or remove a financial instrument from trading is put into effect by these firms without delay, it proposes to allow FSA to give notice of its decision via a Regulatory Information Service. The proposed new procedure would also allow FSA to require a specified class of institutions to suspend or remove a financial instrument from trading without having to identify each institution individually. However, FSA will retain the right to notify institutions individually, where appropriate. Responses must be received by 23 October 2009. (29/07/09) HMT - trading suspensions

HMT/FSA: Harmonisation of securities law The EC has published the joint response produced by HMT and FSA to its consultation on legislation on legal certainty of securities holdings and dispositions. (29/07/09) HMT/FSA - harmonisation securities law

CESR: Measures recently adopted by CESR members on short-selling CESR has updated this document. (27/07/09) CESR short selling update

ISLA: Master Securities Agreement ISLA has published its master securities agreement for 2009 (prepared by Freshfields). The agreement supersedes the 2008 document as the industry standard for international securities lending transactions. It makes a number of enhancements including: new post default procedures; amended events of default; greater clarity on taxation; an updated Agency Annex; and an updated UK tax addendum. (27/07/09) ISLA - master securities agreement

CESR: Classification and identification of OTC derivative instruments for the purpose of the exchange of transaction reports amongst CESR Members CESR has published a consultation paper on the classification and identification of OTC derivative instruments for the purpose of including those instruments in the exchange of transaction reports amongst CESR Members, currently done through CESR's Transaction Exchange Mechanism (TREM). After a year and a half of TREM's running, CESR decided to launch a project to amend TREM to facilitate the 96

exchange of transaction reports on OTC derivative instruments. This consultation paper is aimed at defining the framework for this exchange. Responses are required by 1 October 2009. (22/07/09) http://www.cesr-eu.org/data/document/09_618.pdf

ISLA: Securities lending and short selling A short report from ISLA. It supports effective regulation of short selling including: tackling any abusive trading under general market abuse regimes; effective settlement discipline to encourage timely settlement without deterring legitimate trading activity; and market transparency, including disclosure of individual net short positions to regulators. (17/07/09) http://www.isla.co.uk/uploadedFiles/Member_Area/General_Library/SECURITIES LENDING AND SHORT SELLING (3).pdf

EC: Monitoring prices, costs and volumes of trading and post-trading services The EC has published a first study on the prices, costs and volumes for trading and post-trading of securities in the EU, carried out by Oxera Consulting Ltd. This study, which will be renewed, allows the EC to monitor how prices and costs evolve. In this way, the Commission will be able to better evaluate the effect of its policies in this area and to base future policies on solid evidence. This study contains data from the full securities trading and post-trading value chain for 2006 (as well as 2008 for trading venues, CCPs and CSDs. It accordingly provides a detailed understanding of end-to-end trading and post-trading prices and costs in a number of European financial centres. The EC highlights the following general findings: volume determines prices and costs are decreasing: (16/07/09) EUROPA - Press Releases - Financial services: Commission publishes study on trading and post-trading prices, costs and volumes (full press release) http://ec.europa.eu/internal_market/financial-markets/docs/clearing/2009_07_ec_report_oxera_en.pdf (Report - NB: over 130 pages long) EUROPA - Press Releases - Study on trading and post-trading prices, costs and volumes – Frequently Asked Questions (FAQ)

CESR: Application of and disclosures related to the reclassification of financial instruments CESR has published this statement on application of and disclosures related to the reclassification of financial instruments which covers the developments during 2008 and 2009 in the area of fair value accounting and an analysis of the application of the amendments to IAS 39 and IFRS 7 regarding reclassification applied in the interim financial statements for Q3 2008. (15/07/09) [CESR] - Document

CESR: Response to the EC call for evidence on the review of MAD CESR has published its response on MAD in a Q&A format, noting that it has decided in its response to restrict itself only to those issues where CESR members are in common agreement on the basis that individual CESR members are not precluded from providing their own separate, individual responses to the EC’s consultation. (13/07/09) [CESR] - Document

CESR: MiFID Supervisory Briefing - information and reporting to clients This supervisory briefing is designed to help supervisors assess whether a firm is MiFID compliant. The document is structured around three headings: (1) setting up arrangements and procedures necessary to be compliant; (2) types of information to be provided to the client; (3) medium via which the information is provided. (9/07/09) [CESR] - Document

CESR: Q&A on MiFID: common positions agreed by CESR Members This is the fourth update of the above, with new items marked in red. [NB: the link will only go to the latest version] (9/07/09) [CESR] - Document

CESR: Proposal for a pan-European short selling disclosure regime CESR notes that it is of the view that a pan-European regime for enhanced transparency of short selling should be implemented on a permanent and harmonised basis across the EEA by introducing European legislation in this area. It believes that the proposals in this consultation paper would provide a uniform approach to short selling in order to assist market participants who operate on a cross-border basis in a 97

number of CESR jurisdictions. The proposed disclosure regime is based on a two-tier system for the disclosure of significant net short positions held in shares admitted to trading on an EEA regulated market or on an MTF. When a short position reaches a specified initial threshold, the short seller would be obliged to make a private disclosure to the regulator of the most liquid market for the share in which the position was held. The private disclosure threshold is proposed to be set at 0.1% of the company’s issued share capital. If the position reached a second-tier threshold, that of 0.5%, the short seller would be required to publicly disclose its position to the market as a whole. Any further private or public disclosures would then be required if the short positions subsequently crossed the incremental threshold of 0.1%. A private or public disclosure would also be necessary if the positions fell below any of the trigger thresholds, including the initial trigger thresholds of 0.1% and 0.5%. The regime would also take account of positions held in exchange-traded and OTC derivatives, as well as short positions in cash markets. Disclosure calculations and reports would have to be conducted on a net basis, with any positions involving long economic exposures to a share to be subtracted from the short positions. Disclosure reports of short positions, both to the regulator and the market, would have to be done on the trading day following the day on which the relevant trigger threshold had been crossed. However, there would be exemptions from the disclosure requirements for short positions resulting from market making activities. Responses are required by 30 September 2009 and CESR will prepare a final proposal by the end of 2009 to send to the EC. (8/07/09) http://www.cesr.eu/data/document/09_581.pdf

CESR: Measures adopted by CESR Members on short selling This document was updated on 1/07/09. The link will only go to the latest version of this doc. [CESR] - Document

8.1 Governance and risk management

See the Walker Review of Corporate Governance of UK Banking Industry .

See section 2.8 of Turner Review and chapter 3 section 3.46 of the Budget Report

See box at page 35 of the Conservative Party alternative White Paper.

See FSA consultation paper CP08/25: The approved persons regime – significant influence function review (paragraph 2.2).

Chronological Reports

ABI: Executive remuneration - ABI guidelines on policies and practices The Guidelines are designed in a format consisting of: over-arching Principles, Main Provisions and more detailed Guidance. They are designed predominantly for companies with a main market listing, but all companies are encouraged to observe the Guidelines in the spirit of best practice. (17/12/09) http://www.ivis.co.uk/PDF/ABI_Remuneration_Guidelines_Dec_2009.pdf

Guidelines Monitoring Group: Private Equity Monitoring Group on transparency and disclosure This is the second annual report of the Guidelines Monitoring Group, which was established by BVCA to monitor conformity with the Walker Guidelines. This provides a summary of the private equity industry’s conformity with the Guidelines. (17/12/09) http://walker- gmg.co.uk/sites/10051/files/walker_guidelines_36pp-dec09-aw.pdf

EC: Study on monitoring and enforcement practices in corporate governance in the Member States This study, produced by RiskMetrics Group for the EC, provides an overview of the various monitoring and enforcement mechanisms in the EU Member States of concerning corporate governance rules that are laid down in codes of corporate governance. It assesses the level of compliance of companies with the provisions of corporate governance codes and examines the availability and quality of explanations for deviations from these codes for a sample of 270 listed companies from 18 Member States. It evaluates the effectiveness of the different monitoring and enforcement systems and presents suggestions to improve their effectiveness. (10/12/09) (NB: over 190 pages long) http://ec.europa.eu/internal_market/company/docs/ecgforum/studies/comply-or-explain-090923_en.pdf

Speech by Lord Myners: LSE Corporate Goverance Sector (1 December 2009) Text of the above follows. He discusses governance the role of shareholders and remuneration, noting "we will consult on regulations for narrower disclosure bands than he proposed, starting with remuneration packages below the £1 million floor that [Sir David Walker] suggested". (3/12/09) LSE Corporate Governance Seminar - HM Treasury

FRC: Consultation on the revised UK Corporate Governance Code/2009 Review of the Combined Code - Final Report FRC has launched a consultation on its proposals to reform the UK’s Corporate Governance Code (formerly the Combined Code). The main proposals are: to enhance accountability to shareholders, FRC proposes either the annual re-election of the chairman or of the whole board; to ensure the board is well balanced and challenging, new principles are put forward on the leadership of the chairman, the roles, skills and independence of the non-executive directors and their level of time commitment; to enhance the board’s performance and awareness of its strengths and weaknesses, board evaluation reviews should be externally facilitated at least every three years and the chairman should hold regular development reviews with each director; to improve risk management, new principles are proposed on the board’s responsibility for and handling of risk. Proposals are also made to emphasise that performance-related pay should be aligned to the long-term interests of the company and its policy on risk. Responses are required by 5 March 2010. Subject to the outcome of consultation, and the necessary changes to the Listing Rules, 99

FRC intends that the revised Code should apply to all listed companies with a Premium Listing for financial years beginning on or after 29 June 2010. In response to the Government’s request that FRC take responsibility for a stewardship code as recommended in the Walker Review, FRC will carry out a separate consultation. FRC has also published a review of the Combined Code - second link below. (1/12/09) http://www.frc.org.uk/images/uploaded/documents/Consultation on the Revised Corporate Governance Code.pdf (NB: over 40 pages long) http://www.frc.org.uk/images/uploaded/documents/2009 Review of the Combined Code Final Report.pdf (NB: 40 pages long)

HMT: A review of corporate governance in UK banks and other financial industry entities (final recommendations of the Walker Review) The recommendations include: • Overhauling the boards of banks and other big financial institutions by strengthening the role of non- executives and giving them new responsibilities to monitor risk and remuneration. • "Stewardship duty" on institutional shareholders to play a more active role as owners of businesses and the introduction of a new independent monitored Stewardship Code, with FRC to sponsor it and FSA to monitor it. • Extending the role of the remuneration committee to cover firm-wide remuneration policy as well as giving the committee direct responsibility for the pay of all highly-paid employees, with at least half of variable pay or bonuses being paid in the form of a long-term incentive scheme with half vesting after three years and the rest after five years. Two-thirds of cash bonuses should also be deferred. • Greater pay transparency in the big banks by requiring public disclosure of the number of employees earning more than £1m, broken down by bands of pay. • Chairman of board to face annual re-election. • Chairman of remuneration committee to face re-election if report gets less than 75% approval. • Most non-executives to spend substantially more time on the job. • Induction process for all non-executives and regular training, • Non-executives to face tougher scrutiny under FSA authorisation process. • Banks should have board level risk committees chaired by non-execs. • Risk committees to scrutinise and if necessary block big transactions • Chief Risk Officer to have reporting line to risk committee - he/she can only be sacked with agreement of board. • Remuneration committees should disclose right of high-paid employees to receive enhanced benefits. The review proposes that most of the recommendations are enforced through inclusion in the Combined Code on Corporate Governance or a separate Stewardship Code for institutional investors, both operating on a ‘comply or explain’ basis. It would be for FRC to decide exactly how this would be done. FSA will consider how to take forward the recommendations applying principally to financial institutions (FSA notes in its response to the report that it will consult on this once FRC has concluded its own consultaiton). It is proposed that the recommendations on pay disclosure should be enforced through legislation in the Financial Services Bill. (26/11/09) http://www.hm- treasury.gov.uk/d/walker_review_press_release_261109.pdf (press release) http://www.hm- treasury.gov.uk/d/walker_review_261109.pdf (report – NB: over 180 pages long) FSA statement re: Walker Review Association of British Insurers - Walker Review: Positive steps should lead to better governance (ABI response) IMA: Press Release (IMA response)

FSA: Appointments of senior advisors on governance and authorisation FSA has announced the appointment of five new senior advisors, joining in January 2010, who will assist FSA in its work on governance issues. They will provide input into developing FSA’s regulatory framework for ensuring effective governance in financial institutions, and will also contribute to the panel interview process for individuals wishing to take up major board positions in the UK’s largest financial institutions. They are: Sir Dominic Cadbury, Baroness Hogg, Lord Marshall, Sir Brian Pitman and Sir David Scholey (the item includes very short biogs). The new advisors will work with Graeme Ashley- Fenn, FSA director of permissions, decisions and reporting, who has responsibility for the SIF approval regime. It is noted that, in future, for key roles in the largest firms, the FSA panel will be joined by one of 100

the new appointees, who will act in an advisory capacity. This is likely to apply to candidates for chair, CEO, senior independent director and the chair of audit, remuneration and risk committees, particularly in the banking and insurance sector. (26/11/09) FSA appoints senior advisors on governance and authorisation

CP09/28*: Listing Regime review - Consultation on changes to the listing categories consequent to CP09/24 In this CP, FSA sets out some proposed technical changes to the Listing Rules, which are necessary to: clarify into which of the listing categories certain securities should be allocated and ensure the correct mapping of super-equivalent standards to those categories. FSA emphasises that this does not constitute new policy. Responses are required by 4 January 2010. (20/11/09) http://www.fsa.gov.uk/pubs/cp/cp09_28.pdf (NB: over 50 pages long)

Speech by Lord Myners: ICSA/Hermes Transparency in Governance Award (18 November 2009) Text of the above follows. Ahead of the final Walker Report (expected next week), he discusses governance, remuneration and the role of shareholders, commenting: "for too many individual shareholders, shares are little more than betting slips, bought at a low price, with the hope that the bet will come good. They view their shares much like a gambler views the horse they have placed a bet on; they only care about the outcome of the single race. But they are not gamblers, they are owners. They should care about the health and development of the horse. Shares are not betting slips. Shareholders do not believe that they are owners; they don’t feel responsible for the functioning of companies in which they hold shares. They deny their fiduciary obligations". (19/11/09) ICSA/Hermes Transparency in Governance Awards - HM Treasury

Institutional Shareholders’ Committee: Code on the responsibilities of institutional investors This Code has been drawn up by the Institutional Shareholders’ Committee and covers the activities of both institutional shareholders and those that invest as agents, including reporting by the latter to their clients. (19/11/09) http://institutionalshareholderscommittee.org.uk/sitebuildercontent/sitebuilderfiles/ISCCode161109.pdf

Speech by Lord Myners: All Party Parliamentary Group on Corporate Governance (9 November 2009) Text of the above, in which he discussses the impact of EU proposals on financial regulation and their consequences for corporate governance, follows. He notes: "most fund managers regard themselves as owners of shares rather than owners of companies, which begs big questions and gives rise to serious risks that can only be addressed if the de jure owners, pension fund trustees and others, press for very fundamental changes. ... I am not suggesting that all fund managers should necessarily ‘do governance’ but I am making the case that (i) some should, (ii) trustees and others must ensure that at least some of their managers devote sufficient skill and resource to the issue and can evidence the value added and (iii) regulators should take an active interest in enabling good governance". (11/11/09) All Party Parliamentary Group on Corporate Governance - HM Treasury

TSC: Walker Review TSC has published a transcript of the uncorrected oral evidence for a hearing held on 5 November attended by Sir David Walker. Topics include bank remuneration; reporting obligations for banks, non- execs; market abuse; FSA role in screening senior appointments. (5/11/09) Uncorrected Evidence 1089

HMT: Submission from FSA in respect of the Walker Review HMT has published the text of a letter sent by Sally Dewar setting out FSA's position on the Walker recommendations. Among other matters, it notes that FSA plans to make further changes to the Approved Persons regime in respect of NEDs. (8/10/09) http://www.hm- treasury.gov.uk/d/walker_submission_fsa.pdf

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"Dear CEO" letter: Approving and supervising significant influence functions - our more intrusive regulatory approach FSA has sent a "Dear CEO" letter to firms to reinforce how its intensive regulatory approach applies to approving and supervising senior personnel performing significant influence functions (SIFs). It reminds CEOs that the responsibility to assess whether a candidate is fit and proper to carry out a role rests with the firm; encourages firms to engage with FSA early in the recruitment process and for major firms and urges them to provide sufficient information with their applications (including supporting documents – for example head-hunter reports) and the rationale they have used to conclude that the candidate is fit to proper to perform the role. It is noted that applications must be made in a timely manner and any failure to engage promptly with FSA may impede a firm’s plans to publicly announce a new appointment. In the accompanying press release, FSA notes that, in the 12 months since October 2008, it has conducted 172 SIF interviews, resulting in 18 candidates withdrawing their applications. (14/09/09) FSA outlines its approval and interview process for significant influence functions http://www.fsa.gov.uk/pubs/ceo/ceo_letter1009.pdf

BBA: Response to Walker Review BBA has published its response to the above, noting “strong support” for the Walker Review, but suggested that the proposals to increase board oversight of pay and bonuses needed to be harmonised both with FSA’s remuneration code and the legislation announced at the Labour Party Conference. (30/09/09) BBA – British Bankers' Association - Banks respond to Walker Review

BIS: Disclosure of loans to directors in company accounts This consultation concerns s413 of the Companies Act 2006 which deals with disclosures in the notes to company accounts of advances, credits and guarantees for the benefit of directors. The consultation addresses two related issues: the particular position in respect of the directors of banking companies and the holding companies of credit institutions under s413(8) and the general position relating to directors of other companies. Responses are required by 23 October 2009. (12/08/09) http://www.berr.gov.uk/files/file52466.pdf

FRC: Progress report: review of the effectiveness of The Combined Code FRC has published this progress report on its review of the effectiveness of the Combined Code on Corporate Governance. The report summarises the results of the consultations and research that FRC has carried out to date and invites views on various aspects of the Combined Code and its application. These are: the responsibilities of the chairman and non-executive directors; the composition of the board, including finding the right balance of independence and expertise; the frequency of directors’ re-election; board information, development and support; evaluation of the board’s effectiveness; the effectiveness of existing risk management systems; remuneration policy and process; the usefulness of companies’ reporting on corporate governance; and engagement between boards and shareholders. It is noted that FRC is also considering the implications of the Walker review issued on 16 July, specifically, what extent Sir David’s recommendations are also applicable for some or all listed companies in other sectors and, with FSA, how best to implement them. F RC will issue a final report before the end of the year. Any proposed changes to the Combined Code will be subject to a separate consultation. (28/07/09) FRC - Combined Code review

TSC: Banking Crisis: reforming corporate governance and pay in the City: Government, UK Financial Investments Ltd and Financial Services Authority - responses to the ninth report from the Committee TSC has published responses to its ninth report from HMT, UKFI and FSA. (24/07/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/462/462.pdf

HMT: A review of corporate governance in UK banks and other financial industry entities (interim Walker Review)/ FSA: Statement re Walker Review This review sets out 39 recommendations proposed as best practice for banks and other financial institutions (BOFIs), their shareholders and the wider public interest. Five key themes of the Review are: 102

• The Combined Code - the review says it remains fit for purpose. The relevant guidance and provisions require amplification and better observance but there are no proposals for new primary legislation. • Principal deficiencies in BOFI boards related much more to patterns of behaviour than to organisation and the review emphasises that the right sequence in board discussion on major issues should be presentation by the executive, a disciplined process of challenge, decision on the policy or strategy to be adopted and then full empowerment of the executive to implement. The role of the chairman is emphasised, noting that it will involve a priority of commitment that will leave little time for other business activity A materially increased time commitment from NEDs is also required. • Board-level engagement in the high-level risk process should be materially increased with particular attention to the monitoring of risk and discussion leading to decisions on the entity’s risk appetite and tolerance. This will call for a dedicated NED focus on risk issues in addition to and separately from the executive risk committee process and there should be full independence in the group risk management function. The CRO should have clear enterprise-wide authority and independence, with tenure and remuneration determined by the board. • There is need for fund managers and other major shareholders to engage more productively with their investee companies with the aim of supporting long-term improvement in performance. Boards, in turn, should be more receptive to such initiative. The Institutional Shareholders’ Committee, FRC and FSA should play a larger role in promoting such enhanced engagement by owners on the basis of principles of stewardship with which fund managers should be expected to conform on a “comply or explain” basis. The recommended disclosure should ensure that prospective clients know whether a fund manager in pitching for their business operates a model that includes engagement with a view to long-term performance improvement. • Substantial enhancement is needed in board level oversight of remuneration policies, in particular in respect of variable pay, and in associated disclosures. The remit and responsibility of board remuneration committees should be extended beyond board members to cover the remuneration framework for the whole entity. Not less than half of expected variable remuneration should be on a long-term incentive basis with vesting, subject to performance conditions, deferred for up to five years. Except in the few cases where responsibility for proposed initiative is for FSA, it is envisaged that most of these recommendations will be incorporated as guidance and provisions in the Combined Code. FRC should review the situation in relation to non-financial listed entities. Responses to the document are required by 1 October 2009. It is intended that a final version of the report and its recommendations will be released in November which will take account of these. Separately, FSA has published a statement on the review, noting that a PS on the proposed Remuneration Code of Practice will be issued "in the summer" and a further paper will appear in the autumn, which will outline FSA's proposed response to any final recommendations of the Walker Review that may have implications for FSA procedures or its interaction with the firms it regulates. (16/07/09) http://www.hm-treasury.gov.uk/d/walker_review_consultation_160709.pdf (NB: over 140 pages long) FSA statement re: Walker Review Comment from Lord Myners: Government welcomes publication of Walker review - HM Treasury Industry response: ABI: Association of British Insurers - Walker Review should improve corporate governance; BBA: BBA – British Bankers' Association - BBA Response to Walker Review ; FRC: Financial Reporting Council - Press Notices ; IMA: IMA: Press Release

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8.2 Non-executive directors

See speech by Shelia Nicoll, Director of FSA’s Retail Firms Division, on 17 September 2008: “Surviving in a volatile market”.

See FSA’s policy statement PS 09/14: The approved persons regime – significant influence function review.

See Speech by Hector Sants on 7 May 2009: “The regulator’s role in judging competence”.

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8.3 Remuneration and bonuses

See CEBS High Level Principles on Remuneration 20 April 2009.

See FSF Principles for Sound Compensation Practices 2 April 2009.

See the European Commission’s Recommendation on remuneration policies in the financial services sector 30 April 2009.

See the European Commission’s Recommendation complementing Recommendations 2004/2005 as regards the regime for the remuneration of directors of listed companies 30 April 2009.

See European Commission consultation on amendments to CRD regarding remuneration and the information available on the Commission’s Regulatory Capital webpage.

See FSA consultation paper CP09/10: Reforming remuneration practices in financial services. The Code will apply to: (1) FSA regulated banks and building societies which either have total regulatory capital in the UK banking entities in excess of £1 billion or are part of a financial group (UK or international) whose regulatory capital is in excess of £20 billion or the equivalent amount in another currency; and (2) FSA regulated BIPRU 730K firms which either (a) have total regulatory capital in the UK authorised entity in excess of £750 million or its equivalent amount in another currency or (b) are part of a financial group (UK or international) whose regulatory capital is in excess of £5 billion or its equivalent amount in another currency. See paragraph 1.12-1.13 of FSA consultation paper CP09/10: Reforming remuneration practices in financial services. In this consultation paper, the FSA is also consulting on extending the application of the code beyond that initially proposed.

See FSA Dear CEO letter on remuneration, July 2009.

See pages 16 and 17 and chapter 7 of the Walker review.

See page 35 of the Conservative Party alternative White Paper

Chronological Reports

HMRC: Bank payroll tax – responses to questions (revised) HMRC tax has updated its Q&A with new questions 22-27- these include items on banking employment and temporary residence. (24/12/09) http://www.hmrc.gov.uk/pbr2009/bank-payroll-faqs.pdf

HMRC: Bank payroll tax - responses to questions HMRC has published this document, which provides some "general guidance" answers to questions, including on the specific topics of shares and long-term incentive plans and the meaning of “banking employment” and “banking services”. (22/12/09) http://www.hmrc.gov.uk/pbr2009/bank-payroll-faqs.pdf

HMRC: The bank payroll tax announced at Pre-Budget Report 2009 HMRC has issued this note in respect of the above. It clarifies that the tax does not apply to non-banking companies outside of banking groups (eg. insurance companies, asset managers, stockbrokers). HMRC notes that it has received a number of representations concerning the definition of a bank used in the draft legislation published on 9 December. It thus proposes to amend the draft legislation in the following ways: • Limiting the definitions of ‘UK resident bank’ and ‘relevant foreign bank’, so that, for a non-deposit taker, they only apply to a person which is a full scope BIPRU 730k firm investment firm (and whose activities consist wholly or mainly of relevant regulated activities). • In this context a person which would be a full scope BIPRU 730K investment firm but for the fact that its head office is not in the UK is to be treated as being one. 105

• In addition, adding the following to the list of ‘excluded companies’ • A company in a group that is not a deposit taker and is only carrying on relevant regulated activities on behalf of an insurance company in the same group. • A company that does not carry on any relevant regulated activities otherwise than as a manager of a pension scheme. • A company whose activities consist wholly or mainly in acting as the operator of a collective investment scheme (within the meaning of Part 17 FSMA) • An exempt BIPRU commodities firm. HMT will also be making changes to remove prime brokers who are full scope BIPRU 730K firms from the scope of the tax, and to exclude non-banking financial service groups that are incorrectly characterised by the rules as ‘banking groups’ simply because the group structure includes a company with banking activity, even though that is a minor activity within the group as a whole. Whilst the bank should be in scope the rest of the group should not. (21/12/09) HM Revenue & Customs:The bank payroll tax announced at PBR 2009

HoL EU Select Committee - Sub-Committee A: Commission communications on ensuring safe and sound derivatives markets This call for evidence invites comments on proposals to reform the supervision of derivatives markets in the EU - it is expected that legislative proposals will be brought forward in stages in 2010. The aim of the inquiry is to provide an opinion on the EC's communications and to scrutinise the Government’s policy on this issue, with a view to informing the debate surrounding the proposals for regulation of derivatives markets. Specific questions are set out in this document, views on any other aspect of the EC’s communications are welcomed. Responses are required by 1 February 2010. (15/12/09) http://www.parliament.uk/documents/upload/CallforEvidenceDerivatives.pdf

Speech by Lord Myners: Opening comments to New Statesman event "What next for UK banking?" (14 December 2009) Text of the above follows. He remarks "it is worth reminding everyone that complaints from well paid City workers about the Government’s bonus tax are really directed at employers, not the Treasury. It is a matter for bank boards and shareholders, not the Government, to decide if bonus payments will be cut – the economics of the decision may have changed, but the choice still remains". (15/12/09) Opening comments to New Statesman event "What next for UK banking?" - HM Treasury

FS09/5: Reforming Remuneration Practices in Financial Services Feedback on Chapter 6 of CP09/10 FSA notes that its remuneration code comes into force for large banks, building societies and broker dealers on 1 January 2010 and will apply to any remuneration awards made by these firms for the 2009 performance year. Chapter 6 of the March CP invited general discussion on whether the code should be extended to other FSA-authorised firms. At this stage, FSA has decided not to introduce any new rules and will not extend the rules to other sectors. FSA emphasises that its supervisory focus is on ensuring that the firms which are within the initial scope of the remuneration code are fully compliant from 1 January 2010. FSA is to undertake a review of the effectiveness of the remuneration code in mid 2010. At that stage, as well as taking into account the lessons learned from this year’s exercise, FSA will take into account: the wider European work that touches on remuneration: a number of directives containing remuneration provisions are currently at different stages of European negotiation; the elements of the Walker Review that focused on remuneration; and the progress of the Financial Services Bill which may give new powers to FSA in respect of remuneration. In addition, FSA is reviewing remuneration policy statements supplied by firms and follow-up meetings have been arranged or held. (8/12/09) FS09/5: Reforming Remuneration Practices in Financial Services Feedback on Chapter 6 of CP09/10 http://www.fsa.gov.uk/pubs/discussion/fs09_05.pdf (NB: over 30 pages long)

HMT: Letter from Sir David Walker to Alistair Darling re Walker Review HMT has published the text of the above letter dated 17 November 2009. Sir David confirms that he is in the process of drafting his final recommendations for the report (due out next week) and confirms they

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will continue to recommend an increased level of disclosure with regard to remuneration, adding that it "cannot rely on the 'comply or explain' approach but ultimately requires statutory backing". (20/11/09) http://www.hm-treasury.gov.uk/d/walker_fsb_letter.pdf

Speech by Paul Myners: Worshipful Company of International Bankers Dinner, Mansion House, City of London (21 October 2009) Text of this speech follows. Topics include: exec remuneration, living wills. (21/10/09) Worshipful Company of International Bankers Dinner, Mansion House, City of London - HM Treasury

HMT: City of London banks agree to support G20 bonus reforms HMT has announced that the UK subsidiaries and branches of leading overseas banks have agreed to support the implementation of reforms to bank pay agreed by the G20 in Pittsburgh. Bank of America, Merrill Lynch, Citigroup, Credit Suisse, Goldman Sachs International, JP Morgan Securities Ltd, Morgan Stanley, Nomura and UBS have confirmed their commitment to FSA rules coming into force in January 2010, saying "we welcome the global nature of the G20 remuneration reforms and will work with the FSA and regulators in our home countries in adopting the reforms, recognising that all G20 nations have also committed to their implementation to ensure a level playing field.” (14/10/09) City of London banks agree to support G20 bonus reforms - HM Treasury

FSPP: Reforming remuneration practices - FSA does not go far enough FSPP comment on the remuneration code, noting its concern that "the Code does not require any evidence that bonus policies will reflect long term value being added to the business by managers". (14/08/09) Financial Services Consumer Panel | Press Release | Consumer Panel publishes annual report for 2008-09

Handbook Notice 91 This HN notes that the FSA Board held a meeting on 11 August 2009 at which the Senior Management Arrangements, Systems and Controls (Remuneration Code) Instrument 2009/48 was approved. The second link below is a link to the Instrument. (13/08/09) http://www.fsa.gov.uk/pubs/handbook/hb_notice91.pdf http://fsahandbook.info/FSA/handbook/LI/2009/2009_48.pdf

PS 09/15: Reforming remuneration practices in financial services Feedback on CP09/10 and final rules FSA has now published the above, noting that eight principles have also been added to the FSA handbook to ensure firms understand how FSA will assess compliance. The code makes clear that it is not expected that firms will enter into contracts with individuals which provide guaranteed bonuses for more than one year. It is also expected that for senior employees two-thirds of bonuses will be spread over three years. Firms are expected to provide FSA with a remuneration policy statement by the end of October. This will have to be signed off by remuneration committees and will enable FSA to check compliance with the code. Non-compliant firms could face enforcement action or be forced to hold additional capital should they pursue risky processes. The key steps for the implementation of the new regulatory framework will be: • By the end of August FSA will send letters to firms’ remuneration committees asking them to complete a remuneration policy statement. • Firms return their remuneration policy statements to FSA by end-October.

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• FSA will hold meetings with remuneration committees and HR/risk function staff between November 2009 and February 2010. • The Code on remuneration practices comes into force for firms within its scope on 1 January 2010. • The transitional arrangements for firms required to amend employment contracts that may be amended by the firm end on 31 March 2010. • Transitional arrangements for firms required to amend or terminate other employment contracts end on 31 December 2010. (12/08/09) FSA confirms introduction of remuneration code of practice (press release) http://www.fsa.gov.uk/pubs/policy/ps09_15.pdf BBA – British Bankers' Association - Other countries must play their part in bank pay reform, says BBA (NB: over 60 pages long) ABI comment - Association of British Insurers - ABI response to FSA remuneration guidance BBA comment - BBA – British Bankers' Association - Other countries must play their part in bank pay reform, says BBA

FSA: "Dear CEO" letter - Remuneration code of practice FSA has published the text of a letter from Hector Sants which appears to have been sent to banks and broker-dealers on 15 July 2009. It notes that, following the March CP on remuneration, FSA will shortly be putting proposals to its board for adoption and it is envisaged that FSA "may well adopt a rule along the lines originally proposed, together with updated supporting principles that take account of consultation responses and that this will be effective from 1 January 2010". It draws particular attention to the fact that guaranteed bonuses which run for a period of more than one year may be inconsistent with effective risk management and that FSA is not proposing to extend grandfathering arrangements to obligations entered into after publication of the CP. The letter also gives firms notice that FSA will want them to provide a remuneration policy statement by the end of October, providing it with the information necessary for it to verify that remuneration policies and practices will be compliant with the proposed rule and code from 1 January 2010. FSA will be sending a letter to chairmen of Remuneration Committees to set out the information required. (20/07/09) http://www.fsa.gov.uk/pubs/ceo/ceo_letter0709.pdf

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9.1 Clearing and settlement, moving OTC derivatives onto exchange/central counterparties – regulatory “wholesale products”

See Volume II of the House of Lords report “The Future of EU Financial Regulation and Supervision” (evidence).

See paragraph 3.1(ii) of The Turner Review and DP09/2: A Regulatory response to the Global Banking Crisis see section 10.49 – 10.90 “Market Regulation”

See European Commission communication “Ensuring efficient, safe and sound derivatives markets” (3 July 2009), and its communication “Driving European recovery” (4 March 2009).

See also the Bank of England’s June 2009 Financial Stability Report: section 3.3, “Improved management of risks arising from interactions among firms and with the real economy through expansion of the use of central counterparties for the clearing of vanilla over-the-counter (OTC) instrument; strengthening the structure of critical markets, including through more trading on exchange or on similar platforms”. See in particular sections entitled “The use of central counterparties should be expanded…” (page 49) and “…and continuity of key financial markets needs to be assured…” (pages 49 and 52), and Box 8 (page 54/55).

See HMT consultation Developing Effective Resolution Arrangements for Investment Banks May 2009, sets out some core principles for addressing some of the complexities in this area.

Chronological Reports

HMT/FSA: Reforming OTC derivative markets - a UK perspective HMT/FSA proposes a number of measures that need to be implemented and/or developed to address systemic shortcomings in OTC derivative markets: greater standardisation of OTC derivatives contracts; more robust counterparty risk management; consistent and high global standards for CCPs; international agreement as to which products are ‘clearing eligible’; capital charges to reflect appropriately the risks posed to the financial system; registration of all relevant OTC derivative trades in a trade repository; greater transparency of OTC trades to the market and on-exchange trading. The paper sets "detailed thinking on each of these key issues as well as outlining our approach for taking these measures forward". (16/12/09) http://www.fsa.gov.uk/pubs/other/reform_otc_derivatives.pdf

ISDA: Impact of Treasury's OTC derivatives legislation on the foreign exchange market In this short paper, ISDA comments on the impact of the proposed US OTC derivatives legislation on the foreign exchange market. (14/12/09) http://www.isda.org/c_and_a/pdf/ISDA-Legislation-Impact-on-FX- Market.pdf

ECOFIN: Council conclusions on Commission Communication on "Ensuring efficient, safe and sound derivatives markets - Future policy action" and on Commission report on "The Code of Conduct on clearing and settlement: Three years of experience" ECOFIN notes "the need to have a comprehensive policy on OTC derivatives in order to avoid regulatory arbitrage and, at the same time, to take into account differences across classes of instruments and contracts, as well as those of specific market participants, incl. non-financial firms, and commodity market ... Any future policy option should ensure that non-financial institutions can continue managing the risks inherent to their business, without incurring disproportionate costs; and where appropriate should allow them to tailor risks to individual needs, subject to proper risk mitigation techniques and internal controls, but without underpricing risks nor opening regulatory loopholes". It invites the EC to conduct impact assessments and reflect the principle of higher capital requirements for bilateral OTC contracts, as agreed at the G20 in Pittsburgh, amendments to the CRD. (2/12/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/111697.pdf

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OFT: LCH.Clearnet SA's application to become a Recognised Overseas Clearing House under s288 FSMA OFT is currently conducting its competition assessment of LCH.Clearnet SA's application and is inviting comments from interested parties. Responses are required by 10 January 2010. (26/11/09) The Office of Fair Trading: LCH.Clearnet SA's application to become a Recognised Overseas Clearing House under s288 of the Financial Services and Markets Act 2000.

CESR: Consultation on trade repositories in the EU CESR has published the responses to the above, downloadable individually via the following link. (20/11/09) CESR [The Committee of European Securities Regulators]

ISDA: Recommended common principles for give-up agreements across CCPs ISDA has published a set of recommended common principles intended to guide documentation for give- up agreements across central counterparties (CCPs) or clearing houses. The principles address the following areas: fallbacks in the event of rejection for clearing, ability to reject trades, reduction of trading limits, and determinations of market decisional bodies in relation to CCPs. (13/11/09) http://www.isda.org/credit/docs/Recommended-Common-Principles.pdf

EC: Summary of the consultation on possible initiatives to enhance the resilience of OTC derivatives markets This document presents a broad non-exhaustive summary of the responses to the above-mentioned consultation. (20/10/09) http://ec.europa.eu/internal_market/consultations/docs/2009/derivatives/summaryderivcons_en.pdf

CESR: The use of a standard reporting format for financial reporting of issuers having securities admitted to trading on regulated markets This call for evidence on the use of a standard reporting format for financial reporting of issuers having securities admitted to trading on regulated markets suggests that a standard reporting format for financial reporting would enable automated processing of financial information, cutting out the need for manual re- entry and comparison. Responses are required by 30 November 2009. (27/10/09) http://www.cesr.eu/data/document/09_859.pdf

FMLC: Issue 116 – Emission allowances - creating legal certainty FMLC had correponded with the EC over certain issues in relation to physically-settled derivative instruments through which emission allowances are traded and the question of how these contracts are dealt with under MiFID level 2 and had subsequently met with the EC on the matter. In this report, FMLC now expresses concern over "significant legal uncertainties surrounding the carbon emission allowances which underlie this entire market ... . The central area of difficulty is that nothing in the EU- ETS provides any indication of the legal nature of emission allowances. Emission allowances have aspects of both administrative grants or licences and of private property, and it is understood that different conclusions as to their legal classification may already have been, or are in the course of being, reached in a number of Member States" and concludes that the issue should be tackled at a European level by the EC. (27/10/09) http://www.fmlc.org/papers/Issue116Oct09.pdf

CESR: Trade repositories in the European Union The purpose of this consultation is to collect the stakeholders’ views on trade repositories, including their functions, data and transparency requirements, their location and the legal framework. CESR takes as a preliminary position that the establishment of one or more trade repositories should be market-led. It notes that it does not want to impose trading of all CDS, nor other OTC instruments in general, on regulated markets. Responses are required by 6 November 2009. (29/09/09) http://www.cesr.eu/data/document/09_837.pdf

BIS/IOSCO/IAIS: Report on special purpose entities This paper is intended to serve two broad objectives: it provides background on the variety of special purpose entities found across the financial sectors, the motivations of market participants to make use of 110

these structures, and risk management issues that arise from their use and suggests policy implications and issues for consideration by market participants and the supervisory community. (29/09/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD308.pdf (NB: over 100 pages long)

Speech by Charlie McCreevy: Derivatives and risk allocation (24 September 2009) Text of the above mentioned speech follows. Topics include: central clearing; central data repositories; bilateral clearing; the level of standardisation; establishing certain requirements for the trading of derivatives and whether certain products should be banned. (25/09/09) EUROPA - Press Releases - Mr. Charlie McCreevy European Commissioner for Internal Market and Services Derivatives and Risk Allocation Derivatives Conference Speakers' Dinner Brussels, 24 September

HMT/FSA: Possible initiatives to enhance the resilience of OTC derivatives markets This is a joint response to the EU consultation re the above. HMT/FSA "agree that these markets have exhibited weaknesses, specifically in terms of counterparty risk management and market transparency" and set out key tools available to regulators to drive change forward. (24/09/09) http://www.fsa.gov.uk/pubs/international/response_derivatives.pdf

SIFMA: A vision for integrated post-trade services in Europe This "White Paper" sets out a vision for the future post-trading landscape in Europe and its characteristics and advocates precisely targeted action of the public sector in the areas of securities law, fiscal procedures and risk regulation, supervision and oversight and by the private sector in the domain of operational processes. (23/09/09) http://essf.sifma.org/publications/documents/ESSF Post Trading Vision Paper final version Aug09.pdf

FSA: Guidelines on reporting of On-Exchange derivatives (AII and ISIN derivatives) This document aims to confirm the way in which transactions in reportable derivatives admitted to trading on a regulated market should be reported to FSA. (22/09/09) http://www.fsa.gov.uk/pubs/other/reporting_derivatives.pdf

CESR: OTC derivatives markets CESR has published its response to the EC consultation on possible initiatives to enhance the resilience of OTC derivatives markets. (21/09/09) http://www.cesr.eu/data/document/09_783.pdf

EC: Commission welcomes Court of First Instance Clearstream judgement In this press release, the EC welcomes today's judgement by the European Court of First Instance (CFI) dismissing the action by Clearstream against an EC decision of June 2004. In its decision, the EC found that Clearstream Banking AG and its parent company Clearstream International SA violated the EC Treaty's ban of abusing a dominant market position (Article 82) by refusing to supply certain clearing and settlement services to one of its customers (Euroclear Bank SA), and by applying discriminatory prices to that same customer. At the time of the decision both functions were performed by Clearstream Banking AG. The Court of First Instance upheld the EC's decision in its entirety, both as regards the finding of a dominant position and the finding of a violation of Article 82. (9/09/09) EUROPA - Press Releases - Antitrust: Commission welcomes Court of First Instance Clearstream judgement

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the broader unregulated financial markets. (4/09/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD301.pdf (NB: over 40 pages long)

CEBS: Call for evidence for custodian banks Following the delivery of a report on custodian banks to ECOFIN, CEBS has committed to undertake further work to establish the materiality of custodian banks internalising settlement activities or carrying out CCP-like activities. The report identified certain gaps with regards to these activities in the current applicable banking regulations, in comparison to the ESCBCESR draft Recommendations. CEBS has now designed the following questionnaire for market participants in order to explore this further. Responses are required by 4 March 2009. (2/09/09) http://www.c-ebs.org/getdoc/954bfd48-9f42-445c- bc7c-0463afa92c10/CEBS-2009-07-Annex-1-(Questionnaire-to-market-part.aspx

FSA: FSA and CFTC to enhance regulatory cooperation and cross-border surveillance of oil markets This press release notes that FSA and CFTC have taken steps to strengthen cross border supervision of the energy futures markets. They will immediately work toward implementing strengthened surveillance over US-linked energy contracts including, where appropriate: enhanced direct access rights to trade execution and audit trail data; mutual on-site visits of exchange operators; the sharing of exchange regulations and notices; the sharing of disciplinary notices; and the framework to consider the coordination of taking emergency action. (20/08/09) FSA and CFTC to enhance regulatory cooperation and cross-border surveillance of oil markets

EC: Major step towards financial stability - European market for credit default swaps becomes safer This press release notes that, as of today, CDS relating to European entities and indices based on these entities will start clearing through central counterparties regulated in the EU. In response to the EC's call for central clearing of CDS, 10 major dealers committed to clear CDS on European reference entities, and indices based on these entities, through one or more CCPs established and regulated in the EU by 31 July 2009. The EC has set up a working group, involving dealers, the buy-side, CCPs and supervisors, to monitor the orderly roll-out of this commitment. The EC will monitor the migration of the CDS onto CCPs and will take account of the progress made by market participants in the CDS area when formulating its policy orientations for OTC derivatives in general. The EC intends to publish these policy orientations by the end of October 2009. To this end, the EC is currently running a public consultation and will also organise a high-level conference in Brussels - "Derivatives in crisis: Safeguarding financial stability" - on 25 September. (31/07/09) EUROPA - Press Releases - Major step towards financial stability: European market for credit default swaps becomes safer EU derivatives conference

BIS: From turmoil to crisis: dislocations in the FX swap market before and after the failure of Lehman Brothers This paper investigates dislocations in the FX swap market between the US dollar and three major European currencies. (23/07/09) http://www.bis.org/publ/work285.pdf?noframes=1 (NB: 40 pages long)

The Financial Markets and Insolvency (Settlement Finality) (Amendment) Regulations 2009/1972 These Regulations further implement Directive 98/26/EC of the European Parliament and of the Council on settlement finality in payment and security systems (OJ L 166, 19.5.98). They amend the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (S.I. 1999/2979) to ensure that the modifications to the law of insolvency made in regulations 14, 15, 16 and 19 of those Regulations reflect subsequent amendments to insolvency law, and that references to the Companies Act 1985 and to the Companies (Northern Ireland) Order 1986 are replaced by references to the Companies Act 2006. (Date in force: 1/10/09) (21/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091994_en.pdf

IOSCO: Working group on the review of the recommendations for central counterparties The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of IOSCO have set up a working group to review the application of the 2004 CPSS-IOSCO Recommendations for 112

Central Counterparties to clearing arrangements for OTC derivatives. Participants in the working group include representatives of the central banks that are members of the CPSS, representatives of the securities regulators that are members of the IOSCO Technical Committee, and representatives of the IMF and the World Bank. (20/07/09) http://www.iosco.org/news/pdf/IOSCONEWS161.pdf

ISDA/SIFMA/IMFA and others: Report on the proposals of centralized CDS clearing solutions for the segregation and portability of customer CDS positions and related margin This report has been sent to a number of international government bodies, including EC and HMT, and regulators, including FSA and other European regulators (see the sample covering letter below for a full list of these). It has been compiled by the above-mentioned trade associations and a number of international banks, also named in the covering letter, and considers customer protection of margin and issues relating to segregation, portability and the sharing of any shortfalls. (15/07/09) http://www.ny.frb.org/markets/Cover_Letter_William_Dudley.pdf http://www.ny.frb.org/markets/Full_Report.pdf (NB: over 150 pages long)

CESR: Transparency of corporate bond, structured finance product and credit derivatives markets CESR has published its final report and feedback statement on the transparency of corporate bond, structured finance product and credit derivatives markets. CESR is of the view that current market-led initiatives have not provided a sufficient level of transparency. CESR considers that an increased level of transparency would be beneficial to the market and that a harmonised approach to post-trade transparency would be preferable to national initiatives taken in this area on the basis of the flexibility allowed by MiFID. CESR recommends the adoption of a mandatory trade transparency regime for corporate bond, structured finance product and credit derivatives markets as soon as practicable. (10/07/09) [CESR] - Document [CESR] - Document

EC: Communication on derivatives markets The EC adopted a Communication, together with a staff working paper, which looks at the role played by derivatives in the financial crisis and at the benefits and risks of derivatives markets, and assesses how risks can be reduced. Following the public consultation which this Communication launches, the EC will host a public hearing on 25 September 2009. (3/07/09) http://ec.europa.eu/internal_market/financial- markets/docs/derivatives/communication_en.pdf(Communication); http://ec.europa.eu/internal_market/financial-markets/docs/derivatives/report_en.pdf (working paper - NB: over 50 pages long) EUROPA - Press Releases - Financial services: Commission outlines ways to strengthen the safety of derivatives markets (full press release); EUROPA - Press Releases - Derivatives Markets – Frequently Asked Questions (FAQ)

BoE: Speech by Andrew Haldane: Small lessons from a big crisis (1 July 2009) This is the text of a speech made in Chicago highlighted by the FT today. In addition to discussing the financial crisis and stress testing, he looks at OTC clearing. (2/07/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech397.pdf

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9.2 Payment systems and non-consumer banking

Chronological Reports

EC: Your questions on PSD This document has been updated, with new items indicated in red. New answers include: internal payment transactions; definition of payment instrument and scope of the definition of a payment account. (21/12/09) http://ec.europa.eu/internal_market/payments/docs/framework/transposition/faq_en.pdf (NB: over 270 pages long)

Payment Council: The future of cheques In this report, the Payments Council announces the target date for closing cheque clearing - 31 October 2018. However, it notes that "much needs to be done to plug gaps in the marketplace where cheque alternatives are not yet available, readily accessible or acceptable to users". There will be annual reviews of progress and major reviews in 2014 and in 2016, when the final decision on closure will be taken. (16/12/09) http://www.paymentscouncil.org.uk/files/the_future_of_cheques_-_dec_2009.pdf

ECOFIN: Council conclusions on SEPA ECOFIN sets out its conclusions on SEPA, calling upon "public authorities in all Member States to significantly step up, unless already done, their migration efforts and lead SEPA migration by example". (2/12/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/111670.pdf

FSA: Being a payment institution This webpage presents links to pages concerning variation of payment services; amending PSD individuals and agents; change of legal status, change in Qualifying Holding; cancellation and standing data. (3/11/09) Being a payment institution

EC: Your questions on PSD This document has been updated, with new items indicated in red. New answers include: card benefit schemes, definition of consumer and surcharges. (30/10/09) http://ec.europa.eu/internal_market/payments/docs/framework/transposition/faq_en.pdf (NB: over 250 pages long)

EC: Guidelines on Payment Services Directive passport notifications These Guidelines provide a framework for the co-operation of competent authorities with regard to the implementation of the passport notification provisions of the PSD. Competent authorities agree the annexes to these Guidelines which are comprised of: the standard notification form for freedom to provide services; the standard notification form for branch establishment and engagement of an agent located in a Host Member State; the list of competent authorities for notification purposes; the list of national public registers for payment institutions, their agents and branches; the list of out-of-court complaint bodies; the list of competent authorities for handling complaints under Article 82 of the PSD and the the Joinder Agreement. (27/10/09) http://ec.europa.eu/internal_market/payments/docs/framework/transposition/passporting_guidelines_en.p df

Payments Council: Payment Services Regulations - industry best practice - guidance on selected issues The intention of this document is to provide high level guidance on selected issues for payment service providers that face implementing PSRs and focuses on the conduct of business requirements. The document is described as "a living document" and may be updated as and when necessary. The document does not refer to the new authorisation regime for payment institutions at all. (14/10/09) http://www.paymentscouncil.org.uk/files/payments_council_psrs_guidance_oct_09.pdf (NB: over 40 pages long)

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Speech by Charlie McCreevy: SEPA Direct Debit Launch (13 October 2009) Text of the above speech follows. He sets out what the EC is doing to support the project, including transposition of the PSD, and notes that "we should probably go one step further and set up a proper governance structure for the SEPA project, with the involvement of a broad range of stakeholders. Such structure would act as a catalyst to ensure that the realisation of the SEPA vision is shared by all stakeholders and meets their needs and expectations". (13/10/09) EUROPA - Press Releases - Charlie McCREEVY European Commissioner for Internal Market and Services SEPA Direct Debit Launch SEPA Direct Debit Launch Event Brussels, 13 October 2009

EC: Commission consultation shows general support for end-date for SEPA migration The EC has published the results of a public consultation launched in June 2009 on whether and how deadlines should be set for the migration of existing national credit transfers and direct debits to the new SEPA payment instruments. Respondents generally expressed support for fixing at EU level a deadline for the full migration to SEPA. The EC will discuss this matter with Member States before taking a decision on how best to proceed. (29/09/09) EUROPA - Press Releases - Single Euro Payments Area (SEPA): Commission consultation shows general support for end-date for SEPA migration

BoE: The Bank of England’s oversight of interbank payment systems under the Banking Act 2009 This paper provides a brief overview of the relevant provisions of the Banking Act 2009 and describes how BoE intends to reflect these provisions in its approach to oversight of interbank payment systems. It also invites comments in relation to the draft Principles BoE is intending to apply to recognised payment systems once the new framework is in place. Comments must be received by 30 October 2009. (29/09/09) http://www.bankofengland.co.uk/publications/other/financialstability/oips/oips090928.pdf

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11.1 Insurers/reinsurers/life offices

On 23rd September 2009, Stephen Haddrill Director-General of the Association of British Insurers (“ABI”) issued a news release setting out the ABI’s “serious reservations about the over-zealous interpretation of Solvency II as proposed by CEIOPS”. Despite ABI’s long-standing support of the Solvency II project, which will introduce a new regime for the prudential regulation of EEA insurance and reinsurance companies from October 2012, excessive levels of prudential capital requirements are not in the interests of consumers according to the press release. Stephen Haddrill indicated that these ABI concerns are shared by the whole of the EU insurance sector.

ABI’s comment follows two Solvency II related developments:

1. The European Commission’s proposal, released on the same date, setting out a new institutional framework for financial supervision across the EU. ABI indicated that it would be looking carefully at the Commission’s proposals to ensure that there are robust checks and balances on the powers to be devolved to regulators. Stephen Haddrill expressed concern that the macro-prudential body, the European Systemic Risk Board, is dominated by bankers and lacks insurance expertise.

2. CEIOPS own press release on 14th September 2009 indicating that it had received over 20, 000 comments in response to its second consultation process on its draft advice for Level 2 Implementing Measures for the Solvency II Directive (see below).

These developments are consistent with the fact that the Solvency II project has increasingly become the main vehicle to deliver post-financial crisis reform of the insurance sector. It is understood FSA, which is a member of CEIOPS may be sympathetic to ABI concerns. However, in FSA feedback statement FS09/1 insurance Risk management- the path to Solvency II, FSA indicated the importance of firms having the right amount and the right quality of capital under Solvency II Level 2 requirements, in order to achieve consistency with developments in the banking sector and in light of recent market events. FSA stated that it would press to secure such requirements on own funds at Level 2 that achieve regulatory capital composition “that is of appropriate quality and quantity”.

See FT article: “Insurers fear need for £50bn cash call”, 2 September 2009

CEIOPS released for consultation its second set of advice on Solvency II Level 2 Implementing Measures on 2 July 2009. This advice was developed on the basis of the Solvency II Level 1 text adopted by the European Parliament on 22 April 2009. The 25 CPs provide advice on key aspects for the future implementation of the Solvency II framework. The issues are interlinked although they are presented in separate papers. See the covering/note synopsis of the second set of advice and the index of CEIOPS consultation papers.

The IAIS (International Association of Insurance Supervisors) is leading much of the international work in the sector. At UK level, see FSA feedback statement FS09/1 Insurance Risk Management – the path to Solvency II. See also Paul Tucker’s speech of 28 May 2009 – “The Repertoire of Official Sector Interventions in the Financial System: Last Resort Lending, Market-Making, and Capital” and his speech of 9 June 2009 to the Association of British Insurers’ 2009 Biennial Conference (page 7 - bank capital instruments)

Chronological Reports

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areas covered by the guidance include: policy information; add-ons; excess levels and referrals. (29/12/09) http://www.abi.org.uk/content/contentfilemanager.aspx?contentid=46460

HMT: Equitable Life ex-gratia payment scheme - second interim report In this report, Sir John Chadwick sets out the principal issues that he will need to resolve in assessing relative loss on the basis of the flexible approach, including current (and provisional) views for which he invites representations as well as his understanding of the scope of the advice now sought in relation to the Ombudsman’s second, fourth and fifth findings. (18/12/09) http://www.hm- treasury.gov.uk/d/equitable_life_second_interim_report_of_sir_john_chadwick.pdf

Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast) This has now been published in the Official Journal. (17/12/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:335:0001:0155:EN:PDF (NB: over 150 pages long)

Law Commissions of England and Wales/Scotland: Consumer insurance law - pre-contract disclosure and misrepresentation The English and Scottish Law Commissions recommend new legislation covering the issue of what a consumer should tell an insurer before taking out insurance. The report includes a draft Bill to be laid before Parliament. Current law requires a consumer to volunteer information about anything which a “prudent insurer” would consider relevant. The draft Bill replaces the duty to volunteer information with a duty on consumers to take reasonable care to answer the insurer’s questions fully and accurately. In addition, the draft Bill: • abolishes “basis of the contract” clauses; • makes special provisions for group schemes, where one party arranges insurance to benefit members of the group (typically employees). The draft Bill brings the law into line with good practice by providing that where a group member makes a misrepresentation, it has consequences only for that individual, not for others within the group; • deals with situations where one consumer takes out insurance on the life of another. If the person whose life is insured makes a careless or deliberate misrepresentation, the insurer has a remedy; • prevents insurers from contracting out of the proposed scheme to the detriment of the consumer. It is noted that recommendations to change business insurance law will follow in 2010. (15/12/09) http://www.lawcom.gov.uk/docs/lc319_summary.pdf (summary) http://www.lawcom.gov.uk/docs/lc319.pdf (report - NB: 200 pages long)

FSA: Letter to ABI re cashless reinsurance and analogous arrangements FSA has published the above, in which it notes that some insurers may be considering entering into contracts of reinsurance or analogous non-reinsurance financing agreements with the intention of applying INSPRU 1.2.79R(2) to such arrangements. It reminds firms that propose to enter into transactions structured for the purposes of applying INSPRU 1.2.79R(2) of the need to take appropriate

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account of the counterparty and asset exposures, and the extent of operational legal risks, resulting from these transactions when valuing their reinsurance cash inflows and outflows, particularly where these transactions are long term and where they are structured as cashless transactions. FSA has recently considered a number of proposed transactions where it raised doubts about how such risks are taken into account when valuing reinsurance cash flows in accordance with INSPRU 1.2.79R and INSPRU 1.1.19AR for the purposes of recognising tier one capital. It also raised doubts about the appropriateness of the assumptions used to value cashflows under these transactions, particularly taking into account the potential effect of Solvency II. FSA is now considering adopting new rules to clarify how these risks should be taken into account when valuing reinsurance and analogous non-reinsurance cash flows in accordance with INSPRU 1.2.79R, where the reinsurance or analogous non-reinsurance arrangements are long term and have the effect of cashless transactions. In the interim, FSA expects insurers to provide it with the details of any proposed reinsurance or analogous non-reinsurance arrangements that are intended to apply INSPRU 1.2.79R(2), in accordance with Principle 11. (14/12/09) http://www.fsa.gov.uk/pubs/other/abi_letter10dec09.pdf

CC: PPI remittal - the Competition Commission’s approach to reconsidering the point-of-sale prohibition as part of its remedies package This document outlines CC's initial view of how it will approach its reconsideration of the inclusion of the point-of-sale prohibition as part of its remedies package in line with the Competition Appeal Tribunal’s Order of 26 November 2009. It is noted that CC's thinking may evolve in light of further analysis and comments received on this document, which are required by 6 January 2010. (14/12/09) http://www.competition-commission.org.uk/inquiries/ref2007/ppi/pdf/ppi_remittal.pdf

CEIOPS: Financial Stability Report 2009 - second half-yearly report This reports on the financial conditions and financial stability of the insurance and occupational pension fund sector in the EU/EEA and covers developments in the insurance, reinsurance and occupational pension fund markets for the periods 2007 and 2008, including observations and outlook for 2009 and beyond. (10/12/09) http://www.ceiops.eu/media/files/publications/reports/Fin-Stability-autumn- 2009/CEIOPS-second-bi-annual-Financial-Stability-Report-2009-20091210.pdf (NB: over 50 pages long)

ABI: Improving customers’ retirement experiences ABI has published this good practice guide, which is intended as a practical tool for firms to use when reviewing their pre-retirement communications and processes. It is not intended to be a rigid process checklist. (10/12/09) http://www.abi.org.uk/content/contentfilemanager.aspx?contentid=46204

ABI: Disclosure of ’total premium’ for pure protection contracts ABI has published this piece of qualitative research into customers’ perceptions of different approaches to presenting total premium. It found that those who purchase pure protection products saw premiums as an expense rather than an investment, and judged them on their monthly affordability and that the total premium (the amount that the customer will pay over the term of the contract) of the insurance is rarely, if ever, considered, and in any case seems irrelevant to monthly affordability. Few respondents, therefore, felt that disclosing the total premium would have much, if any, influence on decisions about insurance products. (10/12/09) http://www.abi.org.uk/content/contentfilemanager.aspx?contentid=46127

HMRC: Life insurance companies: apportionment of income and gains The measure modifies the rules for apportioning the income and gains of a non-profit fund between categories of insurance business. The draft legislation reflects the initial outcome of consultation with the insurance industry announced in July 2009. (9/12/09) http://www.hmrc.gov.uk/pbr2009/life-ins- companies-0345.pdf

HMRC: Insurance Premium Tax (IPT) Premium Splitting This sets out legislation to be introduced in Finance Bill 2010 effective from 9 December 2009 which will close an avoidance scheme involving an ‘administration fee’ charged under a separate contract. The legislation brings certain fees charged under a separate contract in connection with personal lines insurance into the scope of IPT. (9/12/09) http://www.hmrc.gov.uk/pbr2009/ins-premium-tax-0360.pdf 118

ABI: External reviews of internal actuarial advice: best practice for life insurers ABI has launched guidance for life insurers on when internal actuarial advice should be subject to external review following a public consultation earlier this year. It recommends that boards consider seeking an external review when actuarial advice is critical to a decision that has significant implications for the company. This could include where there are major changes to the running of life insurance policies, the regulatory environment and established industry and actuarial practice. (4/12/09) http://www.abi.org.uk/Media/Releases/2009/12/46060.pdf

FSA: Insurance Standing Group FSA has published the minutes of a meeting held on 12 October 2009. Topics include: liquidity premium, Pillar V, internal models update. (4/12/09) http://www.fsa.gov.uk/pubs/international/isg_minutes39.pdf

FSA: Third-party capture – what you need to consider FSA has published a factsheet for senior management and staff of all insurance firms engaging in third- party capture. An FSA review concluded that although this activity does not necessarily cause detriment to claimants, there is a risk that in some cases people may settle directly with an insurer without considering all of their options. (3/12/09) http://www.fsa.gov.uk/pubs/other/third_party_capture.pdf Smaller firms online - Your Firm type

EC: List of policy issues and options for the Level 2 Impact Assessment of Solvency II This revised list is an updated version of the list issued with the Call for Advice from CEIOPS regarding its contribution to the level 2 impact assessment and should be read in conjunction with that Call for Advice. The changes made reflect on-going discussions regarding the development of Level 2 implementing measures. (1/12/09) http://ec.europa.eu/internal_market/insurance/docs/solvency/solvency2/list_of_policy_issues_ia_ver3_en. pdf

CEIOPS: Draft CEIOPS’ advice for Level 2 implementing measures on Solvency II - technical criteria for assessing third country equivalence in relation to Art. 172, 227 and 260 CEIOPS has published this consultation paper in relation to reinsurance (art. 172) and group supervision (art. 227 and 260). Responses are required by 5 February 2010. (30/11/09) http://www.ceiops.eu/media/files/consultations/consultationpapers/CP78/CEIOPS-CP-78-09-L2-Advice- Equivalence-for-reinsurance-and-group-supervision.pdf (NB: over 40 pages long)

ABI: Changes to critical illness insurance definitions ABI has set out its plans to rebrand and standardise definitions of the Total Permanent Disability benefit in CI insurance policies in order to improve clarity for consumers. (30/11/09) Association of British Insurers - ABI proposes changes to critical illness insurance definitions to ensure clarity for consumers

HMT: The prudential regulation of the Equitable Life Assurance Society: the Government’s response to the Report of the Parliamentary Ombudsman’s Investigation The report notes that, in the light of the judgment of the Divisional Court handed down on 15 October 2009 in judicial review proceedings, the Government has decided to accept additional findings made by the Parliamentary Ombudsman in addition to the five findings of maladministration and the four cases of maladministration resulting in injustice referred to in the TOR. These relate to findings 2 and 4 in the report (finding of injustice arising from the failure by Government Actuary's Department to ask questions of Equitable about the affordability and sustainability of bonuses and the valuation interest rate which it used for the returns in each of the years for 1990 to 1993 and for 1994 to 1996, finding 5 (the finding of maladministration arising from Goverment Actuary's Department’s failure to pursue information before them which suggested that users of the returns were misconstruing the financial strength of Equitable by reason of material that was omitted from the returns and the finding of injustice resulting from the fifth finding of maladministration. Annex A of the report is a revised TOR which supersede the original. (27/11/09) http://www.hm-treasury.gov.uk/d/equitable_life_termsref.pdf 119

EC: Solvency II The EC has published the text of a letter to CEIOPS in which it asks it to set up and lead a working party, with a mandate to develop technical solutions on the illiquidity premium and two issues relating to the discount rate - government bond curve v swap curve and extrapolation. The EC has asked for the working party's initial findings to be published no later than 31 January 2010. It is also noted that the EC is to send CEIOPS a technical note with regard to the treatment of future premiums "in the near future". (27/11/09) http://ec.europa.eu/internal_market/insurance/docs/solvency/solvency2/letter_to_Gabriel_Bernardino_fro m_Jorgen_Holmquist.pdf

Third Parties (Rights against Insurers) Bill [HL] A Bill to make provision about the rights of third parties against insurers of liabilities to third parties in the case where the insured is insolvent, and in certain other cases. (26/11/09) http://www.publications.parliament.uk/pa/ld200910/ldbills/017/2010017.pdf http://www.publications.parliament.uk/pa/ld200910/ldbills/017/en/2010017en.pdf (Explanatory Notes)

The Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2009/3075 These Regulations concern the application of Regulation (EC) No. 593/2008 of the European Parliament and of the Council on the law applicable to contractual obligations (Rome I) to contracts of insurance (“the Rome I Regulation”). The Rome I Regulation establishes uniform choice of law rules in the field of contractual obligations between Member States. The amendments made in regulation 2 limit the application of the provisions on the law applicable to contracts of insurance contained in the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2001 (S.I. 2001/2635) to contracts of insurance entered into before 17 December 2009, the date on which the Rome I Regulation comes into force. Regulation 3 extends the application of the Rome I Regulation to conflicts between the laws of England and Wales, Scotland, Northern Ireland, or between the laws of any of the foregoing and Gibraltar, that it would not otherwise apply to. Regulation 4 makes provision permitted by the third subparagraph of Article 7(3) of the Rome I Regulation, allowing parties to contracts insuring risks other than large risks greater freedom of choice of law applicable than would otherwise be available to them under that Article where the risk is situated in the UK (Article 7(3)(a)), the policyholder has their habitual residence in the UK (Article 7(3)(b)) or the policyholder carries on a business, trade or profession and the insurance contract covers two or more risks which relate to that business which are situated in different Member States, and the UK is one of those States or the country of habitual residence of the policyholder (Article 7(3)(e)). Regulation 5 specifies that where the risk is covered by Community co-insurance, as defined by Council Directive 78/473/EEC on the coordination of laws, regulations and administrative provisions relating to Community co-insurance (OJ L 151, 7.6.78, p.25) the leading insurer is to be treated as the only insurer. (Date in force: 17/12/09) (24/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093075_en.pdf

FSA: Update on CP09/23 - The assessment and redress of payment protection insurance complaints FSA has published a short statement in respect of the above. It notes that it has received a large number of detailed responses to the consultation and, as a result of the time it will take to examine and respond, it will now issue the PS early in the new year. FSA will consider any further comments received until the end of the year (originally, the closing date for comments was 30 October 2009). (20/11/09) Update on CP09/23: The assessment and redress of payment protection insurance complaints

FSA: Enhanced Capital Notes FSA has published the text of a letter from Paul Sharma to ABI clarifying the position on the regulatory treatment that would apply for insurance companies that may hold the new Enhanced Capital Notes recently been issued by Lloyds Banking Group. (20/11/09) http://www.fsa.gov.uk/pubs/other/abi_16nov09.pdf

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ABI: Good Practice Guidance for SIPP providers In conjunction with AMPS (the Association of Member Directed Pension Schemes), ABI has launched the above, which gives providers examples of best practice in writing customer and adviser literature, to ensure that the types of SIPP, their features and charging structures are described clearly and accurately. (18/11/09) http://www.abi.org.uk/Media/Releases/2009/11/45719.pdf

CEIOPS/Groupe Consultatif Actuariel Européen: Report on the use of insurance market data in the valuation of technical provisions This study illustrates the role of insurance market data and considers the interconnection of this issue with the Solvency II Level 1 text and the future work on Level 3. (12/11/09) http://www.ceiops.eu/media/files/publications/reports/CEIOPS-Groupe-Consultatif-Coord.Group-Report- on-insurance-market-data.pdf (NB: over 30 pages long)

Speech by Lord Myners: ABI (12 November 2009) Text of the above speech follows. He discusses issues arising form Solvency II, including liquidity premium, and warns of the "need to ensure that the eventual regulatory obligations Solvency II do not go beyond the original intentions of the framework directive. We must deliver on multiple fronts, not just on annuity concerns, if Solvency II is to realise its potential for positive reform". (12/11/09) Association of British Insurers - HM Treasury

CEIOPS: Solvency II advice CEIOPS has published its final advice on the vast majority of Solvency II Level 2 Implementing Measures together with a cover letter and a feedback statement. It has updated the references to Solvency II articles in its advice, in accordance with the latest publicly available Level 1 text (dated 19 October 2009) – see below). (11/11/09) Ceiops - Submissions to the EC (link to advice papers and feedback statement) http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-Cover-Letter- on-final-advice-to-EC-SII-1st-and-2nd-wave.pdf (covering letter)

FSA: Regulatory reform and the cost of retail investing through life offices - 1988 - 2006 This report, prepared by 1776 Consulting for FSA, considers the sets of reforms designed to lower the cost of retail investing through life offices, between 1988 and 2006. The overall average cost of investing through retail-oriented life offices did fall between these dates and FSA asked 1776 Consulting to investigate the role that these reforms played in bringing this about. It concludes that "the success that regulators have had in lowering the cost of retail investing through UK Life Offices suggests that it may be more productive for regulators to instead set themselves the task of making important financial markets work well". (NB: over 60 pages long) (11/11/09) http://www.fsa.gov.uk/pubs/occpapers/op39.pdf

European Council: Solvency II The Council has announced the adoption of Solvency II. It includes a link to the text - dated 19 October 2009 (NB: nearly 700 pages long). (10/11/09) http://register.consilium.europa.eu/pdf/en/09/st03/st03643- re01.en09.pdf

CEIOPS: Self-assessment exercises CEIOPS has published summary reports of its first three self-assessment exercises (in respect of the General Protocol - in particular those on authorisation, cross-border activities and on-going supervision; the Budapest protocol - in particular those on cross-border activities and on-going supervision and the Helsinki Protocol - in particular on the existing guidelines) together with CEIOPS-CEBS "10 Common Principles for Colleges of supervisors". Responses from Members States are included. All are available to download via the link below. (10//11/09) Ceiops - Review Panel - Self Assessments

CEIOPS: Report on risk management rules applicable to IORP CEIOPS has published this report which captures general trends and practices among EU Member States, relevant to risk management in IORPs, as well as exploring, as a matter of mutual and general interest, any national legislative provisions that go beyond the requirements of the IORP Directive. (10/11/09)

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http://www.ceiops.eu/media/files/publications/reports/CEIOPS-Occupational-Pensions-Risk- Management-by-IORPs-report.pdf

FSA: Mortgage PPI FSA has announced that it has reached agreement with mortgage PPI firms to an industry-wide package of measures for consumers, including refunds of around £60m. The industry has agreed to: proactively refund increases in premiums, and reverse any reductions in cover, for customers who have experienced these changes to their policy in 2009; offer to reinstate policies where a customer had cancelled it within two months of an increase in premium or reduction in cover made during 2009; freeze premiums and cover for existing customers for at least the remainder of this year; and amend mortgage PPI contracts to ensure that all customers are made aware of the circumstances in which firms have the right to vary premiums and cover. FSA has published the text of a letter it has sent to ABI/BBA/BSA and CML setting out more details (second link below). (7/10/09) FSA and firms reach agreement on MPPI http://www.fsa.gov.uk/pubs/other/mppi.pdf

Law Commission/Scottish Law Commission: Reforming Insurance Contract Law This paper summarises the responses received following an April 2009 paper, which asked whether micro-businesses should be treated like consumers for the purposes of pre-contractual information and unfair terms. (6/11/09) http://www.lawcom.gov.uk/docs/micro-businesses_responses.pdf

CEIOPS: Revised Budapest Protocol CEIOPS has published the revised texts of the Budapest Protocol which are available via the following link. The revised Protocol came into force on 30 October 2009. (5/11/09) Ceiops - Protocols

ABI: New Director General ABI has appointed Kerrie Kelly, who is currently Executive Director and CEO of the Insurance Council of Australia, as its new Director General. She will take up the role in February 2010. The item includes a short biog. (4/11/09) Association of British Insurers - ABI appoints Kerrie Kelly as Director General

CEIOPS: Third set of advice on Solvency II Level 2 implementing measures CEIOPS has issued 16 consultation papers, responses to which are required by 11 December 2009. (3/11/09) http://www.ceiops.eu//media/files/consultations/consultationpapers/20091102Cover-letter- Consultation-Papers-63-to-77-79-SII-Level-2-draft-advice REV.pdf Ceiops - Consultation Papers

IAIS: Guidance paper on the structure of capital resources for solvency purposes This guidance paper provides guidance on principles-based requirements for a solvency regime in relation to capital resources. It outlines four requirements of a solvency regime relevant to the determination of capital resources for solvency purposes which should be encouraged for all insurers. The aim of the guidance paper is to support the enhancement, improved transparency and comparability and convergence of the assessment of insurer solvency internationally. (3/11/09) http://www.iaisweb.org/__temp/20__Guidance_Paper_No__2_1_2_on_the_structure_of_capital_resource s_for_solvency_purposes_.pdf

CEIOPS: EU-wide stress test in the insurance sector in December 2009 CEIOPS has announced a EU-wide stress test in the insurance sector which will take place in December 2009 for large and important insurance groups in Europe. Three scenarios will be tested. An adverse scenario mirroring the development of capital markets between end-September 2008 and end-September 2009. The second scenario reflects a more severe and prolonged recession and the third scenario reflect a situation of inflation picking up rapidly leading to a steep rise in interest rates. The stress test will focus on market and credit risks. (30/10/09) http://www.ceiops.eu/media/docman/public_files/pressreleases/Press-Release-Stress-test-insurance- sector-2009.pdf

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The Lloyd’s Underwriters (Tax) (Amendment) Regulations 2009/2889 These Regulations amend the Lloyd’s Underwriters (Tax) Regulations 2005 (S.I. 2005/3338) (the “principal Regulations”) so as to apply the provisions of paragraph 2 of Schedule 11 to the Finance Act 2007 to managing agents of Lloyd’s syndicates. Paragraph 2 of Schedule 11 enables an officer of Revenue and Customs to require a general insurer to provide a report in respect of the amount of technical provisions stated in the general insurer’s accounts. These Regulations modify paragraph 2 so that it also applies in respect of technical provisions made by Lloyd’s syndicates. (Date in force: 1/12/09) (29/10/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092889_en.pdf

FSA: Solvency 2 – IMAP update - helping you prepare FSA has published what it describes as the first in a series of regular updates to help firms prepare for Solvency 2 and the Internal Model Approval Process (IMAP). It includes: feedback on the letters FSA recently wrote to firms asking whether they intend to apply to use an internal model or not; an updated IMAP timetable; information about pilots FSA is running as part of its preparation for the pre-application process; information about a number of thematic pieces of work FSA has begun; and a list of recently published material by CEIOPS along with planned future publications. (28/10/09) http://www.fsa.gov.uk/pubs/international/imap_update.pdf

FSA: Financial Promotions Industry Update - Issue 4 This issue deals with the topic of insurance pricing claims, noting that FSA, during routine monitoring, has picked up several insurance promotions appearing on websites and in magazines (in particular those from intermediaries) that do not meet the high level ‘clear, fair and not misleading’ rule. (27/10/09) http://www.fsa.gov.uk/pages/Doing/Regulated/Promo/pdf/insurance_pricing.pdf

IAIS: Insurance Supervisors strengthen framework for sound insurance markets In this note, IAIS sets out what was agreed at its Annual Conference and General Meeting on 24 October 2009. (26/10/09) http://www.iaisweb.org/__temp/26_October_2009__Annual_Conference__Closing_Press_release__Insur ance_Supervisors_strengthen_framework_for_sound_insurance_markets.pdf

FATF: Risk-based approach - guidance for the life insurance sector The purpose of this guidance is to: support the development of a common understanding of what the risk- based approach involves; outline the high-level principles involved in applying the risk-based approach; identify characteristics of risks indicating that enhanced mitigation strategies may be warranted; describe good public and private sector practice in the design and implementation of an effective risk-based approach; and foster communications between public and private sectors that are conducive to the prevention of money laundering and terrorist financing. (20/10/09) http://www.fatf- gafi.org/dataoecd/0/15/43905397.pdf (NB: over 50 pages long)

Speech by Stephen Hadrill: Insurance Times Forum (15 October 2009) In this speech, Stephen Hadrill discusses the topic of customer satisfaction in light of the financial crisis. (15/10/09) Association of British Insurers - Insurance industry has improved customer outcomes, but has further to go

ABI: ABI Savings Manifesto At a joint ABI / IPPR conference, Savings, Assets and Protection in the UK, ABI has launched this publication intended to provide "ideas to boost pensions and other savings, including early automatic enrolment into workplace pensions, automatic increases in pension contributions and more flexibility on when people can buy annuities". In the accompanying press release, ABI notes that it is "calling for a new way of dealing with life insurance payments, which will help to avoid any financial hardship that people can suffer while they are waiting for lengthy legal processes after the death of a loved one to conclude". (13/10/09) Association of British Insurers - People need to look after themselves financially – ABI launches plans to encourage responsibility

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CEIOPS: Overview of legal requirements under the IORP Directive (2003/41/EC) CEIOPS has published the above, together with an explanatory note. (13/10/09) http://www.ceiops.eu/media/files/supervisory-disclosure/CEIOPS-OPC-Survey-Law-applicable-to- IORPs-Appendix.xls http://www.ceiops.eu/media/files/supervisory-disclosure/CEIOPS-OPC-Survey- Law-applicable-to-Guest-IORPs.pdf

FOS: Motor insurance - keys in car This is a technical note describing FOS' current approach to cases where a consumer complains to it that an insurer has refused to pay a claim for the theft of a vehicle – when the ignition keys were left in or on the car. (8/10/09) motor insurance - keys in Car

EC: Revised draft block exemption regulation for insurance sector The EC is inviting comments on its revised draft Block Exemption Regulation (BER) for the insurance sector. The current insurance BER, which will expire on 31 March 2010, exempts certain agreements between insurance companies from the EC Treaty's ban on restrictive business practices (Article 81). Agreements currently covered by the BER include the establishment of non-binding standard policy conditions, the exchange of statistical information for the calculation of risks, the creation and operation of insurance pools as well as agreements on security devices. The revised draft proposes to renew two of the four categories of agreements currently exempted, namely information exchange and insurance pools, with certain amendments. Responses are required by 30 November 2009. (5/10/09) EUROPA - Press Releases - Antitrust: public consultation on revised draft Block Exemption Regulation for insurance sector http://ec.europa.eu/competition/consultations/2009_insurance/draft_regulation_en.pdf

Office of Sir John Chadwick: Change to closing date for representations to Sir John Chadwick's interim report Sir John Chadwick has put back his closing date for comments on his interim report in relation to Equitable Life, as he understands that the judgment of the Divisional Court in the judicial review proceedings brought against HMT in relation to its Response to the Parliamentary Ombudsman's Report into the prudential regulation of Equitable Life is likely to be handed down at the beginning of October. (2/10/09) Change to closing date for representations to Sir John Chadwick's interim report | News | The Office of Sir John Chadwick

CP09/23*: The assessment and redress of payment protection insurance complaints The CP sets out proposals for: guidance on the fair assessment and (where appropriate) redress of complaints related to sales of PPI and rules requiring firms to re-assess, against the proposed new guidance, complaints (received since 14 January 2005) about PPI sales that the firm had previously rejected. The accompanying press release notes that firms representing more than 40% of face-to-face sales in the Single Premium Unsecured Personal Loan PPI market have agreed to review these sales and redress those consumers identified as mis-sold. Ongoing supervisory action continues with the remainder of this market place. These measures build on the agreement FSA obtained from the industry earlier in 2009 to stop selling Single Premium PPI on unsecured loans. For complaints about all PPI products, new measures will tackle the key issue that too many complaints are rejected by firms and then overturned by FOS in favour of the consumer: new guidance (due to take effect by the end of the year) will ensure PPI complaints are handled properly, and redressed fairly where appropriate; a new rule will require firms to reopen some 185,000 previously rejected PPI complaints and reassess them against the guidance. In addition, FSA is launching targeted assessment of sales practices for PPI on secured loans and credit cards; if the potential for mis-selling is identified, pro-active reviews by firms may be extended to these areas too. The closing date for comments on the consultation is 30 October 2009. (29/09/09) FSA unveils tough measures to protect PPI consumers http://www.fsa.gov.uk/pubs/cp/cp09_23.pdf (NB: over 50

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pages long) Comment from FSCP: FSCP - Consumer Panel welcomes the FSA’s proposals on PPI – but it must only be the start

Speech by Jaime Caruana: Deposit insurance core principles (23-24 September 2009) Text of the keynote address by the General Manager of BIS at a conference on the "Core Principles for Effective Deposit Insurance Systems" held in Basel follows. He notes recently completed deposit insurance core principles and urges that these standards and guidance be implemented in an “internationally coordinated and consistent manner”. (29/09/09) Deposit insurance core principles

CEIOPS: Database on the regulatory and supervisory treatment of third country reinsurance undertakings and existing equivalence practices CEIOPS notes that the database is based on the responses of CEIOPS Members and Observers to a detailed questionnaire published in January 2009. (22/09/09) http://www.ceiops.eu/media/files/supervisory-disclosure/CEIOPS-public-database-treatement-3rd- country-reinsurers.xls

ABI: UK competitiveness: the way forward for insurance This report outlines the challenges and opportunities in the insurance sector in the UK. Among its proposals are: the introduction of a corporate tax exemption for those with branches abroad encourage companies to keep or set up their headquarters in the UK; ensuring that any tax changes in response to Solvency II do not endanger UK competitiveness against other EU locations. It is also noted that 80% of UK insurance executives surveyed by ABI feel that if the Government fails to improve competitiveness, there will be a drop in the number of insurance firms based in the UK (15/09/09) Association of British Insurers - ABI: Now is a critical time to improve UK competitiveness http://www.abi.org.uk/Media/Releases/2009/09/43757.pdf

CEIOPS: Second set of Consultation Papers on Solvency II, Level 2 Implementing Measures In this press release, CEIOPS notes that it received more than 20,000 comments from 105 stakeholders on the 26 Consultation Papers (closing date for comments was 11 September 2009). CEIOPS is to analyse the contents and finalise the advice to be adopted at its Members Meeting at the end of October, together with the final advice from the first set for which the consultation ended earlier this year. A final third set of draft advice will be put forward for approval by CEIOPS Members at this meeting, for consultation until 11 December 2009. Publication of the individual comments on CEIOPS’ website will follow as soon as possible. (14/09/09) http://www.ceiops.eu/media/files/pressreleases/draft-v2-20090914-press- release-comment-2nd-wave-SII-CPs.pdf

FSA/ABI: Pension calculator FSA has published an online pension calculator designed to help people gauge how much they will have to live on in retirement. The calculator enables anyone with a pension fund from a previous employer, those paying into a new pension scheme, or people without any existing pension at all, to calculate their potential retirement income based upon regular payments. Further functionality will be added to the calculator in the future. (10/09/09) Pension calculator : FSA Money Made Clear - Useful tools

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FSA: The proposed transfers of the life insurance business of Commercial Union Life Assurance Company Limited, CGNU Life Assurance Limited and Norwich Union Life (RBS) Limited to Aviva Life & Pensions UK Limited FSA has published a number of documents in relation to the above - its Report to the Court in relation to the proposed transfers of life insurance business (which also covers the reattribution of the inherited estates of Commercial Union Life Assurance Company Limited and CGNU Life Assurance Limited) and its "first" and "second" reports. These are all available via the following link. (9/09/09) The proposed transfers of the life insurance business of Commercial Union Life Assurance Company Limited, CGNU Life Assurance Limited and Norwich Union Life (RBS) Limited to Aviva Life & Pensions UK

FSA: Review of SIPP operators This webpage notes that, in December 2008, FSA began a review of around 60 small SIPP operators to determine the extent to which they are adhering to our principles and rules. It has now written to the senior management of every small SIPP operator, explaining its findings, in particular in the areas of TCF, relationships with firms that give SIPP advice, systems and controls, disclosure of fees and charges, and the production of illustrations. The page includes links to the full report, the text of the letter to senior management, a page of case studies (set out by specific area of concern) and a factsheet summarising the standards all SIPP operators should be achieving and the rules they should follow. Links below. (4/09/09) Smaller firms online - Your Firm type (webpage) http://www.fsa.gov.uk/smallfirms/your_firm_type/financial/pdf/sipp_report.pdf (full report) http://www.fsa.gov.uk/smallfirms/your_firm_type/financial/pdf/sipp_letter.pdf (text of letter) Smaller firms online - Your Firm type (case studies) http://www.fsa.gov.uk/smallfirms/your_firm_type/financial/pdf/sipp_factsheet.pdf (factsheet)

IAIS: Developments in (re)insurance securitisation This report discusses the issue of insurance securitisation, looking at its main characteristics and functions, key similarities and differences with banking securitisation, and current approaches to its regulation and supervision. It draws on the extensive literature on the matter, on regulatory and supervisory developments worldwide, and on empirical data on the performance of insurance securitisation arrangements to date. (26/08/09) http://www.iaisweb.org/__temp/IAIS_Global_Reinsurance_Market_Report__GRMR___2009__Mid- Year_Edition_.pdf (NB: over 40 pages long)

Office of Sir John Chadwick: Equitable Life ex-gratia payment scheme - interim report Sir John notes that "some aspects of the approach to the assessment of relative loss which I proposed in June should be revised". He explains his reasoning in this report and invites comments and representations on it. Responses are required by 2 October 2009. (19/08/09) http://clients.squareeye.com/uploads/chadwick/Equitable Life ex-gratia payment scheme - Sir John Chadwick's Interim Report, Aug 2009.pdf (NB: over 30 pages long)

ABI: Pre-retirement wake-up packs: results of customer research ABI has published the results of consumer research into the "wake-up packs" received by defined contribution pension savers six months before retirement. The packs contain information on the options for buying an annuity, including the right to use the OMO. 71% of participants who read the pack said it gave them a better understanding of their options at retirement, and awareness of the right to shop around increased from 62% to 82% after reading it. However, of those participants who remembered receiving the pack, 58% had just skimmed it or not yet read it at all. ABI notes that the survey forms part of a wider industry effort to improve customer engagement with pension savings and retirement planning, including new processes to simplify and speed-up the OMO transfer process. (13/08/09) Association of

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British Insurers - Wake-up pack research shows good understanding, but more work needed to improve retirement planning engagement

IAIS/OECD: Issues paper on corporate governance This joint issues paper discusses the corporate governance of insurers. (28/07/09) IAIS/IOSCO Corporate Governance insurers

Insurance Industry Working Group: Vision for the insurance industry in 2020 The IIWG, co-chaired by Alistair Darling and Andrew Moss, has published its report into the medium and long-term challenges facing the insurance industry. The report recommends: action from the insurance industry, government and FSA to increase customer confidence and trust through improving financial education and considering further steps to improve transparency, simplicity and access for consumers; a partnership between the insurance industry and Government to better manage risk in society and to explore options to increase savings and protection provision; work to help consumers manage financial distress, building on the Government’s financial capability initiatives. The insurance industry should work with Government to assess the scope for a greater industry role, where it is commercially viable, such as helping people with the need for a retirement income and help with long term care. (27/07/09) HMT - insurance industry

PS09/13: With-profits funds - compensation and redress FSA has confirmed that proprietary life insurance companies will not be able to meet future compensation and redress payments from their with-profits funds. These changes mean that any liabilities arising from operational failures (including mis-selling) after the rule comes into effect on 31 July 2009 must be borne by shareholders not policyholders. FSA notes that it received over 230 responses to its consultations, with a large number of MPs, individuals and organisations representing consumer interests objecting to the proposal as being too weak. It further noted that a small number of firms strongly opposed the proposal and questioned whether FSA's powers under FSMA permitted it to make the proposed rule changes. (24/07/08) FSA confirms changes to with-profits rules http://www.fsa.gov.uk/pubs/policy/ps09_13.pdf

ABI: Customer Impact Panel 2008/09 Report The annual report of the independent Customer Impact Panel, which oversees the ABI’s Customer Impact Scheme, follows. It includes the Panel’s commentary on the 2008/09 Customer Impact Survey and recommendations for the future of the Scheme. The Panel has made a series of further recommendations to improve customer experiences of the life, pensions, savings and investment industry, which it will look to the industry to work on in the coming year. (23/07/09) http://www.abi.org.uk/Media/Releases/2009/07/40636.pdf

HoC PASC: The Ombudsman’s report on Equitable Life: Government Response to the Committee’s Second Report of Session 2008-09 This report comprises a response from Sarah McCarthy-Fry MP, Exchequer Secretary, HMT. (23/07/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmpubadm/953/953.pdf

FSA: Use of stress testing in the insurance sector FSA has published this statement which sets out how stress tests have been used within the prudential regulatory regime for insurers including information on the macro-economic parameters recently used. FSA notes that it will not, as a matter of practice, be publishing details of the stress test results and that, given that the application of the tests has and will continue to evolve, the parameters used will change over time. (21/07/09) Use of stress testing in the insurance sector

CEIOPS: Draft CEIOPS’ advice for Level 2 implementing measures on Solvency II: remuneration issues In this paper CEIOPS intends to provide its contribution to the general discussion on the issues related to remuneration policies and schemes. It also aims at providing advice for Level 2 measures with regard to remuneration issues. CEIOPS’ advice focuses on the following four areas: scope, objectives (where the main drivers of a focus on remuneration issues are set); “principles”, where a set of general principles, as 127

well as their applicability to the insurance sector, are established; and the role of the supervisory authority. (21/07/09) http://www.ceiops.eu/media/files/consultations/consultationpapers/CP59/CEIOPS- CP-59-09-L2-Advice-Remuneration-Issues.pdf

ABI: Statement of best practice for critical illness cover This consultation paper sets out proposals for the 2009 review, which follows previous full reviews in 2006 and 2002 and an interim review in 2004. The main change proposed is to replace the Total Permanent Disability (TPD) clause included in critical illness insurance policies with a set of carefully worded definitions to ensure clarity for consumers about precisely what conditions are, and are not covered. Responses are required by 30 September 2009. (10/07/09) http://www.abi.org.uk/Media/Releases/2009/07/25673.pdf

CEIOPS: Second set of advice on Solvency II Level 2 Implementing Measures CEIOPS is releasing for consultation its second set of advice developed on the basis of the Solvency II Level 1 text adopted by the European Parliament on 22 April 2009. The 25 CPs provide advice on key aspects for the future implementation of the Solvency II framework. The issues are interlinked although they are presented in separate papers. (3/07/09) http://www.ceiops.eu/media/files/consultations/consultationpapers/Cover-letter-Consultation-Papers-37- 62-SII-Level-2-draft-advice.pdf (covering note/synopsis) Ceiops - Consultation Papers (index of CPs)

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11.2 Insurance brokers and intermediaries

See the BIPAR principles for transparency in insurance.

Chronological Reports

ABI: Ensuring positive customer experiences of buying insurance online ABI notes that this good practice guidance, which has been developed by ABI, BIBA and Which?, is for insurance comparison websites, insurers and brokers selling general insurance online and aims to ensure that consumers buying insurance over the internet can better identify the right policy for their needs. Key areas covered by the guidance include: policy information; add-ons; excess levels and referrals. (29/12/09) http://www.abi.org.uk/content/contentfilemanager.aspx?contentid=46460

FSA: Terms regarding the responsibilities and liabilities of insurance comparison websites for providing their service FSA has published undertakings from Gocompare.com Limited, Insurancewide.com Services Limited, Moneysupermarket.com Financial Group Limited and uSwitch Limited regarding their responsibilities and liabilities for providing their comparison service. These undertakings show that terms in standard- form consumer contracts should set out the liabilities of firms clearly and fairly. It is noted that the four firms were fully co-operative with FSA. (15/12/09) http://www.fsa.gov.uk/pubs/other/undertaking_gocompare.pdf

Speech by Jeremy Heales: The FSA's view of the current insurance intermediary market (11 November 2009) Text of the above, given at the BIBA Scotland conference, has now appeared on FSA's website, together with accompanying slides. Topics include: current conditions for insurance intermediaries; FSA's approach to small firms; the Assessment Programme and financial reporting. He discusses a recent survey undertaken by FSA with regard to the latter in which FSA looked at over 7,000 returns from smaller firms in the mortgage, general insurance and financial advice sectors and then did follow-up visits to around 70 firms that appeared financially weak due to the information they supplied. FSA found that only a third of these firms were reporting accurately; a small minority were submitting inaccurate data in order to mislead FSA; half of all misreporting firms had hidden capital deficits; and a third of directors had a poor understanding of requirements, noting "we found far too much reliance on external accountants and compliance consultants to prepare and submit the information". FSA is to cancel the permissions of three firms and expects a further 30 firms to have risk alerts raised against them, which may result in further visits/actions. It is also taking further action against those firms that have submitted misleading information. (25/11/09) Regulator's view of the current insurance intermediary market http://www.fsa.gov.uk/pubs/speeches/biba.pdf (slides)

FSA: Client money - 2009 FSA has published a webpage in which it notes the results of a review of a sample of firms carried out in May/June 2009 to assess the awareness and understanding of client money rules at GI Intermediary firms. It found that although nearly two thirds of firms reviewed had a good awareness of the rules some firms were found to lack knowledge in this area and therefore need to improve their understanding and application of the client money rules. It sets out key areas for improvement (second link). (17/09/09) Smaller firms online - Your Firm type Smaller firms online - Your Firm type

FSA: Interim findings: anti-bribery and corruption in commercial insurance brokers FSA has published a page on its website setting out some key findings on the above mentioned review. These include "generally very weak" due diligence and monitoring of third-party relationships and payments. It is noted that FSA decided to publish interim findings as there will be a short delay to the publication of the final report, following a secondment of a small number of its Financial Crime

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Operations team to support the work of its Major Retail Groups Division. (11/09/09) Interim findings: anti-bribery and corruption in commercial insurance brokers

CEIOPS: The IMD and other intermediaries’ related issues - practical solutions and examples This document is aimed at promoting the emergence of common approaches in supervising insurance intermediaries and is designed as a record of practical problems that CEIOPS Members have encountered in their role as competent authorities for the IMD, and the solutions that they found. It is neither exhaustive of the possible problems encountered in administering the IMD, nor of the possible solutions to those problems. However, it gives examples of supervisory scenarios for illustrative purposes. (2/07/09) http://www.ceiops.eu/media/files/publications/reports/CEIOPS-IMD-Practical-solutions-and- examples.pdf

CEIOPS: Insurance guarantee schemes This letter and report set out CEIOPS' recommendations to the EC re the above. (2/07/09) http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS_Reply_to_EC_letter_on_IGS _20090630.pdf http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-DOC-18-09 _Input_to_EC_work_on_IGS-approved_clean_.pdf (NB: over 30 pages long)

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12. Funds

The EC’s proposed Directive will have a major impact on all non-UCITS funds and potentially on a wide range of other vehicles and structures. These include hedge, private equity, property, money market, film, commodity, infrastructure and many other non-UCITs funds. It will also apply to a diverse range of entities that currently operate outside collective investment scheme regulation in the UK such as listed investment trusts and other closed-ended vehicles, and, unless the directive is amended, to a variety of corporate, financing and investment structures (where the EC may have limited understanding of the impact and gives no policy ground for regulation). There are many serious concerns about the proposal and an extensive lobbying campaign (involving the UK government and a HoL Select Committee report) is underway but industry support is required across each of the effected sectors dealing with their particular concerns –

1. The proposal is vague/technically weak and many of its provisions appear unworkable or require substantial to change to industry practice without any meaningful explanation as to why such a change would be appropriate or even the benefit it is designed to achieve.

2. The provisions on non-EU funds are alarming and appear to pre-empt the international debate. There are concerns both about EU professional investors loosing access to non-EU funds for their global investment programmes and about UK/EU managers having to close funds/withdraw from many offshore centres widely used at present (such as Cayman). The problem could even extend to US funds that will not be subject to ‘equivalent’ regulation.

3. There legislation will require major changes in the way the sector operates including the use of new style depositaries (which must be EU banks) with responsibility for the worldwide assets of the fund and regular independent valuation.

4. Contrary to what the EC says, the legislation applies broad requirements across many varied sectors/structures that involve very different operating models. There is no real understanding of the different impacts in each area or account of the different micro or macro-prudential issues. The public consultation was very limited in time and scope (it only covered hedge funds and not the many other sectors that the legislation has been broadened to cover).

The proposal appears to be a muddle of:

• A rushed response (as the House of Lords EU Committee has found) to post-crisis concerns about offshore centres and systemic/macro-prudential issues. (The mechanics seem at odds which much of the emerging thinking.). • Pre-crisis single market objectives. • Dealing with political pressure from the European Parliament, which had started a campaign against the hedge and private equity sectors before the current crisis (the Rasmussen and Lehne reports).

See the European Commission’s proposals for the Directive on Alternative Investment Fund Managers (AIFM), and accompanying FAQs (see section “Why the AIFM Directive regulates fund managers instead of funds”).

The EU has consulted on the depositary regime under UCITS in light of concerns that investors may not be fully protected where a depositary has delegated or becomes insolvent. The consultation invites views on how depositary safekeeping and supervisory duties should be better harmonized. It seeks clarification on the depositary safe-keeping duties for each class of assets that are eligible within a UCITS portfolio and invites views on whether supervisory duties should also be further clarified and harmonized, and if so how to do so. It invites views on how to improve UCITS investors' protection if a depositary performs its duties improperly or if it becomes insolvent. The EC considers that the burden of proof should be borne by the depositor. It is proposed that there should be additional requirements where assets are entrusted for safekeeping through a network of sub-custodians. It also seeks views on the form of a liability regime that 131

would allow investors to adequately mitigate losses. It invites views on the introduction of rules on organisation and conflict of interests based on MiFID. Eligibility criteria and supervision are also considered. The consultation also covers issues that are not directly linked with depositaries. Responses were required by 15 September 2009.

Enhancing the competitiveness of UK funds, April 2009 (TEFs and “offshore funds”)

Trading and investment for Authorised Investment Funds, December 2008 (“white list”)

Chronological Reports

CESR: Technical advice to the EC on level 2 measures relating to mergers of UCITS, master-feeder UCITS structures and crossborder notification of UCITS/Annex to CESR’s technical advice on the level 2 measures related to the format and content of Key Information Document disclosures for UCITS methodology for the calculation of the synthetic risk and reward indicator/Annex 2 to CESR’s technical advice to the EC on the level 2 measures related to the format and content of Key Information Document disclosures for UCITS - methodology for calculation of the ongoing charges figure CESR has published these documents in respect of UCITS. (22/12/09) http://www.cesr.eu/data/document/09_1186_Final_advice_Part_III_UCITS_IV_for_publication.pdf (NB: over 40 pages long) http://www.cesr.eu/data/document/09_1026_Final_KID_SRRI_methodology_for_publication.pdf http://www.cesr.eu/data/document/09_1028_Final_KID_ongoing_charges_methodology_for_publication __2_.pdf

The Real Estate Investment Trusts (Prescribed Arrangements) Regulations 2009/3315 These Regulations aim to prevent artificially manipulated commercial arrangements entered into by a company or group of companies, where the arrangements have as their purpose, or main purpose, the meeting of various conditions set out in the legislation so as to enable a previously non-qualifying group to qualify for REIT status. Where such arrangements are entered into they are prescribed by the regulations. (Date in force: 15/12/09) http://www.opsi.gov.uk/si/si2009/em/uksiem_20093313_en.pdf

HMT: Consultation on charity pooled funds: This report summarises the responses to the consultation on charity pooled funds, which was launched in July 2009. The Government expects to give its policy response at Budget 2010. If the Government is minded to take forward the charity AIF proposal, or any of the alternatives suggested during the consultation, then a further detailed consultation would follow, including if appropriate, draft legislation and regulatory rules. (16/12/09) http://www.hm- treasury.gov.uk/d/consult_charitypooledfunds_responses.pdf

European Economics: Ex-Ante Evaluation of the proposed Alternative Investment Managers Directive This document was requested by the European Parliament's Committee on Economic and Monetary Affairs and prepared by European Economics. It was asked to consider a number of questions, including the costs and benefits of the changes proposed by the draft Directive, the result of “one size fits all” regulation for AIFM upon the level playing field after the Directive had been applied; the impact on sectors coverd by UCITS and MiFID and the risk of capital flow from the EU to non-EU jurisdictions. The report suggests that "the EU playing field would be more level, but at the expense of material falls in competition and innovation in the AIFM sector, driven particularly by de-globalisation, leading to materially higher costs for investors, reduced efficiency in financial markets, less investment to innovative businesses, and less efficient restructuring of businesses in financial distress ... It is likely that some fund managers would exit the EU market as result of limitations on the use of leverage, constraints on the use of certain strategies and the additional cost of complying with the Directive”. The report also

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looks at alternative options, such as extending existing regulation. (15/12/09) http://www.eer.co.uk/download/2009shortAIFMdirective.pdf

HoL EU Select Committee - Sub-Committee A: Inquiry on the AIFM Directive The Sub-Committee has published a letter to Lord Myners, Financial Services Secretary at HM Treasury, outlining its emerging conclusions of its inquiry on the AIFM Directive. The Sub-Committee are no longer taking evidence on the inquiry. A full report on the inquiry is expected to be published in early February 2010. (11/11/09) http://www.parliament.uk/documents/upload/20091210Mynersnosignaifmd.pdf

European Parliament: Interview with Jean-Paul Gauzes MEP This is a short Q&A with the rapporteur in the European Parliament for the proposed AIFM Directive. It is noted that his report [see 27 November 2009 update] will be discussed in committee next February and is scheduled to go to plenary in July 2010. (9/12/09) Interview with Jean-Paul Gauzès MEP, rapporteur on "hedge fund" directive

IOSCO: The development of the collective investment schemes industry in emerging markets 2005 to 2007 This report from IOSCO's Emerging Markets Committee (presents the results of a wide ranging survey of CIS and the regulation that applied to them in emerging markets between the years 2005 and 2007. (9/12/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD311.pdf

EC: Draft report on the proposal for a directive of the European Parliament and of the Council on Alternative Investment Fund Managers and amending Directives 2004/39/EC and 2009/…/EC Jean-Paul Gauzes MEP, the rapporteur in the European Parliament for the proposed AIFM Directive, has published a draft report detailing his proposed amendments. This is set out side-by-side with the EC's text. (27/11/09) http://www.europarl.europa.eu/meetdocs/2009_2014/documents/econ/dv/796/796533/796533xm.pdf (NB: over 80 pages long)

HMRC: Changes to improve the transitional arrangements for The Offshore Funds (Tax) Regulations 2009/3001 HMRC notes that, following HoC approval of the above SI, regulations, the Government now intends to make changes to transitional provisions in order to facilitate the commercial operation of funds during the transitional period together with other minor urgent improvements. (27/11/09) HM Revenue & Customs: Changes to improve the transitional arrangements for The Offshore Funds (Tax) Regulations 2009 (SI 2009/3001)

EC: Summary of responses to UCITS depositaries consultation paper This feedback statement sets out responses to EC's UCITS depositaries consultation. Among the "messages" highlighted were the need to clarify depositary duties and concersns over uncertainty in the liability regime. (27/11/09) http://ec.europa.eu/internal_market/consultations/docs/2009/ucits/feedback_statement_en.pdf

HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): Directive on Alternative Investment Fund Managers It is noted that the Sub-Committee expects to publish a letter outlining its key conclusions from its inquiry on the AIFM Directive in early December. The letter, which will be addressed to Lord Myners, will summarise the main conclusions from its inquiry in advance of the general approach that is likely to be reached in December 2009. The Sub-Committee will publish a full report on the AIFM Directive in the New Year. (26/11/09)

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Speech by Lord Myners: Hermes and City of London Corporation Responsible Asset Management Conference (24 November 2009) Text of the above follows. He discusses governance, the role of shareholders and the role of the asset management industry, saying " I have called before on the fund management industry to endorse and fund such a body, possibly in partnership with a major business school (and endorse it without strings attached). This would, I believe, demonstrate a recognition that good governance is critical to the long- term viability of the public model of ownership and a very evident commitment by professional suppliers of investment management services and products to promote a better and more accountable stewardship". (24/11/09) Hermes and City of London Corporation Responsible Asset Management Conference - HM Treasury

HoL Economic and Financial Affairs and International Trade (Sub-Committee A): Directive on Alternative Investment Fund Managers The Sub-Committee has published a transcript of a hearing held on 10 November attended by Lord Myners. (23/11/09) http://www.publications.parliament.uk/pa/ld/lduncorr/eua101109ev9.pdf

HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): Directive on Alternative Investment Fund Managers The Sub-Commitee heard oral evidence from Sharon Bowles MEP; Martin Power, Head of Cabinet for Commissioner McCreevy, and Ugo Bassi, Head of Unit, DG Internal Market and Services, EC and Ernst Stetter, Secretary General, and Mr Christophe Clerc, Expert, Foundation for European Progressive Studies (FEPS) who attended separate sessions on 4 November 2009. Links to the transcripts follow. (19/11/09) http://www.publications.parliament.uk/pa/ld/lduncorr/eua041109ev8.pdf http://www.publications.parliament.uk/pa/ld/lduncorr/eua041109ev7.pdf http://www.publications.parliament.uk/pa/ld/lduncorr/eua041109ev6.pdf

Speech by Charlie McCreevy: European Asset Management Senior Executive Forum Text of the above follows. Charlie McCreevy discusses the impact of regulatory reform on the asset management sector, with particular reference to financial stability; investor protection; and the completion of the single market. (19/11/09) EUROPA - Press Releases - Charlie McCREEVY European Commissioner for Internal Market and Services European Asset Management Senior Executive Forum PriceWaterhauseCoopers' European Asset Management Senior Executive Forum London, 17 November 2009

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) This has been published in the Official Journal. (18/11/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:302:0032:0096:EN:PDF

IOSCO: Principles on point of sale disclosure This consultation proposes a set of principles, for the disclosure of key information relating to CIS, designed to assist markets and market authorities when considering point of sale disclosure requirements in their respective jurisdictions. Responses are required by 16 February 2010. (16/11/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD310.pdf (NB: over 40 pages long)

HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): Directive on Alternative Investment Fund Managers The Sub-Commitee heard oral evidence from Lord Myners on 10 November 2009. A link to an audio recording of the session is available via the following link. (11/11/09) Player

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HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): Directive on Alternative Investment Fund Managers The Sub-Commitee heard oral evidence from Dan Waters of FSA and Danny Truell, CIO of The Wellcome Trust, in separate sessions on Tuesday 3 November 2009. (10/11/09) http://www.publications.parliament.uk/pa/ld/lduncorr/eua031109ev5.pdf

HMT: Asset management - the UK as a global centre This report is by the Asset Management Working Group, representing practitioners from the asset management industry. It was tasked with presenting what the industry sees as its challenges in the decades ahead, and to provide recommendations to industry, regulator and Government. Among the points highlighted: the asset management sector must ensure realistic expectations of risk and return; retail client proposition is "muddled by confusion and conflict within the distribution system for financial products" and it is suggested that RDR principles should be adopted throughout the EU; the UK should become the “domicile of choice” for collective schemes. (9/11/09) http://www.hm- treasury.gov.uk/d/fin_assetmanagement_091109.pdf

The Real Estate Investment Trusts (Prescribed Arrangements) Regulations 2009 (Draft) Part 4 of the Finance Act 2006 (c. 25) (“Part 4”) sets out the Real Estate Investment Trusts legislation. These Regulations aim to prevent artificially manipulated commercial arrangements entered into by a company or group of companies, where the arrangements have as their purpose, or main purpose, the meeting of various conditions set out in the legislation so as to enable a previously non-qualifying group to qualify for REIT status. Where such arrangements are entered into they are prescribed by the regulations. The effect of the regulations is that they treat a person (and any person in which that person has a direct or indirect interest who falls within the scope of those arrangements) who has entered into prescribed arrangements with a REIT company as a member of the same REIT group from the beginning of the accounting period in which the arrangements are made. Regulation 1 deals with citation, commencement and effect. The regulations come into force on making, and by virtue of paragraph 8(2) of Schedule 34 to the Finance Act 2009 (c. 10), have effect in relation to prescribed arrangements made on or after 7 May 2009 where those arrangements fall within an accounting period which ends on or after the date on which the regulations are made. Regulation 2 deals with interpretation, including the definition of a “person”, “arrangements”, and “prescribed arrangements” for the purposes of the regulations. Regulation 3 sets out the conditions that need to be satisfied in order for the regulations to apply. Regulation 4 excludes arrangements which have been entered into either for genuine commercial purposes, or have been entered into at arm’s length, from the definition of prescribed arrangements. Regulation 5 sets out the consequences of a person entering into prescribed arrangements, namely that the person in question is to be treated as a member of a REIT group for the purposes of Part 4. Regulation 6 sets out the effect for corporation tax purposes where a company, as a result of the application of the regulations, ceases to be a company to which Part 4 applies. Where the prescribed arrangements are entered into in the company’s first accounting period given in a notice under s109 of the Finance Act 2006 (notice), any corporation tax paid by way of entry charge pursuant to s112 (entry charge) of that Act shall be fully taken into account when assessing its overall liability to corporation tax. (9/11/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111487365_en.pdf

HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): Directive on Alternative Investment Fund Managers Further to an earlier report below providing a link to an audio recording of the 27 October 2009 hearing (attended byAndrew Baker (CEO of AIMA) and representatives from BlackRock Inc) - a transcript has now been published. In addition, a transcript of the hearing on 20 October 2009 has been published (second link below) attended by John Chapman (described as "ex civil servant") and Ash Saluja and Gawain Hughes, partners at CMS Cameron McKenna LLP (6/11/09) http://www.publications.parliament.uk/pa/ld/lduncorr/eua271009ev4.pdf http://www.publications.parliament.uk/pa/ld/lduncorr/eua201009ev3.pdf

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FSA: “Dear Compliance Officer” letter: COBS projection rules for non-MiFID products FSA has published the text of a letter from Dan Waters in which he notes concerns of instances where providers had used the standard rates of 5%, 7% and 9% to project for cash funds. FSA held telephone interviews with a sample of firms and conducted desk-based reviews of the projection rates used in illustrations from another sample of firms looking specifically at cash or fixed interest funds, where it would expect firms to use lower rates. FSA notes that the majority of firms interviewed indicated that they have a process for assessing the appropriateness of our standard rates to their funds and products - although the rigour with which this process was applied varied considerably. Many firms appeared to seek an actuarial opinion on the general appropriateness of the standard rates and rarely concluded that lower rates might be more appropriate. In addition some firms indicated that their illustration systems lack the flexibility to project at different rates for different funds. Some firms attempt to overcome this lack of flexibility by projecting at the standard rates, but adding a caveat that these may overstate the potential for certain products or funds. FSA has now instructed firms to revise the rates downwards where the asset mix of funds or products does not justify the use of the standard rates. The letter also rescinds any existing individual guidance that firms may have received permitting them to use the standard rates with a caveat that these may overstate the potential for certain products or funds. FSA intends to conduct a further sample review in 2010 to ensure that firms are complying and take appropriate measures where it finds non-compliance. (4/11/09) http://www.fsa.gov.uk/pubs/other/co_letter_projections.pdf

IOSCO: Consultation report on private equity conflicts of interest. The report proposes a number of principles for the effective mitigation of the potential conflicts of interest encountered in private equity firms, and the risks these conflicts pose to fund investors or the efficient functioning of the market. Responses are required by 1 February 2009. (3/11/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD309.pdf

HMRC: Unauthorised Unit Trusts and Manufactured Overseas Dividends HMRC has published a Written Statement by the Financial Secretary to the Treasury, Stephen Timms, which announces changes to be made to legislation to counter several tax avoidance schemes that have been notified to HMRC, together with a technical note and draft legislation, for which comments are invited by 31 December 2009. (3/11/09) HM Revenue & Customs: UUT and MOD News

HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): Directive on Alternative Investment Fund Managers On 27 October 2009, the Sub-Committee heard oral evidence from Andrew Baker (CEO of AIMA) and from representatives from BlackRock Inc. A link to an audio recording of the session is available via the following link. (2/11/09) Player

SIFMA: Amended and restated money market trading practice guidelines These amended and restated money market guidelines supersede and replace 2007 guidelines dated in their entirety. (30/10/09) http://www.sifma.org/services/stdforms/pdf/MMTradingPracticeGuidelines.pdf

CESR: CESR’s technical advice to the European Commission on the level 2 measures related to the UCITS management company passport/CESR’s technical advice to the European Commission on the level 2 measures related to the format and content of Key Information Document disclosures for UCITS CESR has delivered its advice in the above-mentioned following an EC mandate received in February 2009. CESR’s advice on the management company passport covers both the organisational requirements that companies managing UCITS need to fulfil, and the conflicts of interest such companies must avoid. The advice also includes details on the companies’ rules of conduct, depositaries and risk management, as well as on supervisory co-operation. CESR’s advice in the area of depositaries focuses on the written agreement to be drawn up between the management company and the depositary, both in domestic and cross-border situations. With regard to the KID, CESR’s advice recommends the adoption of a synthetic risk and reward indicator accompanied by a narrative text and advises that presentation of past performance be based on use of a bar chart displaying up to ten years’ performance, where available.

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(28/10/09) http://www.cesr.eu/data/document/09_963.pdf (NB: over 130 pages long) http://www.cesr.eu/data/document/09_949.pdf (NB: over 50 pages long)

BVCA: Campaign: the Alternative Investment Fund Managers Directive The purpose of this document is to outline the essence of BVCA’s strategy with respect to the AIFM Directive and includes an appendix drawing from its detailed submission to the HoL EU sub-committee. (23/10/09) http://admin.bvca.co.uk/library/documents/EU_AIFM_Directive_- _BVCA_Update_Oct_22_09.pdf

FSA: Impact of the proposed AIFM Directive across Europe FSA has published this independent impact assessment into the AIFM Directive, which looks at the impact on investors, financial markets and enterprise and how it may affect hedge funds, private equity, venture capital funds, real estate funds and investment trusts. (16/10/09) http://www.fsa.gov.uk/pubs/other/Impact_of_AIFM_Directive.pdf (NB: 120 pages long)

FSA/HMT: Legislative framework for the regulation of alternative finance investment bonds (sukuk) This is a summary of responses in respect of the above consultation. It also contains the draft statutory instrument, set out in Annex A, which has been revised in light of the consultation process. The draft now also sets out consequential amendments to related legislation. Further comments on the revised statutory instrument (including the consequential amendments) are invited and must be received by 6 November 2009. (15/10/09) http://www.fsa.gov.uk/pubs/cp/afibs_sukuk.pdf

FSA/HMT: UK authorities’ response to the EC Consultation Paper on the UCITS depositary function In addition to commenting on the UCITS depositary function, the authorities also comment on the AIFM Directive, saying that they "do not view the depositary proposals in the AIFMD as appropriate either for alternative funds or UCITS funds". (14/10/09) http://www.fsa.gov.uk/pubs/international/ucits_v3.pdf

Speech by Dan Waters: The European Regulatory Agenda for Hedge Funds (30 September 2009) The text of this speech, given at the Hedge Fund Regulation 2009 forum, has now been published on FSA's website. Topics include: the AIFM Directive ("overall, we continue to feel there is much in the AIFMD that we can support"); the collection and sharing of systemically important information; managers and funds - scope of AIFM Directive; leverage; custody; third party aspects; remuneration. It is noted that FSA has commissioned an independent study of the potential impact of the AIFM Directive to help it assess the possible implications for European markets which is to be published "shortly". (8/10/09) The European Regulatory Agenda for Hedge Funds

HMRC: Consultation on draft guidance relating to the meaning of securities for investment trusts This draft guidance relates to a change in the interpretation of the meaning of the term "securities" within s842 ICTA 1988, which sets out the conditions that are required to be met by an investment trust company to be treated as an approved investment trust for tax purposes. Responses are required by 1 November 2009. (6/10/09) HM Revenue & Customs: Consultation on draft guidance relating to the meaning of securities for investment trusts

CESR: Response to the EC consultation on the UCITS depositary function CESR has published the above, together with a covering letter to Charlie McCreevy. It particularly highlights that CESR has concerns over the EC's wish to apply certain aspects of the proposed AIFM 137

Directive to the UCITS sphere as regards depositaries, saying "CESR Members do not feel that the AIFM provisions as currently drafted, and which are in any case subject to change, represent a sound basis for the requirements that should apply to UCITS depositaries. In contrast, CESR sees the proposals in its consultation response as a good starting point for an improved legislative framework for depositaries". (28/09/09) http://www.cesr.eu/popup2.php?id=6063 http://www.cesr.eu/popup2.php?id=6064

MFA: Proposed EU Directive on Alternative Investment Fund Managers The Managed Funds Association has published this "white paper" on the proposed AIFM Directive. It discusses its terms and identifies provisions that MFA believes will interfere with efficient market practices, adversely affect the ability of alternative investment fund managers to provide services to investors and limit the available choices and the potential benefits to EU investors who seek to invest in alternative investment funds. (25/09/09) http://www.managedfunds.org/downloads/MFA White Paper on AIFMD.pdf

Open Europe: The EU’s AIFM Directive: Likely impact and best way forward/ This report is based on two surveys of BVCA and AIMA members, which Open Europe carried out during August 2009. http://www.openeurope.org.uk/research/aifmd.pdf (NB: over 50 pages long)

Speech by Sally Dewar: FSA Asset Management Sector conference on the EU Alternative Investment Fund Management Directive (17 September 2009) Text of the above follows. She noted that "most of us can see value to the European and global capital markets, and the wider economy, in sensible and proportionate harmonisation of regulatory standards in the areas under discussion", but suggested there were four key areas that need to be addressed to make the Directive more effective for the funds it covers: correct identification of the weaknesses in the present regulatory arrangements and addressing them in a proportionate way; differentiation between types of alternative investment fund management; adoption of a risk-based approach and the need to take a global approach that recognises the global nature of the sector and does not impose unjustifiable geographical restrictions on firms' business models that would significantly restrict investor choice. (17/09/09) FSA Asset Management Sector conference on the EU Alternative Investment Fund Management Directive

CESR: CESR’s technical advice to the European Commission on level 2 measures relating to mergers of UCITS, master-feeder UCITS structures and cross-border notification of UCITS CESR has launched a consultation document re the above. Responses must be received by 17 November 2009. (17/09/09) http://www.cesr.eu/data/document/09_785.pdf

IOSCO: Elements of international regulatory standards on funds of hedge funds related issues based on best market practices containing standards IOSCO's report is aimed at addressing regulatory issues of investor protection which have arisen due to the increased involvement of retail investors in hedge funds through funds of hedge funds. Issues include: liquidity risk; due diligence and outsourcing of due diligence. (15/09/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD305.pdf

The AIFM Directive and investment companies This document, on the proposed alternative investments directive has been prepared for AIC members in a Q & A format. (9/09/09) http://www.theaic.co.uk/Documents/Technical/AICaifmQandAbriefing.pdf

The Offshore Funds (Tax) Regulations 2009 (Draft) The government announced at Budget 2009 that, subject to approval by HoC, regulations to provide for the taxation of investors in offshore funds would be made before 1 December 2009 and would come into force on that date. HMRC has now published a draft of these regulations which, subject to final technical and legal checks, is the draft that the government intends to ask HoC to approve. HMRC also intends to publish draft guidance on these regulations as soon as possible. (7/09/09) http://www.hmrc.gov.uk/drafts/draft-si-offshore-funds-regs.pdf

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Council of the EU: Proposal for a Directive of the European Parliament and of the Council on Alternative Investment Fund Managers and amending Directives 004/39/EC and 2009/…/EC The Council has published this issues note by the Presidency re the proposed Directive. It notes that a number of key issues have been identified and need to be addressed, including scope, definitions, capital, valuation and delegation. Some suggestions for possible ways forward have been included under each topic. (3/09/09) http://register.consilium.europa.eu/pdf/en/09/st12/st12864.en09.pdf

ABI: ABI announces new Money Market sector ABI has announced the creation of a new investment fund sector, called the Deposit & Treasury sector which will have stricter limits on the type of instruments funds can invest in and their maturity than the existing Money Market sector, which will continue to exist. The new sector, available on 1 November 2009, is a response to extensive consultation, including from FSA, which showed demand for a sector whose principal and overriding objective is the stability of capital. The new Deposit & Treasury sector will therefore contain money market funds that are only allowed to invest in relatively simple instruments, such as time deposits or Government bonds. All instruments held by funds in the new sector must be sterling denominated and have a maximum duration of 12 months. (26/08/09) Association of British Insurers - ABI announces new Money Market sector

AIMA: FSA's European Directive Impact Assessment AIMA has published this press release, reporting that FSA has commissioned CRA International to undertake a cost benefit analysis of the proposed alternative investments directive and that areas covered include: impact on investment portfolios, impact on costs to firms and investors, impact on functioning of markets and the question of systemic risk, and the effect on small company financing and European competitiveness. FSA has not made an announcement at the time this update was compiled. (24/08/09) AIMA - AIMA Welcomes FSA's European Directive Impact Assessment

HMRC: Consultation on draft guidance relating to interest distributions made by investment trust companies This draft guidance relates to investment trusts that are limited companies with a fixed capital structure incorporated under company law. They invest in a broad range of shares and securities and use professional managers to oversee their investments. The draft guidance explains a new optional tax framework for investment trusts investing in interest bearing assets. Responses are required by 16 October 2009. (19/08/09) http://www.hmrc.gov.uk/news/ctm47500.pdf

AIMA: European Directive could cost European pension industry 25 billion euros annually In this press release, AIMA warns that the draft directive on alternative investments could cost Europe's pension fund industry up to €25bn a year if implemented in its current form. (5/08/09) European Directive Could Cost European Pension Industry 25 Billion Euros Annually

CESR publishes addendum to consultation on format and content of key information document disclosures for UCITS CESR proposed the use of a synthetic risk and reward indicator (SRRI) as the preferred option for funds' risk and reward disclosure in the KID. CESR presented in Annex 1 to the consultation a proposed specific methodology for computing the SRRI. However, at the time the consultation was published, certain aspects of this proposed methodology had not been finalised. The addendum completes the picture by setting out an explanation of CESR's proposals regarding these items. CESR recommends that respondents to the consultation (which closes to comments on 4 September 2009) also take into account the information in the addendum when providing their views on the proposed SRRI. (5/08/09) CESR UCITS disclosure addendum

HMT/Cabinet Office: Charity pooled funds consultation In the 2009 Budget, the government had announced that it would, together with the Charity Commission, consult on the future regulation of common investment funds and common deposit funds. The policy aim is to move the regulation of these funds away from the Charity Commission and bring it more fully under FSA whilst preserving the existing UK tax regime. This consultation document sets out a specific 139

proposal to achieve this policy aim, the introduction of a new type of authorised investment fund,, the charity AIF, which would be open only to charity investors. The document sets out in overview the proposed regulatory and tax regime for the charity AIF, and asks a number of questions intended to help the government assess the possible impacts on funds, managers and investors. Responses are required by 31 October 2009. It is noted that, if the government decides to take the plans forward, it will publish a more detailed design framework for the charity AIF and will seek further views from interested parties. (30/07/09) HMT pooled funds

IOSCO: Good practices in relation to investment managers´ due diligence when investing in structured finance instruments This report contains guidelines aimed at assisting both investment management industry participants and regulatory bodies, in assessing the quality of their due diligence procedures regarding investments in structured finance instruments by CIS offered to retail investors. The practices are broken down into the three stages which should be included in the due diligence process, and also address the question of the use of third parties in the due diligence process, including credit rating agencies. (29/07/09) IOSCO due diligence on structured products

FSA/HMT: Consultation on introducing a protected cell regime for OEICs This consultation seeks views on proposals to introduce a protected cell regime for UK OEICs. These proposals have been developed following stakeholder responses to the consultation on better regulation measures for the asset management sector launched in May 2007 and includes draft texts of SIs and FSA rules. Responses are required by 27 September 2009. (28/07/09) HMT/FSA - oeics protected cells

HMRC: Stamp Duty Reserve Tax on collective investment schemes - net dealing by intermediaries HMRC has published this note on its website noting that, with effect from 14 July 2009, underlying fund managers should only include in their Schedule 19 calculations transactions for which they have received instructions. HMRC has also announced a change in its position re s87 Finance Act 1986. HMRC advice is that net dealing will generally, depending on the facts of each case, give rise to two principal SDRT charges in respect of the transactions which have been netted off - one on the intermediary and one on the ultimate purchaser of the investment. HMRC will not pursue any such charges that arose on or before the date of this announcement. HMRC accepts that it could take several weeks for firms to adjust to this revised approach. So long as steps are taken to make any adjustments as quickly as reasonably possible (and in any event by 22 September 2009), and provided there is no suggestion that the handling of the change is being exploited to minimise tax, HMRC will not seek to challenge the transitional arrangements adopted. (28/07/09) HMRC SDRT net dealings funds

PS09/12: Regulating reclaim funds - feedback on CP09/8 and final rules CP09/8 set out proposals that FSA believed would deliver a proportionate and effective regime, maintaining an equivalent level of protection for customers whose money has been transferred to a reclaim fund. This included continued coverage by FOS and FSCS for such customers. Due to the unique nature of a reclaim fund’s activities, FSA proposed to impose most of its prudential requirements through a fund’s Part IV permission. The changes to the Handbook set out in Appendix 1 will come into force on 6 August 2009. FSA notes that it is prepared to work with interested applicants on a pre-application basis straightaway (27/07/09) FSA PS 09/12

The Investment Trusts (Dividends) (Optional Treatment as Interest Distributions) Regulations 2009/2034 These Regulations introduce an optional tax framework for investment trusts which enables such companies to invest in interest bearing assets without incurring a corporation tax liability that they would otherwise incur. (Date in force: 1/9/09) (23/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092034_en.pdf

IMA: "Great British Investor" report IMA has published the full findings of this biannual report. Among the key findings are that 49% of investors believe now is a good time to invest and that investors are less likely to think they should be 140

putting money into risk averse products (23%) compared to a year ago (39%), with 43% saying if you see an opportunity you should take the risk. (20/07/09) http://www.investmentuk.org/press/2009/20090720- 01.pdf

HoL EU Sub-Committee A: Directive on Alternative Investment Fund Managers This Committee has issued a call for evidence re the above, setting out a number of questions on the economic and regulatory impact of the proposals. Responses are required by 9 September 2009. (22/07/09) http://www.parliament.uk/documents/upload/finalcallforevidence220709.pdf

HoL Select Committee A: Directive on Alternative Investment Fund Managers The uncorrected oral evidence for the hearing held on 14 July 2009, attended by Lord Myners and Sue Lewis (Head of Savings and Investment, HMT), follows. (20/07/09) http://www.publications.parliament.uk/pa/ld/lduncorr/eua140709ev2.pdf (NB: 30 pages long)

HoL Select Committee A: Directive on Alternative Investment Fund Managers The uncorrected oral evidence for the hearing held on 7 July 2009, attended by the CEOs of AIMA, BVCA and ABI, follows. (15/07/09) http://www.publications.parliament.uk/pa/ld/lduncorr/eua070709ev1.pdf

IMA: Asset management in the UK 2008 IMA has published its seventh annual report on the above. It highlights concerns on the shape of the industry, investment strategies, the banking sector, shareholder engagement, regulation and tax, with its CEO concluding that "overall, the UK can still be considered a favourable location for asset management as long as the tax regime remains stable and predictable, and the regulatory environment for investment management is not adversely impacted by attempts to deal with what was in essence a banking crisis." (13/07/09) http://www.fmlc.org/papers/107FaullEC.pdf

EFAMA/IMMFA: Recommendation for a European classification and definition of money market funds This paper reviews the rationale for the development of a common European definition of money market funds; provides a brief introduction on the organisation, size and economic importance of money market funds in Europe; discusses the objectives of money market funds and their risks; as well as setting out proposals for the classification and definition of money market funds and the disclosure efforts that will be required. (10/07/09) http://www.efama.org/images/stories/09- 4056_european_mmf_definition_paper_version_9_july.pdf

CESR: CESR’s technical advice to the EC on the level 2 measures related to the UCITS management company passport/CESR’s technical advice at level 2 on the format and content of Key Information Document disclosures for UCITS CESR has published two consultations. With regard to the first of these, CESR’s draft advice covers the organisational requirements that companies managing UCITS need to fulfil, and conflicts of interest those companies must avoid. The advice also includes details on the companies’ rules of conduct, depositaries and risk management, as well as on supervisory cooperation. With regard to the second consultation, CESR proposes that the KID should describe the objectives and investment policy of each UCITS in plain terms, not necessarily repeating the description in its prospectus. CESR recommends adding a statement that investors may redeem their units on request, since the consumer testing exercise showed that a significant number of investors failed to understand this essential feature of all UCITS. The paper sets out two options for risk and reward disclosure: a synthetic risk and reward indicator supported by a narrative explanation versus an improved version of the narrative approach. The indicator is CESR’s preferred option. CESR will work further on the methodology supporting the indicator and publish the outcome for consultation later in July. Responses to both consultations are required by 4 September 2009. In light of responses, CESR will prepare final advice for submission to the EC by the end of October. (8/07/09) [CESR] - Document [CESR] - Document

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Speech by Lord Myners: Alternative Investment Fund Management Directive (7 July 2009) Text of the above, an AIMA breakfast address, re the above, follows. Specific areas include: scope; custody; third party aspects; leverage caps; portfolio company disclosure. He noted that "we expect the European Parliament to have appointed the ECON and JURI committees by the middle of this month, and to exchange views with the Commission at the end of August. There will be a public hearing around the end of September, and ECON will report on the proposal in November. ECOFIN should reach agreement on an amended report at its 2 December meeting, with the Parliament voting in mid December ... Because of the complexity of the co-decision process, with its multiplicity of key players and qualified majority voting in Council, means there is a real need for the industry to make its voice heard more widely in Brussels and in other EU capitals. Angry tirades against the iniquities of EU process will not be well received. Quotes in the press from managers threatening to quit the UK will make my job harder- and there should be no need to deploy such threats because of the strength of the argument ... I encourage all of you to go out and sell the benefits of your industry to the key people who will shape this Directive over the coming months and to explain why the proportionate regulatory framework you want does not pose the excessive risks they may fear ... I also think it is vital to call on the clients of this industry - the institutional investors and their advisers - to make your voices heard". (8/7/09) AIMA Breakfast address on the Alternative Investment Fund Management Directive - HM Treasury

EC: Consultation on the UCITS depositary function The consultation invites views on how depositary safe-keeping and supervisory duties should be better harmonised. It seeks clarification on the depositary safe-keeping duties for each class of assets that are eligible within a UCITS portfolio and invites views on whether supervisory duties should also be further clarified and harmonised, and if so how to do so. It invites views on how to improve UCITS investors' protection if a depositary performs its duties improperly or if it becomes insolvent. The EC considers that the burden of proof should be borne by the depositor. It is proposed that there should be additional requirements where assets are entrusted for safe-keeping through a network of sub-custodians. It also seeks views on the form of a liability regime which would allow investors to adequately mitigate losses. It invites views on the introduction of rules on organisation and conflict of interests based on MiFID. Eligibility criteria and supervision are also considered. The consultation also covers issues which are not directly linked with depositaries. Responses are required by 15 September 2009. (3/07/09) EUROPA - Press Releases - The Commission launches public consultation on the UCITS depositary function (full press release) http://ec.europa.eu/internal_market/consultations/docs/2009/ucits/consultation_paper_en.pdf

CEIOPS: Report on national measures regarding disclosure requirements and professional requirements for unit-linked life insurance products, which are additional to the minimum requirements of the CLD and IMD This report is an own-initiative survey by the members of the Committee on Consumer Protection of CEIOPS. It looks at national measures on disclosure requirements and professional requirements regarding unit-linked life insurance (“ULLI”) Products, which are considered additional to the minimum requirements of the Consolidated Life Insurance Directive and the IMD. It also refers to relevant provisions of MiFID, specifically to see to what extent MiFID mirrors those national measures, which go beyond the CLD and the IMD. This report is simply a mapping exercise and is not intended to evaluate existing measures or to contain implicit or explicit policy recommendations for the future. It is also noted that this mapping exercise was initiated before, and independently of, the EC's recently published “Communication on Packaged Retail Investment Products”. (2/07/09) http://www.ceiops.eu/media/files/publications/reports/CEIOPS-Report-National-Measures-Unit-Linked- Life-insurance-products.pdf (NB: over 40 pages long)

IOSCO: Report on the development and distribution of foreign collective investment schemes in emerging markets IOSCO conducted a survey, the objective of which was to probe the feasibility and regulation of foreign CIS in emerging markets. Specifically, it is intended to shed light on whether foreign CIS be introduced into emerging markets, what are the main entry requirements for foreign CIS are and how to regulate and

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monitor foreign CIS in emerging markets. (1/07/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD297.pdf (NB: over 30 pages long)

HFSB: Proposed changes to standards/new signatories HFSB is proposing changes to its standards on fund administration and redemptions. These changes, which are subject to consultation with the industry, would involve introducing new standards requiring fund governing bodies to appoint an independent third party to administer the fund, prepare accounting records and carry out NAV calculations as well as having an independent custodian. The proposed changes regarding redemptions would place more onerous disclosure requirements on managers regarding possible restrictions on withdrawals. In addition, HFSB reports that 12 new (named) hedge fund managers have signed up to the standards. (1/7/09) http://www.hfsb.org/sites/10109/files/20090701_press_release_new_signatories_and_toughening_standar ds.pdf

CEPS: Bringing hedge funds into the regulatory mainstream This commentary considers the EC’s draft proposals on hedge funds. (1/07/09) http://shop.ceps.eu/downfree.php?item_id=1861

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13.1 Consumer banking and finance

See FSA’s consultation paper CP08/19: Regulating retail banking conduct of business and subsequent policy statement PS09/06: Regulating retail banking conduct of business – Feedback on CP08/19 and final rules.

In its Financial Services Strategy Consultation Document published in April 2009, OFT outlined its approach to financial services regulation. In response to the current crisis, OFT intends to sharpen its focus on promoting fairness and responsibility in the relationship between the credit industry and its consumers.

See BERR/BIS White Paper: A Better Deal for Consumers. Measures include:

• A wide ranging consultation on significant reforms to the regulation of credit and store cards to put consumers more in control of their borrowing and to help guard against people running up credit and store card debts they can’t pay off; • A ban on unsolicited credit card cheques; • A review by OFT of the market for high cost credit, typically above 50% APR, such as pay day loans and door step lending; (see below for separate details on this); • Appointment of a new Consumer Advocate responsible for co-coordinating work to educate consumers and "to help them get their money back when things go wrong"; • New powers for the courts to ban persistent rogue traders; a new national specialist team for internet enforcement to tackle internet scams; • New money for a central ‘Fighting Fund’ to tackle rogue traders operating on a large scale; and a pilot scheme giving Trading Standards officers powers to help consumers get money back; and • A new self-help tool-kit developed by the Money Advice Trust and a new Debtor’s Guide from the Insolvency Service to help people in debt take control of their finances. • New requirements will be introduced on all lenders to check consumers’ creditworthiness before they borrow; to explain financial products fully including the consequences of failure to repay; and to comply with new OFT guidance to tackle irresponsible lending. In addition, consumers will be able to compare the cost of different credit cards based on the way they intend to use them. Following consultation, FSA's Moneymadeclear website will host a new, impartial comparison table,

See the summary of responses to BIS call for evidence in its consumer law review.

See Chapter 8 of the White paper - Reforming financial markets

See part 4 of the Conservative Party alternative White Paper

The EC is also working on measures on responsible lending and borrowing – see the Commission’s Communication to the Council on Driving Economic Recovery 4 March 2009.

See paragraph 3.1(i) of The Turner Review.

Chronological Reports

Ministry of Justice: Mortgages: power of sale and residential property This consultation seeks views on proposals to amend the law in relation to residential owner-occupier mortgages to ensure that such properties cannot be sold without either a court order or the homeowner’s consent. The proposals would: allow a lender to exercise the power of sale over residential owner- occupied properties only where they had obtained a court order of the consent of the borrower; only apply to residential owner-occupier mortgages and would not apply to buy to let or other commercial loans; not affect other remedies open to the lender; not change the practice in relation to the majority of cases where

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lenders already obtain an order for possession before selling; not change the practice whereby borrowers hand in the keys and the lender accepts them - in these cases no court order would be required; provide legal certainty in the case of abandoned properties where the property appears deserted and the borrower cannot be contacted by requiring the lender to obtain a court order before selling Responses are required by 28 March 2010. (30/12/09) http://www.justice.gov.uk/consultations/docs/mortgages-power-sale.pdf (NB: over 50 pages long)

OFT: Bank charges: decision and next steps Following the Supreme Court's judgment last month and discussions with banks, campaigners, the Government, FSA and FOS, OFT has announced its next steps in securing changes to unarranged overdraft charges and the wider personal current account market. After detailed consideration of the judgment and of the various options available to it, it has concluded that any investigation it were to continue into the fairness of current unarranged overdraft charging terms under the Unfair Terms in Consumer Contract Regulations 1999 would have a very limited scope and low prospects of success. Given this, it has decided against taking forward such an investigation. However, it will hold discussions with banks, consumer groups and other organisations on changes it would like to see, from voluntary action to legislative change. OFT aims to report on progress by the end of March 2010. (22/12/09) OFT announces decision and next steps on bank charges - The Office of Fair Trading http://www.oft.gov.uk/shared_oft/personal-current-accounts/oft1154 Questions and answers for OFT personal current account work - The Office of Fair Trading

TSC: Credit searches - third report of session 2009–10 The report follows an inquiry sparked by concerns that in looking for credit, consumers were building up a record of credit application searches on their credit reference files and that high numbers of recorded applications in fact made it harder for them to obtain credit, or affected the rates charged. It calls on OFT and ICO to assess whether the current rules are appropriate. (22/12/09) http://www.publications.parliament.uk/pa/cm200910/cmselect/cmtreasy/197/197.pdf (NB: over 100 pages long)

BIS/BERR: Consultation on proposal to ban the use of bills of sale for consumer lending This consultation seeks to address concerns about adverse outcomes for consumers where borrowing is secured under a bill of sale. It is noted that BIS/BERR believes that a ban on using bills of sale for consumer lending is likely to be necessary to achieve this, but has yet to take a final decision on whether to proceed with a ban or whether alternative options would achieve a better result. The consultation seeks stakeholder views help determine the most appropriate next steps. Responses are required by 15 March 2010. (22/12/09) http://www.berr.gov.uk/files/file54079.pdf (NB: over 30 pages long)

Which?: The Future of Banking Commission The Future of Banking Commission aims to put the wider interests of society at the heart of financial reform and has the support of a number of MPs and industry figures. Its aims are to listen to people's concerns about banking; listen to the views and concerns of industry and regulators and restore public trust and confidence in the banking system Which? will be organising the "Which? Big Banking Debate", which will be solely focused on getting consumer views and feeding them into its discussions. It will also arrange three further events in early 2010 where bankers, politicians, regulators, trade unions and business leaders will give evidence. A report will then be published later in the year. Which? will take its findings to the government after the 2010 general election.. (18/12/09) The Future of Banking Commission - Which? Campaigns

The Saving Gateway Accounts Act 2009 (Commencement No.1) Order 2009/3321 This Order brings into force various sections of the Saving Gateway Accounts Act 2009 (‘the Act’) on 1 January 2010. Sections 4, 5, 23(1)(a), 24 and 25 of the Act relate to the approval of account providers by HMRC to offer and provide Saving Gateway accounts to persons eligible for a Saving Gateway account once the new Saving Gateway scheme is introduced under the Saving Gateway Accounts Act 2009 and to the provision of account providers’ right to appeal against any such refusal of approval by the Commissioners. Section 18 of the Act amends sub-section 121F(2) of the Social Security Administration 145

Act 1992 (c.5) and the corresponding provision in the Social Security Administration (Northern Ireland) Act 1992 (c.8) so as to allow the Department of Work and Pensions or the Secretary of State thereof to provide certain specified information to HMRC in connection with their functions relating to Saving Gateway accounts. http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093332_en.pdf

Supplement to DP09/3: Mortgage Market Review data pack This data pack contains some of the statistical evidence that FSA used to inform its thinking in DP09/3. It is notes that, to ensure that any future policy changes are well targeted, FSA has obtained and are in the process of analysing a large amount of evidence that will help us identify products and practices in the market that cause consumer detriment. FSA intends to publish the outcome of this analysis in one or more CP in 2010. (15/12/09) http://www.fsa.gov.uk/pubs/other/mmr_datapack.pdf (NB: over 30 pages long)

Payments Council/BBA/BSA: Industry guidance for FSA Banking Conduct of Business Sourcebook The above-mentioned entities have published this guidance in respect to BCOBS. FSA has reviewed it for aspects of retail banking and has confirmed that it will take it into account when exercising its regulatory functions. (8/12/09) http://www.paymentscouncil.org.uk/files/payments_council/industry_guidance_pdf.pdf

OFT: Review of high-cost credit - interim research report This emerging evidence and interim research report sets out the emerging evidence in the following areas: an overview of consumer credit products; preliminary results from OFT's survey of consumers; the effects of the recession on consumers and suppliers, and evidence from international research on credit markets in Australia, Canada, Ireland, Germany and the USA. OFT is inviting submissions from interested parties concerning these published documents, including providing evidence relevant to the review, to be received by 8 January 2010. The final report is to be published in spring 2010 and it will contain further research undertaken, the results of OFT's analysis and its recommendations. (8/12/09) http://www.oft.gov.uk/shared_oft/reports/consumer_credit/oft1150s.pdf (synopsis) http://www.oft.gov.uk/shared_oft/reports/consumer_credit/oft1150.pdf (full report – over 90 pages long) The Office of Fair Trading: Review of high-cost consumer credit (annexes to the report can be downloaded from this page)

The Consumer Credit Act 1974 (Fees) Order 2010 (Draft) This Order is made in exercise of the powers conferred by ss102(3) and (4) of the Finance (No.2) Act 1987 to provide the legal basis for OFT to set fees for carrying out its functions under the Consumer Credit Act 1974 at a level which allows it to recover past deficits as well as to take into account current costs, until the expiry of this Order on 31March 2013. (8/12/09) http://www.opsi.gov.uk/si/si2010/draft/pdf/ukdsi_9780111488621_en.pdf

FSA: Mortgage Lenders’ Round-up Issue 2 Topics include: cultural changes needed for FSA and firms; key changes in FSA supervision; financial stability and firm supervision; the debate about banking regulation; Walker Review; recent enforcement action. (7/12/09) http://www.fsa.gov.uk/pubs/newsletters/mlru2.pdf

BIS/BERR: Post Office banking - a consultation on developing the banking and financial services available at the Post Office This consultation looks at what the Post Office already does in the area of financial services, and where it could go further. It sets out the Post Office’s existing extensive range of services and explains how they can be accessed and where. It draws comparisons with Post Banks around the world and asks what the UK can learn from them, the Government’s vision for Post Office banking and the values that should underpin it and some ideas proposed for the types of financial products and services that the Post Office could offer (including Post Office current and savings accounts), and asks respondents for their opinions on these, as well as suggestions for new products that they would like to see offered by their local Post Office. Responses are required by 24 February 2009. (2/12/09) http://www.berr.gov.uk/files/file53845.pdf (NB: over 40 pages long)

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BIS/BERR: The role and powers of the Consumer Advocate This consultation seeks views on the proposal in the July Consumer White Paper re the appointment of a Consumer Advocate to co-ordinate work to educate consumers and be a champion for groups of consumers who have suffered a loss at the hands of a business. The paper also committed the Government to consult on equipping the Consumer Advocate with the power to take legal actions on behalf of a group of consumers following a breach of consumer protection law if other routes for obtaining compensation have been tried or judged inappropriate; the power to distribute compensation to UK consumers from ill- gotten funds seized by overseas enforcement agencies; and the power to tackle unfairness in consumer credit agreements.. It seeks views on the proposed powers and also more generally on the role for the Consumer Advocate when he/she takes up appointment in 2010. Responses are required by 5 March 2010.(2/12/09) http://www.berr.gov.uk/files/file53816.pdf (NB: over 60 pages long)

EC: Summary of responses to the public consultation on responsible lending and borrowing in the EU It is noted that some financial services industry representatives and a few Member State authorities called for greater clarity as to the scope of the initiative, particularly with regard to the Consumer Credit Directive and that the financial services industry federations, providers and some Members State authorities acknowledged that there are areas for improvement in relation to responsible lending and borrowing, but suggested the EC should continue to apply the principle of subsidiarity in this area. (30/11/09) http://ec.europa.eu/internal_market/finservices- retail/docs/credit/resp_lending/feedback_summary_en.pdf

EC: Summary of responses to the public consultation on report of the Expert Group on credit histories It is noted that the majority of respondents agree with the main recommendation of the Report and reiterate that there is a low level of market demand for cross border retail credit data, two representatives from the financial services industry – who were also members of the Expert Group – expressed disappointment and regret at the decision of the consumer and user representatives who participated in the Expert Group not to endorse the Report. (30/11/09) http://ec.europa.eu/internal_market/finservices- retail/docs/credit/egch_summary_en.pdf

The Supreme Court of the United Kingdom/OFT/FSA/FOS: Bank charges case (Office of Fair Trading (Respondents) v Abbey National plc & others (Appellants) [2009]) The Supreme Court unanimously found in favour of the banks. It noted that OFT has power to assess the fairness of terms in consumer contracts but this is subject to the limits laid down in the Unfair Contract Terms in Consumer Contracts Regulations 1999, which implemented European Council Directive 93/13/EEC. Regulation 6(2)(b) states that the assessment of the fairness of a term in a contract “shall not relate . . . to the adequacy of the price or remuneration, as against the goods or services supplied in exchange” –i.e. that the “value for money” equation is excluded. The Court of Appeal held that this exclusion applied only to the “core terms” of the contract and not to ancillary terms such as the charges for unauthorised overdrafts. The Supreme Court held that the charges for unauthorised overdrafts fell within this exclusion. They were part of the price paid by the customer for the banking services provided. However, it said that the charges might still be open to assessment by OFT on other grounds under Regulation 5. In response to the judgment, OFT said it would consider the detail before it makes a decision on whether or not to continue its investigation into unarranged overdraft charging terms. It will also explore with others the implications for consumers and for existing and future legislation and regulation and will seek discussions with banks, consumer organisations, FSA and the Government. It expects to make a further announcement in December. FSA has announced that its waiver has now lapsed and that firms can now resume processing consumers’ complaints in accordance with complaint handling rules. FOS has published an FAQ for consumers. (25/11/09) http://www.supremecourt.gov.uk/docs/uksc_2009_0070_ps.pdf (Supreme Court press release) http://www.supremecourt.gov.uk/docs/uksc_2009_0070_judgmentV2.pdf (full judgment) The Office of Fair Trading: OFT disappointed by Supreme Court judgment (OFT press release) FSA statement following the Supreme Court ruling on bank charges (FSA statement) FAQs complaints about bank charges (FOS FAQ) 147

HMT: Mortgage regulation - a consultation This consultation sets out proposals to: extend the scope of FSA regulation to include second-charge mortgages; extend the scope of FSA regulation to include buy-to-let mortgages and protect borrowers when lenders sell on mortgage books to third parties. A draft Statutory Instrument, by which the Government could enact its proposals, is included at Annex D. Responses are required by 15 February 2010. (25/11/09) http://www.hm-treasury.gov.uk/d/consult_mortgage_regulation.pdf

Communication of November 20, 2009 from the Commission to the Council and the European Parliament: Review of the distance marketing of consumer Financial Services Directive (2002/65/EC) The report finds "no evidence that consumers face problems arising from incorrect implementation of the Directive or that the legal diversity resulting from Member States implementation of options contained in the Directive has a direct impact on the low level of cross-border distance marketing of financial services"' and that there is no need at present to propose any amendments to the DMD. (23/11/09) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0626:FIN:EN:PDF

Speech by Lesley Titcomb: Keynote address to the European Mortgage Federation's annual conference (19 November 2009) Topics include: consumer protection and EC intervention and FSA's mortgage market review. (20/11/09) Keynote address to the European Mortgage Federation's annual conference

Number 10 website: Credit and store card webchat The Government's Number 10 website has published the transcript of a "webchat" undertaken by the Consumer Minister, Kevin Brennan. (20/11/09) Credit and store card webchat | Number10.gov.uk

Speech by Jon Pain: How the regulator views the mortgage market (13 November 2009) Text of the above, given at a CML conference, follows. Topics include: FSA's Mortgage Market Review (he highlights the issues of non-bank lending and arrears, noting with respect to the latter that FSA is investigating five firms for poor treatment of borrowers in arrears) and FSA's enhanced supervision approach. (13/11/09) How the regulator views the mortgage market

Speech by Lesley Titcomb: FSA Mortgage Market Review - what it means for intermediaries (11 November 2009) Text of the above, given at the Mortgage Business Expo, follows. Topics include: LTV/LTI caps; income verification; verification of affordability; extension of the approved persons regime; unfair charges in the mortgage market; non-advised sales; RDR; disclosure; high-risk firms and regulation of small lenders. (11/11/09) FSA Mortgage Market Review - what it means for intermediaries

FSA: Mortgage Lenders’ Round-up Issue 1 Topics include: mortgage market review; Turner Review; liquidity, mortgage PPI, mortgage fraud and senior positions in regulated firms. (9/11/09) http://www.fsa.gov.uk/pubs/newsletters/mlru1.pdf

Speech by Meglena Kuneva: Blueprint for Consumer Policy in Europe: Making Markets Work with and for People (9 November 2009) Text of the above speech, given at the Lisbon Council Event in Brussels, follows, in which she outlines key trends and visions for the future in consumer policy. (6/11/09) EUROPA - Press Releases - Meglena Kuneva EU Consumer Commissioner "A Blueprint for Consumer Policy in Europe: Making Markets Work with and for People" Lisbon Council Event Brussels, 5 November 2009

TSC: Mortgage arrears and access to mortgage finance: Government and Financial Services Authority responses to the Fifteenth Report from the Committee TSC has published this document, which sets out responses from the Government and FSA on individual points made in TSC’s report published in August. (4/11/09) The House of Commons - Treasury Committee Reports 148

EC: Commission consults on draft guidance for SEPA Direct Debit scheme//SEPA: cross-border direct debits now a reality The EC has invited comments on a working document that aims to provide further guidance to participants in the SEPA Direct Debit (SDD) scheme to ensure that collective financing arrangements applied within this scheme comply with EC Treaty competition rules. The SDD scheme, launched by the European Payments Council on 2 November 2009, allows consumers and businesses, for the first time, to use a pan-European system for cross-border direct debit transactions. Responses are required by 14 December 2009. (3/11/09) EUROPA - Press Releases - Antitrust: Commission consults on draft guidance for Single Euro Payments Area (SEPA) Direct Debit scheme http://ec.europa.eu/competition/sectors/financial_services/SEPA_working_document.pdf EUROPA - Press Releases - Single Euro Payments Area (SEPA): cross-border direct debits now a reality EUROPA - Press Releases - SEPA Direct Debit Launch – Frequently Asked Questions

EC: Consumers to start benefiting from easier bank account switching from November This EC press release notes that the 'Common Principles for Bank Account Switching' have now been implemented in the Member states by the national banking associations. (3/11/09) EUROPA - Press Releases - Banking: Consumers to start benefiting from easier bank account switching from November

TSC: Credit searches TSC has published the uncorrected evidence of the hearings held on 27 October by, amongst others, OFT, BBA, FLA and representatives from the industry. (3/11/09) Uncorrected Evidence 1069

OFT: Debt management industry compliance review OFT is launching a compliance review. This will consist of: an online questionnaire to licensees involved in debt management, including free to client and fee charging debt management businesses, creditors, trade bodies, consumer advice bodies and trading standards services; comment sought from interested parties on compliance with the guidance and how it is used in practice; an online form for consumers wishing to complain against a licence holder or applicant and a sweep of online debt management advertising. A report on this review will be published in 2010. (3/11/09) The Office of Fair Trading: OFT announces review of debt management practices

LSB: Lending Code The Lending Standards Board is the successor organisation to the Banking Code Standards Board. It will oversee the operation of the Lending Code which covers good practice in relation to unsecured loans, lending aspects of credit cards and charge cards and current account overdrafts. A link to the Code follows. (2/11/09) http://www.lendingstandardsboard.org.uk/docs/lendingcode.pdf

BBA: In memory of The Banking Code - from self-regulation to a statutory regime This BBA document considers the likely impacts of the new BCOBS and PSR regime. It says "this new regime effectively sounds the death knell for the self-regulatory Banking Codes: it replaces a voluntary set of prescribed requirements for conducting retail banking practices with an approach that defines the outcomes required by the regulator, but not necessarily the ways in which these outcomes are achieved". (29/10/09) http://www.bba.org.uk/content/1/c6/01/68/06/In memory of The Banking Code.pdf

FSA: The FSA’s role under the Payment Services Regulations 2009 FSA has published a new version of its approach document, together with a tracked changes version. (28/10/09) http://www.fsa.gov.uk/pubs/other/PSD_approach.pdf http://www.fsa.gov.uk/pubs/other/psd_amends.pdf (NB: both over 140 pages long)

TSC: Credit searches - written evidence This is a volume of submissions, relevant to the above mentioned TSC inquiry, which have not yet been approved for publication in final form. Respondents include: OFT, BBA/UK Cards Association, FLA, CML and Experian. (28/10/09) http://www.parliament.uk/documents/upload/Creditsearchesevidence.pdf (NB: over 80 pages long) 149

BIS/BERR: Review of the regulation of credit and store cards BIS has published this consultation which sets out options for change that cover four specific aspects of the way credit and store cards operate: the allocation of payments; minimum payments; unsolicited credit limit increases; and the re-pricing of existing debt. It also identifies scope to improve the simplicity and transparency of credit and store cards more generally. (27/10/09) http://www.berr.gov.uk/files/file53274.pdf (NB: over 80 pages long)

BCSB: Themed review of compliance with the UK Cards Association best practice guidelines This review identified generally good compliance with the BPGs, implementation of which has provided customers with consistency and transparency. (27/10/09) http://www.bankingcode.org.uk/wpdocs/Themed review of compliance with UK Cards Best Practice Guideleines October 2009.doc

BCSB: Themed review of the way that subscribers treat personal customers who are in financial difficulties BCSB took a sample of 10 firms and issued "amber" warnings to four of these where it deemed that standards were insufficient to meet the Code's requirements. (27/10/09) http://www.bankingcode.org.uk/wpdocs/Themed review of financial difficulties October 2009.DOC

DP09/3: Mortgage market review In this DP, FSA sets out the case for regulatory reform of the mortgage market and discusses a number of the issues and causal drivers it believes have resulted in consumer detriment in the market, and options for addressing them. FSA expects to issue an FS in March 2010 and, depending on its content, follow that with a CP (or papers). Responses are required by 30 January 2009. (17/10/09) http://www.fsa.gov.uk/pubs/discussion/dp09_03.pdf (NB: over 100 pages long)

BBA: Impact of claims management companies’ activities on consumers of financial services BBA has published this independent study which warns that bank customers could be putting their money at risk by paying consumer claims handlers who mis-manage their complaints. (16/10/09) http://www.bba.org.uk/content/1/c6/01/67/23/Gfk_report__CMC_research_-_final_August_2009.pdf (NB: over 50 pages long)

Prevention of Excessive Charges Bill A Bill to prevent excessive charges or fees from being levied on consumers; and for connected purposes. (16/10/09) http://www.publications.parliament.uk/pa/cm200809/cmbills/089/2009089.pdf

The Saving Gateway Accounts (No. 2) Regulations 2009 (Draft) These Regulations make detailed tax provision for Saving Gateway Accounts, under the Saving Gateway Accounts Act 2009 (c. 8). Regulation 1 provides for citation and commencement, and regulation 2 for interpretation. Regulation 3 provides for exemption of income (or gains) of a Saving Gateway Account for tax purposes. Regulations 4 to 6 deal with ancillary tax matters (including recoupment of tax relief wrongly given). (13/10/09) The Saving Gateway Accounts (No. 2) Regulations 2009 No.

OFT: Banks agree to make improvements to personal current account market in the UK OFT has announced that banks have agreed to make personal current account costs more transparent and the switching process more reliable and trusted. Banks have agreed to: introduce an annual summary of the cost of their account for each customer; make charges prominent on monthly statements; provide average credit and debit balances and produce illustrative scenarios showing unarranged overdraft charges. To improve the switching process, the following have either been introduced or are being introduced following work with BACS: steps to reduce problems that arise from transferring direct debits; measures to reduce the impact on consumers of any problems with transferring direct debits, and a new consumer guide and website as part of efforts to increase consumer awareness of the automatic switching process. The press release also notes that OFT "expects to make more substantive comments on unarranged overdraft charges in due course after the pending Supreme Court judgment". (7/10/09) The Office of Fair Trading: Banks agree to make improvements to personal current account market in the UK http://www.oft.gov.uk/shared_oft/personal-current-accounts/PCA_market_study_ES.pdf

BCSB: Quarterly Bulletin 32 BCSB has published its last quarterly bulletin, which looks back at 10 years of BCSB and looks forward to its new role as the Lending Standards Board. (2/10/09) http://www.bankingcode.org.uk/pdfdocs/Bulletin32.pdf

OFT: Bankruptcy annulment and consumer credit OFT has published a webpage in which it notes that it is monitoring the lending and broking of secured loans to consumers that have recently gone bankrupt where the purpose of the loan is to annul the bankruptcy. OFT is interested in hearing from consumers who have experienced problems in this area and further information from other interested parties, trade bodies, debt advisers and licensees. (2/10/09) The Office of Fair Trading: Bankruptcy Annulment and Consumer Credit

AMI: Better regulation for the mortgage industry In this paper, AMI cautions FSA against the introduction of mortgage product regulation, arguing that it will unnecessarily restrict consumer access to the housing market. (1/10/09) AMI-Media Centre http://www.a-m-i.org.uk/news/AMI-Better-Regulation-for-the-Mortgage-Market- September09.pdf (NB: over 30 pages long)

FSA: Handbook Notice 92 At its meeting on 24 September 2009, the FSA Board made changes to the Handbook in the following instruments which: • make minor administrative corrections to the Handbook, none of which represents any change in FSA policy - a summary of all these changes is in paragraph 2.3 of this document (Handbook Administration (No 15) Instrument 2009/49) • update the Handbook references in a number of Handbook modules in line with the appropriate Companies Act 2006 and other statutory references (Companies Act 2006 (Consequential Handbook Amendments No 3) Instrument 2009/50); • provide additional rules and guidance in BCOBS to firms and transitional provisions and minor consequential Handbook changes (Banking: Conduct of Business Sourcebook (Amendment) and Consequential Amendments Instrument 2009/52); • extend the FOS jurisdiction to cover transitioning payment institutions (TPIs) and extend FSA’s complaint-handling rules to TPIs on the same basis as they will apply to payment service providers (Payment Services (Transitioning Firms) Instrument 2009/53); and • make changes to the structure of the Listing Regime (Listing Rules Sourcebook (Amendment No 3) Instrument 2009/54). In addition, the Board has also approved the making by the FOS Board of an instrument relating to case fees (Payment Services (Financial Ombudsman Service Case Fees 2009/2010) Instrument 2009 (FOS 2009/4)) (25/09/09). http://www.fsa.gov.uk/pubs/handbook/hb_notice92.pdf (NB: over 60 pages long)

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ESBG: Retail banking in Europe - the way forward This report lays out ESBG’s views and recommendations in three broad areas: the current financial crisis and presents ESBG’s key messages and contributions to ongoing political debates; a long term view and names and core parameters for retail banking sector integration; concrete retail banking policy issues/ESBG’s views and recommendations in relevant areas. (24/09/09) http://www.esbg.eu/uploadedFiles/Publications_and_Research_(ESBG_only)/Research/DOC_ESBG_RE PORT.pdf (NB: over 200 pages long)

TSC: Credit searches TSC has announced that it will be undertaking a short inquiry into the impact on the credit ratings of consumers shopping around to obtain credit, through personal loans or credit cards, on the most advantageous terms. Evidence is sought on: the effect of multiple credit searches on individuals' credit ratings including the size of the change in credit scores and the extent to which lenders offer best practice quotation searches. Written evidence is required by 14 October 2009. (23/09/09) UK Parliament - tc0809pn220909

Ministry of Justice/BIS-BERR/Insolvency Service: Debt Management Schemes – delivering effective and balanced solutions for debtors and creditors This consultation looks at the way that debtors deal with their indebtedness. It asks for evidence on whether powers contained in Chapter 4 of Part 5 of the Tribunals Courts and Enforcement Act (2007) should be used in order to approve operators of Debt Management Schemes or whether the taking of other steps to make sure that debtors are protected and creditors’ interests are safeguarded would be more appropriate. In the interim, guidance on what to expect from non-court based Debt Management Scheme operators to help debtors better understand the benefits and pitfalls of current debt management plans will be published. If the consultation shows that there are problems with current Debt Management Plans that need to be addressed, consideration will be given to further action and other parties, such as OFT, may be asked to assist to bring about early improvements. Responses are required by 18 December 2009. (23/09/09) http://www.justice.gov.uk/consultations/docs/debt-management-schemes.pdf (NB: over 50 pages long)

ASA: Nat West Sixteen viewers, including IFAs, Which? and cherryfind, a body funded by impartial advisers to help and protect consumers, had complained direct to the ASA to challenge whether NatWest's statement in three TV advertisements that "They're not there to sell but to give you free, impartial financial guidance" was misleading because they believed the advisers would direct customers to NatWest products. The complaint was not upheld, with ASA noting it "might be misleading if it was not highlighted to the customer that a MoneySense review had been completed before an adviser moved on to advising on NatWest's own financial products. We noted, however, that none of the members of the public who had complained to the ASA had reported that happening and that the examples of impartial financial guidance given in the ad related to day-to-day budgeting on food and clothing, utilities and car insurance rather than investments. Provided the correct procedures were followed to ensure the MoneySense session was understood as being separate from any formal financial advice session that followed, we considered it was legitimate for NatWest to refer enquirers on to formal financial advice if they had asked for such advice during the guidance sessions. Because NatWest had shown that their MoneySense advisers were 'not there to sell but to give you free, impartial financial guidance' (and nothing more, in the context of the MoneySense interview), we concluded that the ads were unlikely to mislead" (23/09/09). National Westminster Bank plc

EC: Commission Staff Working Document on the follow up in retail financial services to the consumer markets scoreboard/Commission Report criticises “opaque” bank fee charges/Speech by Meglena Kuneva: Restoring Consumer Trust in Retail Financial Services (22 September 2009) The EC has published a report which describes the price structures of current accounts as "very opaque making it almost impossible for consumers to know how much they are paying and to compare different offers." For 66% of banks surveyed, bank fees were so unclear that experts compiling the report needed additional explanatory contacts with the bank to find the real costs of an account. It found that Austria, 152

France, Italy and Spain score poorly on transparency and are among the most expensive countries for banking accounts. The press release, which also gives a synopsis of the main findings, notes that the evidence will feed into the ongoing work in the area of retail financial services that the EC announced in March 2009. Meglena Kuneva's accompanying speech at the ESBG also discusses the report. (22/09/09) EUROPA - Press Releases - Consumers: Commission Report criticises “opaque” bank fee charges http://ec.europa.eu/consumers/rights/docs/swd_retail_fin_services_en.pdf (NB: over 30 pages long) EUROPA - Press Releases - EU report on retail financial services: fact sheet EUROPA - Press Releases - Meglena Kuneva European Consumer Commissioner "Restoring Consumer Trust in Retail Financial Services" ESBG Conference "Retail Banking in Europe – the way forward, lessons from the crisis and priorities for the future" Brussels, 2

HMT/FSA: Response to the EC on its public consultation on responsible lending and borrowing in the EU HMT/FSA urges that EC’s future work should be shaped according to the following priorities: “better regulation”; effective enforcement; tackling information asymmetries and flexibility, suggesting that EC needs to assess whether new interventions in capital markets following the crisis warrant a restatement of objectives for mortgage funding, with a view to reinvigorating this area of work. (22/09/09) http://www.fsa.gov.uk/pubs/international/response_lending_and_borrowing.pdf

EC: Your questions on PSD The Q&A document has been updated, with new items highlighted in red in the indices. (17/09/09) http://ec.europa.eu/internal_market/payments/docs/framework/transposition/faq_en.pdf (NB: over 230 pages long)

BIS/BERR: Credit card cheques BIS has published draft text of suggested amendments to the clause of the 1974 Consumer Credit Act that currently regulates the area of credit card cheques and their distribution, together with an impact assessment. Comments are requested by 9 October 2009. (15/09/09) http://www.berr.gov.uk/files/file52786.pdf http://www.berr.gov.uk/files/file52785.pdf

FSA: Equity release – lifetime mortgages and home reversion plans FSA has published this factsheet aimed at firms who advise on equity release; and firms considering expanding into giving equity release advice. It covers: qualifications needed to advise on equity release; permissions required to advise on and sell equity release; marketing; key regulatory requirements; and what equity release sales may look like in practice. (14/09/09) http://www.fsa.gov.uk/smallfirms/resources/factsheets/pdfs/equity_release.pdf

EC: Study on the calculation of the annual percentage rate of charge for consumer credit agreements The aim of the study was twofold: .to adapt the examples provided in the Proposal for a Directive on consumer credit adopted by the EC in 2002 to the current regulatory framework given by Directive 2008/48/EC and the products marketed in the EU and to provide the EC with "scientific elements" concerning the calculation of the APR for consumer credit agreements. (11/09/09) http://ec.europa.eu/consumers/rights/docs/study_APR_en.pdf (NB: over 200 pages long)

The Payment Services (Amendment) Regulations 2009/2475 These Regulations amend the Payment Services Regulations 2009 (“the principal Regulations”), which implement Directive 2007/64/EC of the European Parliament and of the Council on payment systems in the internal market (OJ No L 319, 5.12.2007, p.1). Regulation 3 amends the principal Regulations to provide for FSA to direct the manner in which requests for cancellation of authorisation may be made. Regulations 4 to 11 make minor amendments clarifying the principal Regulations. Regulation 13 inserts a new Schedule into the principal Regulations dealing with the application of the principal Regulations to Gibraltar-based firms operating in the UK and UK firms operating in Gibraltar. Paragraph (1) of that Schedule makes provision for firms authorised and having their head office in Gibraltar to exercise rights to establish branches and provide services in the UK, corresponding to the “passport” rights of firms 153

authorised in other EEA States under the payment services directive. Paragraph (2) provides for UK firms which seek to establish branches or provide services in Gibraltar to be treated equivalently to those exercising “passport” rights under the payment services directive to establish branches or provide services in other EEA States. Paragraph (3) disapplies provisions of FSMA requiring FSA and FOS to consult on rules where the purpose of the rules is to extend existing rules applying to EEA authorised payment institutions to Gibraltar-based firms. (10/09/09) (Date in force: 1/10/09 / 1/11/09) The Payment Services (Amendment) Regulations 2009 No. 2475

EC: Commission presents actions to make SEPA a success The EC has adopted a Communication on Completing SEPA: a Roadmap for 2009-2012 in response to the Communication on 'Driving European recovery'. It provides a framework for action within six priority areas where greater involvement of all relevant actors is required in order to achieve the full implementation of SEPA. (10/09/09) EUROPA - Press Releases - Single Euro Payments Area: Commission presents actions to make SEPA a success EUROPA - Press Releases - Single Euro Payments Area (SEPA) – Frequently Asked Questions

FSA publishes industry-level complaints data to increase transparency FSA has today for the first time published aggregate figures showing how many complaints regulated firms have received and how they have dealt with them, covering the period 2006-2008. This covers: the volume of complaints firms have received, by product type and cause of the complaint, e.g. delays and misleading advice; and how firms have handled complaints, including the speed of complaints-handling and the proportion of complaints that have been upheld by firms. FSA says that the figures indicate that the overall number of complaints has increased by 5.7% over this period, but the speed of firms’ complaints handling and the proportion of complaints upheld by firms remained fairly stable over the period - at the end of 2008, 10% of complaints took longer than eight weeks to resolve and 40% of complaints were decided in customers’ favour. FSA plans to publish aggregate data covering the first half of 2009 in October, and will then publish updates every six months after that. (3/09/09) FSA publishes industry-level complaints data to increase transparency Commentary on FSA Complaints Data 2006- 2008 ABI comment Association of British Insurers - ABI - Complaints data must be useful to consumers

FSA "Dear Compliance Officer" letter: Readiness for the new banking conduct regime FSA has published the text of the above, advising firms of its dedicated BCOBS webpage, and asking for confirmation of readiness to comply with the new regime (to be received by FSA by 30 September). It advises that FSA intends to issue feedback to its July quarterly CP in late September. Shortly before the new regime comes into effect, FSA plans to issue two new Moneymadeclear guides (on bank accounts and credit cards), along with two promotional flyers similar to those that were used to alert account holders to the Banking Code and urges firms to print these guides and flyers, and send out the latter to personal customers with one of their statements in the autumn. (25/08/09) http://www.fsa.gov.uk/pubs/other/bcr_co_letter.pdf

European Banking Industry PSD Expert Group: Guidance for the implementation of the PSD The European Banking Industry PSD Expert Group has issued version 1.0 of its PSD implementation guidance paper which is intended to provide high level assistance to banks in relation to both the interpretation and practical application of the PSD. (24/08/09) http://www.ebaportal.eu/_Download/Legislation/2009/D1387A-2009- PSD_EG_Guidance_v1_0_Final_pdf_version.pdf

BoE: A risk-based methodology for payment systems oversight It is noted that BoE has developed a risk-based methodology to support its oversight of payment systems which provides more precise estimates of risks in payment systems than previously available. This item provides an overview of the framework. (21/08/09) http://www.bankofengland.co.uk/publications/fsr/fs_paper06.pdf

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AMI: The UK Mortgage Market – a comparative study reflecting US and European influences– August 2009 This paper is designed as a contribution to the ‘reflection and discussion’ which FSA has requested. It considers areas including growth in mortgage lending, changes in the loan-to-value and loan-to-income ratios; securitisation and specialist lending through subsidiaries of banks and building societies. (21/08/09) http://www.a-m-i.org.uk/news/UK-Mortgage-Market-August2009.pdf

FSA: BCOBS FSA has published a webpage re the above, including a Q&A. It notes that FSA expects to confirm its decisions re proposals on additions and changes to BCOBS and certain requirements for retail banking services that are not payment services set out in CP09/20 by the end of September 2009. (20/08/09) Banking Conduct of Business Sourcebook

OFT: Advertising and pricing market study OFT has announced plans to launch a market study into advertising and pricing which will look at the current consumer law surrounding advertising and pricing. It will evaluate which advertising and pricing practices are most detrimental to consumers, taking into account the growth of the use of the internet for online shopping, information provision and advertising. OFT has not yet finalised the scope of the study and asks for comments from interested parties on the scope prior to launching the study in the autumn. The closing date for comments is 18 September 2009. A Q&A follows, which details areas OFT is minded to include in the scope of the study, such as price comparison websites, behavioural advertising where information on a consumer's online activity is used to target the internet advertising they see and several specific pricing practices. (19/08/09) The Office of Fair Trading: Advertising and Pricing market study Q&As

BCSB: Themed review of the provision of savings and loan account summary boxes In response to the increasing range and complexity of savings products and unsecured loans available to personal customers, the Banking Code was amended in 2008 to include a requirement for subscribers to provide pre-sale information about these accounts in standard format. These provisions, which took effect on 1 October 2008, require key product information when presented in pre-sale material, to be available in a standard summary box. The purpose of this review was to identify whether summary boxes were readily available in pre-sale material for savings and loan accounts both in paper format and on subscribers’ websites and assess whether the content and layout of the summary boxes comply with the requirements of the Code. Overall, it found a high degree of compliance with the requirement to provide summary boxes in the required format in pre-sale material for both loans and savings accounts. (18/08/09) http://www.bankingcode.org.uk/wpdocs/SUMMARY REPORT - THEMED REVIEW OF THE PROVISION OF SAVINGS AND LOAN ACCOUNT SUMMARY BOXES 050809 .doc

Consumer Focus: Pay now, pay later: Consumer prepayments and how to protect them This Consumer Focus report discusses the Government's commitment outlined in the July 2009 Consumer White Paper to reassess the regulatory framework for consumer prepayments. The report describes the prepayments market in Great Britain and levels of consumer detriment. It recommends: promoting consumers to the rank of preferential creditors; introducing a reserve power for the Secretary of State to require businesses carrying on specified activities to establish means to protect prepayments; harmonising upwards payment card redress; reforming s214 Insolvency Act 1986 to facilitate its greater use; enhancing duties on directors to ensure that prepayments made by consumers should not be used for purposes unrelated to those for which it was originally paid; and targeting interventions in the furniture, electrical goods and travel sectors. (14/08/09) http://www.consumerfocus.org.uk/media/viewfile.aspx?filepath=633_20090805105700_e_@@_ppplfinal .pdf&filetype=4 (NB: over 40 pages long)

House of Commons Treasury Committee: Mortgage Arrears and access to mortgage finance On 8 August 2009, the House of Commons Treasury Committee (Committee) published a report on mortgage arrears and access to mortgage finance. The report is part of the Committee's inquiry in this area, launched on 17 June 2009. The Report sets out the Committee's findings and makes a number of 155

recommendations (summarised on page 46) in relation to lenders' policies; mortgage regulation; the Government support for households in mortgage difficulties; and access to mortgage finance. The Committee notes that the FSA should monitor mortgage lenders' policies to ensure that repossession is used only as a tool of last resort. While mainstream lenders seem to be generally complying with the FSA's mortgage conduct of business rules, there is evidence of lack of flexibility and forbearance in how sub-prime, specialist and second charge lenders treat homeowners in arrears. FSA’s response is at the second link below. (10/08/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/766/766.pdf FSA response to Treasury Select Committee report on mortgage arrears and access to mortgage finance

FSA: Money Service Business - Payment Services Regulations FSA has published a factsheet re the above. (31/07/09) FSA PSD money services factsheet

OFT: Irresponsible lending - OFT guidance for creditors OFT has issued this consultation paper setting out practices the OFT considers constitute irresponsible lending. The proposed guidance clarifies minimum standards required from businesses engaged in lending which, if breached, could lead to the OFT taking enforcement action against the lenders. It covers each stage of the lending process and a range of potential issues in a credit transaction including advertising, account management and handling of arrears as well as some specific practices that the OFT considers to constitute irresponsible lending. Responses are required by 21 October 2009. (30/07/09) OFT - irresponsible lending guidance

FSA: Unfair bank charges FSA has published the text of a draft Direction which notes the OFT test case re unfair bank charges and the expiry of FSA's waiver on 26 July 2009. The Direction extends the waiver from 27 July 2009 and will end on the earlier of 26 January 2010 or resolution of the test case. The document sets out details of the rules amended and the conditions. Annexes cover management information and dealing with complainants in financial difficulty. (28/07/09) FSA waiver bank charges

OFT: Making an application to validate agreements under sections 40(2), 148(2) or 149(2) of the Consumer Credit Act 1974 OFT has published this webpage which is in a Q&A format. (27/07/09) OFT- application to validate CCA agreements

The Tribunal Procedure (Amendment No. 2) Rules 2009/1975 (L.19)/ The Tribunal Procedure (First-tier Tribunal) (General Regulatory Chamber) Rules 2009/1976 (L.20) These instruments govern the practice and procedure to be followed in the First-tier Tribunal and Upper Tribunal in proceedings which have been allocated to the General Regulatory Chamber of the First-tier Tribunal, and the Tax and Chancery Chamber and Administrative Appeals Chamber of the Upper Tribunal by the First-tier Tribunal and Upper Tribunal (Chambers) Order 2008. Jurisdictions will transfer into the Chamber in two phases. In September 2009, the jurisdictions of the current Charity Tribunal, Transport Tribunal, Consumer Credit Appeals Tribunal, and Estate Agents Appeals Panel will transfer, and, subject to Parliamentary approval, the jurisdictions of the current Information Tribunal, Gambling Appeals Tribunal, Claims Management Tribunal, Immigrations Services Tribunal, and Adjudication Panel for England, will transfer in January 2010. (Date in force: 1/9/09) (24/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091975_en.pdf http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091976_en.pdf

BIS/BERR: Consumer Credit Directive Draft Regulations BIS is now inviting comments on draft proposals for the regulations implementing the Consumer Credit Directive. All drafts take account of comments made to the Consumer Credit Directive consultation from earlier this year. Key points concerning the proposals are set out in a note for each article. Further detail will be set out in the official Government Response to the consultation, which is due to be published in September. BIS plans to make regulations before the end of 2009, to come into force in June 2010. 156

Comments are required by 1 December 2009. (23/07/09) Consumer Credit Directive Draft Regulations - BIS

FSA: New waiver FSA has offered firms a new waiver from its complaints handling rules regarding unauthorised overdraft charges for up to six months. The new waiver has been granted to those firms who signed up to the January 2009 waiver. These firms represent approximately 98% of the market. The new waiver has been offered to firms because, although considerable progress had been made in the test case, it is not yet clear how firms should be responding to complaints about unauthorised overdraft charges so that customers are treated consistently and fairly. FSA will continue monitoring firms' compliance with the conditions of the waiver. (22/07/09) FSA grants new waiver to firms on complaints handling

Speech by Adam Philips – FSA Public Meeting Topics include: FSA's work on TCF, enforcement and transparency; FSCP's concerns over MCOB rules; second charge mortgages; FSA and the Banking Code; financial capability and RDR. (23/07/09) Chair Financial Services Consumer Panel Annual Public Meeting speech

OFT: Second charge lending - OFT guidance for lenders and brokers The guidance sets out the minimum standards the OFT expects from businesses engaged in second charge lending if they are to be considered fit to hold a licence. It covers the entire lending process including selling techniques, customer care, and practices around the management of arrears. (22/07/09) http://www.oft.gov.uk/shared_oft/business_leaflets/general/oft1105.pdf

The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) (Amendment) Regulations 2009/1886 These Regulations amend the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (“the 2004 Regulations”) and allow certain debits and credits from currency derivative contracts to be left out of account and, in certain circumstances, to be brought back into account. Regulation 5 inserts a new regulation 7A, which excludes exchange gains and losses arising from currency derivative contracts which are used for hedging the anticipated or future proceeds from announced or proposed rights issues or open offers of shares from an accounting period for the purposes of s597 of the Corporation Tax Act 2009. Regulation 6 inserts a new regulation 10A, which makes provision for the gains excluded by the new regulation 7A to be brought into account. Regulation 7 inserts a new regulation 13, which makes transitional provision for the losses excluded by regulation 7A to be brought into account. The provision applies in relation to derivative contracts which are made on or after 1 January 2009 and which performed a hedging function up to and including 10 March 2009. (Date in force: 5/8/09) (15/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091886_en.pdf

FLA: Business Finance Code The Code sets out standards of good practice for the finance and leasing industry in the conduct of transactions with business customers and covers companies, other corporate bodies or unincorporated businesses, local authorities or the National Health Service who seek credit or leasing facilities for the purposes of a trade, profession, or public service activity. (13/07/09) FLA :: Business finance :: FLA Business Finance Code

The Transfer of Functions of the Consumer Credit Appeals Tribunal Order 2009/1835 (previously reported on when in draft) This Order is made under the Tribunals, Courts and Enforcement Act 2007 (“the 2007 Act”). Part 1 of the 2007 Act creates a new two tier tribunal structure; the First-tier Tribunal and the Upper Tribunal are established under section 3 of the 2007 Act. Order making powers are provided under Part 1 of the 2007 Act to enable the functions of existing tribunals to be transferred into the new structure. This Order transfers the functions of the Consumer Credit Appeals Tribunal to the First-tier Tribunal. (Date in force: 1/9/09) (13/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091835_en.pdf

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TSC: Mortgage arrears and access to mortgage finance Links to the uncorrected oral evidence from the (1) the session attended by Lord Myners and Jon Pain and Lesley Titcomb of FSA 6 July and (2) the session attended by various industry bodies on 3 July follow. (9/07/09) Uncorrected Evidence 766 House of Commons - Treasury Committee

The Saving Gateway Accounts Regulations 2009 (Draft) The Regulations provide the administrative procedures for opening and managing Saving Gateway accounts, and for the payment of government contributions to account holders. They also set out some of the detailed features of Saving Gateway accounts, and requirements upon H.M. Revenue and Customs, account providers and account holders. These Regulations also contain provisions in relation to the approval of financial institutions to offer Saving Gateway accounts, and eligibility to hold a Saving Gateway account. (9/07/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111482070_en.pdf

FSA: Non-advised mortgage sales FSA has published a factsheet aimed at mortgage brokers and other firms that provide mortgage products on a non-advised basis which covers: the key differences between advised and non-advised sales; identifying your customer’s needs and circumstances; assessment of affordability in a non-advised sale; T&C requirements; "protecting you and your firm"; and good practice. (8/07/09) http://www.fsa.gov.uk/smallfirms/resources/factsheets/pdfs/mortgage_non_advised.pdf

FSCP: Mortgage arrears research (June 2009) FSCP has released the results of this research. Among the findings: 41% of consumers experiencing difficulty meeting their mortgage payments did not seek advice; of those consumers in arrears who did seek advice the most common source of that advice was from the mortgage lender (65%) and consumers’ experiences of advice from this source was mixed. FSCP suggests that communication messages about advice need to take particular account of the needs of older people and those on the edges of society and that FSA should consider how these messages should be best transmitted, (eg. through targeted campaign). (7/07/09) http://www.fs-cp.org.uk/pdf/research_jun09.pdf

FSCP: Overdraft complaints research (June 2009) FSCP has released the results of this research. Among the findings: most providers have been treating customers with financial difficulties fairly under the terms of the FSA waiver over the last year, with 65% either receiving a decision, or an explanation about why they had not received a decision, within 8 weeks of their complaint being acknowledged; only 7% of those who had received their decision had taken it to FOS, with a further 9% intending to do so, but of the people who said that they had received a decision, only 57% recalled being informed by the bank about the FOS. Finally, satisfaction with the complaints process is low, with 33% very dissatisfied. (7/07/09) http://www.fs-cp.org.uk/pdf/odcomplaints.pdf

CEPS: SEPA - new alliances to tip the market This report finds that the SEPA process is in a crisis, suggesting that banks and their customers are reluctant to migrate to the new SEPA standards and some banks and banking associations are not persuaded that the benefits attributed by the EC to SEPA will materialise. The author argues that incentives are necessary to motivate service providers and users to change their current behaviour and to migrate to new service standards. (7/07/09) http://shop.ceps.eu/downfree.php?item_id=1871

Speech by Lesley Titcomb: The regulatory environment affecting the mortgage world (6 July 2009) Text of the above, given to CML, follows. Topics include: responsible lending; role of intermediaries; disclosure related to consumer behaviour; the buy-to-let sector; second-charge lending; arrears and repossessions. She also notes the recent announcement re FSA reorganisation and says "we are not going to have an FSA version of the Dangerous Dogs Act - rushing in changes and over-reacting to please those who shout the loudest. But equally we are not willing to carry on with the status quo. We believe there is a strong mandate for change, but we won’t try to fix what isn’t broken". (6/07/09) The regulatory environment affecting the mortgage world

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Saving Gateway Accounts Act 2009 An Act to make provision about Saving Gateway accounts; and for connected purposes. (6/07/09) http://www.opsi.gov.uk/acts/acts2009/pdf/ukpga_20090008_en.pdf

BIS/BERR: Consumer law review - call for evidence In May 2008 BERR issued a CP calling for evidence on a comprehensive review of the UK consumer protection regime. It looked at whether there are new approaches to deliver better outcomes for consumers, whilst at the same time reducing unnecessary burdens for business and promoting fair and competitive markets. This provides an overview of the responses, highlighting some of the key issues raised upfront by the consultation respondents, followed by a summary of the responses to each of the specific overarching and detailed questions. (3/07/09) http://www.berr.gov.uk/files/file52071.pdf (NB: over 70 pages long)

BIS/BERR White Paper: A better deal for consumers - delivering real help now and change for the future Measures include: • a wide ranging consultation on significant reforms to the regulation of credit and store cards to put consumers more in control of their borrowing and to help guard against people running up credit and store card debts they can’t pay off; • a ban on unsolicited credit card cheques; • a review by OFT of the market for high cost credit, typically above 50% APR, such as pay day loans and door step lending; (see below for separate details on this); • appointment of a new Consumer Advocate responsible for co-ordinating work to educate consumers and "to help them get their money back when things go wrong"; • new powers for the courts to ban persistent rogue traders; a new national specialist team for internet enforcement to tackle internet scams; • new money for a central ‘Fighting Fund’ to tackle rogue traders operating on a large scale; and a pilot scheme giving Trading Standards officers powers to help consumers get money back; and • a new self-help tool-kit developed by the Money Advice Trust and a new Debtor’s Guide from the Insolvency Service to help people in debt take control of their finances. New requirements will be introduced on all lenders to check consumers’ creditworthiness before they borrow; to explain financial products fully including the consequences of failure to repay; and to comply with new OFT guidance to tackle irresponsible lending. In addition, consumers will be able to compare the cost of different credit cards based on the way they intend to use them. Following consultation, FSA's Moneymadeclear website will host a new, impartial comparison table. (2/07/09) Consumer White Paper - BIS

OFT: High cost consumer credit sector review OFT has launched a review into the supply of high cost credit which will focus on: the level and nature of competition in the sector, including the impact of the economic downturn on competition and whether suppliers compete vigorously in a way which delivers benefits to consumers; the business models of lenders within the sector, the behaviour and decisions made by consumers when purchasing credit, and whether consumers have the appropriate level of protection and are given the information they need to make well-judged decisions. The formal launch follows the announcement on 7 April 2009 that OFT was conducting a short informal consultation on the scope of the review. This informal consultation closed on 8 May 2009 and OFT has published a summary of responses (also available via the following link). The review will draw on information from the credit industry, consumer organisations, other parts of government and independent experts. It will also examine credit and lending practices in other countries. OFT expects to publish interim findings by the end of 2009 and the final report in spring 2010. OFT notes that it has worked closely with BIS to ensure that this review complements the White Paper proposals and has therefore focused its work specifically on high cost credit. (2/07/09) The Office of Fair Trading: High-cost consumer credit review

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Speech by Jon Pain: Mortgage market review and regulation of secured lending (1 July 2009) Text of the above, given at the Association of Finance Brokers, follows. Topics include: FSA's general approach following the financial crisis; FSA's mortgage market review, including the future regulation of secured lending; PPI. (reported 3/07/09) Mortgage market review and regulation of secured lending

CEPS: Investigating diversity in the banking sector in Europe: the performance and role of savings banks This investigates the merits of a diverse banking system with a special focus on the performance and role of savings banks in selected European countries where they are still prominent (Austria, Germany and Spain) and where they have progressively disappeared (Belgium and Italy). The arguments set out tend to support the view that it is economically and socially beneficial to have ‘dual bottom-line’ institutions, such as savings banks. For those who accept this premise, it would suggest that policy-makers should not take or support actions that could jeopardise this element of the financial system in various countries in Europe and of the emerging integrated European financial system. (1/07/09) http://shop.ceps.be/downfree.php?item_id=1865 (NB: over 200 pages long)

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13.2 Retail investments

See European Commission press release: Commission proposes better investor protection measures for packaged retail investment products 29 April 2009, and the text of the Commission’s Communication on Retail Packaged Investment Products.

See also Council conclusions on PRIPS July 2009.

Chronological Report

CP09/31***: Delivering the Retail Distribution Review: professionalism; corporate pensions; and applicability of RDR proposals to pure protection advice On professionalism, under the proposed changes: • FSA will raise professional standards to build investor trust and increase people’s engagement with the industry; • FSA will take greater supervisory oversight of investment advisers - and will be able to take a more intensive supervisory approach to bring about the required step change; • all investment advisers will need to be qualified to a new, higher level; • advisers will also have to adhere to a new code of ethics and standards of continuing professional development. On group personal pensions, under the proposed changes: • FSA will remove commission bias from the group personal pension market - recommendations made by advisers will not be influenced by product providers; • employers (or scheme members) will know and agree upfront how much advice is costing them and how they will pay for it; and • where advice is paid for on an ongoing basis ensure that this is done in a transparent way.

On pure protection advice, FSA has not put forward proposals for consultation at this stage, but sets out an analysis of the scope for extension of RDR proposals to pure protection. It thinks there may be scope for applying RDR adviser service labelling and correspondingly raising the advice standards that required for those advisers calling themselves independent. FSA expects to consult on this in the second half of 2010. FSA notes that it does not think that adviser charging is the right approach for pure protection advice; however, there is a case for requiring commission disclosure where pure protection is sold alongside investments. FSA will consult on this in March 2010. FSA asks for views on the possible extension of RDR approaches to increasing professionalism amongst pure protection advisers. Responses to this CP are required by 16 March 2010.

On professionalism, FSA will make the final decision on the governance of professional standards in Q3 2010 and will provide feedback to the questions in this CP and our CP09/18 about CPD and ethical standards at the same time. FSA plans to publish its PS implementing consultancy charging in the corporate pensions market in Q3 2010. FSA intends to consult on a proposal to require commission disclosure for pure protection sold under ICOBS where advice is given alongside investment advice. It expects to consult on read-across of RDR adviser service labelling when the Mortgage Market Review proposals in this area have progressed further. FSA intends to publish a PS and final rules on the adviser charging and service proposals in CP09/18 in Q1 2010. This will also include feedback to the questions posed about simplified advice and associated qualification requirements for those people. The current CP does not address these RDR adviser charging proposals (except in relation to corporate pensions). (16/12/09) FSA consults on raising professional standards for all investment advisers http://www.fsa.gov.uk/pubs/cp/cp09_31.pdf (NB: over 150 pages long) http://www.fsa.gov.uk/smallfirms/your_firm_type/financial/pdf/FS055_rdr_pr.pdf Smaller firms online - Your Firm type

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EC: Update on Commission work on Packaged Retail Investment Products This paper provides an update on the EC's ongoing work on PRIPs and further detail on how it will take forward the commitments it made in the 30 April 2009 Communication on PRIPs. (16/12/09) http://ec.europa.eu/internal_market/finservices-retail/docs/investment_products/20091215_prips_en.pdf

PS09/19: Review of the prudential rules for Personal Investment Firms (PIFs) Feedback to CP08/20 and CP09/20 (Chapter 11) FSA notes that, under the new rules, all PIFs will have to hold capital resources worth at least three months of their annual fixed expenditure in realisable assets such as cash. The minimum capital resources threshold for any firm will be set at £20,000. Requiring PIFs to hold more capital resources will enable firms to provide redress for consumers and limit the compensation due from FSCS in the event that they are wound up. Following feedback from the industry, the transition to the new regime has been extended by a year to 31 December 2013, allowing firms more time to comply with the requirements. Firms will also be able to take into account any changes arising from the RDR. FSA is to consider how expenditure-based capital resources requirements can be applied consistently to all PIFs, particularly those with commission-based business models and will also consult in 2010 on an appropriate prudential regime for pension and third party administrators. NB: over 100 pages long) (6/11/09) http://www.fsa.gov.uk/pubs/policy/ps09_19.pdf

FMLC: Prospectus Directive FMLC has published the text of a letter it has sent to the EC regarding its proposals to amend the Prospectus Directive. It raises concerns over elements it believes are likely to lead to legal uncertainty – retail cascades, standard of disclosure in the summary and supplements to the Prospectus. (4/11/09) http://www.fmlc.org/papers/Issues89&103Ltr to EC.pdf

ABI: Packaged Retail Investment Products (PRIPs): new ways of thinking working document In this document, ABI calls on the EC to remove remuneration bias from the sale of retail investment products; provide a regime where consumers can access high quality financial advice that is tailored to their specific needs; ensure that financial advisers and intermediaries provide high-quality advice when purchasing retail investment products; and ensure consumers are provided with clear, relevant and timely information enabling them to compare the key features of a range of different product types. (21/10/09) http://www.abi.org.uk/Media/Releases/2009/10/44869.pdf

EC: Directive of the European Parliament and of the Council amending Directives 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading and 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market The EC has put forward a proposal for the review of the Prospectus Directive. The proposal is intended to increase legal clarity and efficiency in the prospectus regime and reduces administrative burdens for issuers and intermediaries. The main changes proposed are as follows: some types of securities issue will be subject to less comprehensive disclosure requirements (small companies, small lenders, rights issues and government guarantee schemes); the format and content of the prospectus summary have been improved; there are clearer exemptions from the obligation to publish a prospectus when companies sell through intermediaries (“retail cascades”) and for employee share schemes; disclosure requirements that currently overlap with the Transparency Directive will be repealed; issuers of all non-equity securities will be able to determine their home Member State; the definition of 'qualified investors' in the Prospectus Directive will be aligned with the one of 'professional clients' as defined MiFID. Links to the full press release, FAQ, text of proposal, impact assessment and impact assessment summary follow. (24/09/09) EUROPA - Press Releases - Commission cuts red tape and improves investor protection on securities prospectuses EUROPA - Press Releases - Prospectus Directive: Frequently Asked Questions http://ec.europa.eu/internal_market/securities/docs/prospectus/proposal_240909/proposal_en.pdf http://ec.europa.eu/internal_market/securities/docs/prospectus/proposal_240909/impact_assessment_en.p df (NB: over 80 pages long) http://ec.europa.eu/internal_market/securities/docs/prospectus/proposal_240909/summary_en.pdf 162

Speech by Jon Pain: Restoring confidence and trust (19 September 2009) Text of the above, given at the 17th Gleneagles Savings & Pensions Industry Leaders’ Summit, follows. Topics include: RDR; "product regulation" ("we will approach product regulation with an open mind in future. We would see the term ... as encompassing a whole spectrum of possible measures. It can be about pre-approving and banning products or alternatively setting parameters or constraints around certain design features") and financial capability. (21/09/09) Restoring Confidence & Trust

CESR: FAQ re prospectuses CESR has published an updated version (new items indicated in red) concerning positions agreed by CESR Members. (16/09/09) http://www.cesr.eu/data/document/09_798pdf.pdf (NB: over 40 pages long)

Speech by Dan Waters: Key issues and challenges (10 July 2009) Text of the above, given at a Personal Finance Society conference, follows. He discusses aspects of the recent RDR CP, particularly independent advice, adviser remuneration, professional standards and inducements. (10/07/09) Key issues and challenges

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13.3 Consumer protection and rights (inc FOS)

See pages 42 to 47 of the Conservative Party alternative White Paper

See chapter 8 of the White paper - Reforming financial markets

See also the EU consultation (May 09) following its green paper on consumer collective redress.

Chronological Reports

BIS/BERR: Government response to consultation on proposals for implementing the Consumer Credit Directive It is noted that BIS is currently seeking Parliamentary Counsel’s approval in order to finalise the regulations, will continue to liaise closely with stakeholders in the time leading up to the laying of the regulations and aims to publish a high-level regulatory guidance at the time of laying the regulations in Parliament or shortly thereafter. Amending regulations will not be laid in Parliament before early March 2010. (24/12/09) http://www.berr.gov.uk/files/file54098.pdf (NB: over 70 pages long)

FOS: Accessibility and transparency agenda - update on projects and initiatives FOS has published an updated version of this table (dated 31 December 2009). (23/12/09) http://www.financial-ombudsman.org.uk/publications/policy-statements/accessibility-transparency- updateDec09.pdf

National Fraud Authority: A better deal for fraud victims This report is described as the largest survey of victims of fraud ever undertaken in the UK A key finding of the research was that 91% of the fraud victims interviewed wanted a centralised service to report fraud and receive specialist support. This is being addressed by the NFA's national fraud reporting centre - Action Fraud, which, provides a single point of contact for members of the public and small businesses to report fraud and gain crime prevention advice. Work is also being undertaken in respect of enhancing support provided to victims of fraud. (22/12/09) http://www.attorneygeneral.gov.uk/nfsa/GuidetoInformation/Documents/NFA_Report 1_15.12.09.pdf

FOS: Ombudman News 82 Topics include: complaints case-studies showing the difference between direct debits, standing orders and continuous-payment authorities; motor insurance disputes involving keys left in cars; an interview with Jane Hingston, lead ombudsman for banking and credit, about her work on consumer-credit complaints; and David Thomas on "the season of grievances and goodwill". (21/12/09) http://www.financial- ombudsman.org.uk/publications/ombudsman-news/82/82.pdf

OFT: Credit licence fee structures OFT has launched a consultation on moving towards a new approach to the setting of fees for consumer credit licences. Under the current fees structure the only cost distinction made between businesses applying for or renewing their licence is whether the applicant is either a sole trader, or a corporate body or partnership. The consultation proposes a number of criteria that might be chosen to differentiate between classes of applicant. These include: type of business; type of credit activity; number of categories applied for size of credit business, and overall size of business. OFT is also asking for comments on the current circumstances where applications are exempt from charge, such as for charitable debt advice agencies, and whether these should continue or be amended. Reponses are required by 11 March 2010. (17/12/09) http://www.oft.gov.uk/shared_oft/consultations/oft1149con.pdf

Law Societies: EU legislation on consumer protection (November 2009) This details the current status of various relevant Directives and European-level proposals. (16/12/09) http://www.lawsociety.org.uk/secure/file/183052/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/consumerupdate_nov09.pdf 164

FSA/OFT: Delivering better regulatory outcomes - December 2009 final update/Revised Memorandum of Understanding between FSA and OFT It is noted that this update will be the last one for the FSA/OFT Joint Action Plan, as the parties "are moving to a new way of planning our joint working. Our aim is to be flexible in how we adapt and respond during these uncertain times". It summarises the achievements of the 2006 Plan as a whole and updates on various topics, including PPI, advertising and current accounts. A revised MoU has been published, in which the parties note that they particularly wish to strengthen their cooperation on competition issues. The MoU includes, in annexes, Concordats on Unfair Terms, Consumer Protection and Banking Conduct and a new Competition Concordat. (9/12/09) http://www.fsa.gov.uk/pubs/other/oft_fsa_jap.pdf http://www.fsa.gov.uk/pubs/mou/fsa_oft.pdf (NB: over 30 pages long)

Speech by Tony Boorman: Minimising customer grievances in a challenging environment (25 November 2009) Text of the above, given at the Future of Retail Banking annual conference, follows. Topics include: FOS and high profile issues; aspect of the Financial Services Bill. (1/12/09) minimising customer grievances in a challenging environment - speech by Tony Boorman

BBA: Test case fact sheet BBA has published a fact sheet in respect of the OFT bank charges case ahead of the Supreme Court's decision expected later this week. (23/11/09) http://www.bba.org.uk/content/1/c6/01/68/88/Test_Case_Fact_Sheet.pdf

FSA: 15 year ‘long-stop’ on bringing complaints against financial services firms On this webpage, FSA notes that it has had some further feedback about its decision not to introduce a 15 year ‘long-stop’ in DISP and that some firms have indicated that they propose to insert a ‘long-stop’ clause into their TOB. It points out that such a clause is likely to becontrary to the rule in COBS 2.1.2R, ICOBS 2.5.1R and MCOB 2.6.2R and may also fail to meet Outcome 6 of the TCF initiative. (23/11/09) Smaller firms online - Your Firm type - Library - PIFs

BIS/BERR: Clause on unsolicited credit card cheques BIS has published revised draft clauses in respect of the above which will insert new sections 51A and 51B into the Consumer Credit Act 1974 to give effect to the prohibition. (23/11/09) Unsolicited Credit Card Cheques - BIS http://www.berr.gov.uk/files/file53644.pdf

BIS/BERR: Delivery of consumer proposals This is a progress report on the "better deal for consumers" White Paper. It is in tabular format and includes a "next steps" column which gives details of the timetable in respect of consultations, implementation etc. (23/11/09) http://www.berr.gov.uk/files/file53684.pdf

FOS: Ombudsman News 81 Topics include: complaints about debt-collecting businesses; mortgage case studies involving disputes over valuations; money-transfer operators and David Thomas, on the FOS workload, noting "parties who delay unreasonably will increasingly find that, after giving fair notice, we will decide cases on the basis of

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what we have actually received – rather than allowing them any further time to supply what we have asked for". (20/11/09) http://www.financial-ombudsman.org.uk/publications/ombudsman-news/81/81.pdf

FSA: Keydata Investment Services FSA notes that the Luxembourg financial services regulator, the Commission de Surveillance du Secteur Financier (the "CSSF") has applied to the Luxembourg court for Eric Collard of KPMG ADVISORY s.a.r.l to be appointed as administrateur provisoire (provisional administrator) of Lifemark S.A. Lifemark issued a series of bonds which were used to underpin a number of retail investment products provided and administered by Keydata, now in administration, to UK consumers. The item includes a link to a statement by CSSF re the KPMG appointment and it is noted that the regulators are "working together in close cooperation". (20/11/09) Further update on Keydata Investment Services Limited

Speech by Sheila Nicoll: Conducting Business with consumers - delivering the best outcomes (18 November 2009) Text of the above, given at a TISA conference, follows. Topics include: RDR; platforms; disclosure; banking and product regulation. She gives "a very clear warning to advisers who may be looking to flout our reforms or who may seek to maximise their own profit and rewards before our rule changes take effect, while not paying appropriate regard to the interests of their customers. We have heard that some firms, both providers and advisers, may see the period between now and implementation as an opportunity to build up business with trail commission to get round our proposals, or to suggest products in which they receive very high remuneration but which may not be the most appropriate for the consumer. ...We will take a very dim view of such detrimental behaviours and it is our intention to do some thematic work in the lead-up to the end of 2012 to make sure that consumers aren't losing out". (18/11/09) Annual Conference Conducting Business with Consumers - Delivering the best outcomes

OFT: Office of Fair Trading Annual Plan 2010-11 The consultation offers the opportunity to provide views and comments on the plan. This highlights some key external factors OFT will be responding to over the period, including the increasing impact of online transactions and the potential for greater government intervention in markets. Responses are required by 5 February 2010. (16/11/09) http://www.oft.gov.uk/shared_oft/consultations/Annual-Plan-2010-11-cons.pdf (NB: over 30 pages long)

FOS: Consumer factsheet on complaints about income protection insurance This is a factsheet aimed at consumers with income protection insurance who are complaining about their insurance company; rejecting a new claim; stopping an existing claim; handling a claim incorrectly, poorly or unfairly or misselling a policy. (3/11/09) http://www.financial- ombudsman.org.uk/publications/factsheets/income-protection-insurance.pdf

FOS: "Micro-enterprises" In this short item, FOS sets out a new definition of "micro-enterprises" who are able to refer complaints to the ombudsman. (2/11/09) FAQs - complaints from businesses, charities and trusts

FOS: Debt collection FOS has published this technical note concerning complaints where a third-party debt-collection agency has been employed to recover a debt. (30/10/09) debt collecting

FSA: Aggregate complaints statistics 2006 to 2009 H1 (29/10/09) http://www.fsa.gov.uk/pubs/other/complaints_data09.pdf

FSA begins new banking regulation to promote fairness for consumers In this press release, FSA draws attention to the commencement of the Payment Services Regulations and BCOBS rules coming into effect on 1 November 2009. (28/10/09) FSA begins new banking regulation to promote fairness for consumers

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FSA: Structured products FSA has published its reviews on the quality of advice given to consumers on both Lehman-backed and non-Lehman-backed structured products, together with a document on TCF and structured products and a suitability assessment template/guidance for firms. FSA is to take the following actions with regard to Lehman-backed structured products: • it will issue all firms that gave advice to investors on Lehman-backed structured products with a template they should use to deal with customer complaints - it outlines the criteria FSA expects them to use to assess the advice they gave to ensure investors are treated fairly and consistently; • it is writing to all remaining investors that will not be contacted as a result of the plan managers’ administration, and publishing guidance, to help investors consider what steps to take, including making a complaint, if they believe they were misled by product literature or received unsuitable advice; • it is referring three advice firms to enforcement for giving unsuitable advice, and instructing other advisers it looked at to review past sales of Lehman-backed structured products and pay redress where appropriate; • it is providing clear guidance to all firms advising on structured products on the standards it expects them to meet, including examples of good and poor practice it identified during its review; With regard to the wider structured products market (non Lehman-backed): • FSA is writing to the largest sellers of other structured products, asking them to examine how they have sold these products in the past against the standards reiterated by FSA today and, if necessary, to review past sales and provide investor redress where appropriate, as well as change their approach for future advice and sales; • in the course of 2010 FSA will undertake follow-up assessments to ensure that firms are meeting its advice standards; and • FSA is following-up with plan managers where it had concerns about their marketing of non Lehman-backed structured products, to assess whether firms’ current literature meets its requirements, and setting out the standards it expects firms to meet when designing and marketing structured products. (27/10/09) FSA takes action to help investors with Lehman-backed structured products http://www.fsa.gov.uk/pubs/other/qa_structured.pdf http://www.fsa.gov.uk/pubs/other/sip_template.pdf http://www.fsa.gov.uk/pubs/other/sip_template_guidance.pdf http://www.fsa.gov.uk/pubs/other/fp_structured_review.pdf http://www.fsa.gov.uk/pubs/other/tcf_structured.pdf

BIS/BERR: Consumer Credit Directive Draft Regulations BIS has published the following set of draft regulations implementing the CCD which have gone to Parliamentary Counsel for clearance - Consumer Credit (EC Directive) Regulations 2009; Consumer Credit (Advertisements) Regulations 2009; Consumer Credit (Disclosure of Information) Regulations 2009; Consumer Credit (Agreements) Regulations 2009 and Consumer Credit (Total Charge for Credit) Regulations 2009 - all available via the following link. In addition, the item notes various outstanding issues in which the drafting has yet to be finalised. With regard to transitional arrangements, it is still intended that lenders will be allowed to comply with the new Regulations earlier than June 2010, but this is not yet reflected in all the draft regulations. (26/10/09) Consumer Credit Directive Draft Regulations - BIS

FSA: Arc Capital and Income plc FSA has announced that this firm is going into administration. The firm focused on delivering structured investment products to retail investors, including Lehman-backed structured products. This follows an extensive FSA review of structured products and subsequent discussions with the firms. FSA's review looked at the UK structured products market, including those backed by Lehman, and as part of this review examined the firm’s systems and controls and marketing literature. As a result, the FSA asked the firm to assess its financial position in relation to potential claims by investors with Lehman-backed structured products. FSA notes that administrators will shortly contact all customers who bought

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products through this firm, setting out what they need to do next and refers customers to its Moneymadeclear website for further information. (26/10/09) Lehman-backed structured products - update

AIFA: AIFA calls for review of FOS This press release callsfor a comprehensive review of FOS ane expresses concerns that it is “creating a second tier to the regulatory structure”. It calls for such a review to look at: the introduction of a long stop to give IFAs the same legal protection as other UK professions; the introduction of a no loss, no fee system so IFAs are not charged if they are cleared of any wrongdoing by FOS; complaint management firms to be included in the FOS annual levy and for FOS to become subject to the rule of law and bound by legal precedent. (23/10/09) AIFA-Media Centre

FOS: Ombudsman News - Issue 80 Topics include: complaints about bonds; insurance disputes involving claims for unemployment or sickness benefit and an interview with Walter Merricks as he prepares to step down after ten years as chief ombudsman. (15/10/09) http://www.financial-ombudsman.org.uk/publications/ombudsman- news/80/80.pdf

FSA: Lehman-backed structured products - update FSA has announced that NDF Administration Limited and Defined Returns Limited are going into administration. These firms offered a variety of retail products, including Lehman-backed structured products. Investors who had invested in Lehman-backed products with either of the firms may be entitled to compensation from FSCS, which has produced a separate press release, and the firms' joint administrators, Andrew Hosking and Martin Ellis of Grant Thornton UK LLP, will shortly contact all customers who bought products through these firms, setting out what they need to do next. FSA is to publish the full findings of its review into structured products "later this month". (14/10/09) Lehman- backed structured products - update The Financial Services Compensation Scheme - FSCS - Consumer home page - Latest News - 2009 - October - NDF Administration Limited and Defined Returns Limited

OFT: Market studies into advertising and pricing OFT has launched two separate market studies into advertising and pricing. The first, into online targeting of advertising and prices will cover behavioural advertising and customised pricing, where prices are individually tailored using information collected about a consumer's internet use. It is expected that this study will be completed by spring 2010. The second, into advertising of prices, will consider various pricing practices which may potentially mislead consumers. The study will look in particular, but not exclusively, at how these practices are used online. It is expected that this study will be completed by summer 2010. (15/10/09) The Office of Fair Trading: OFT launches market studies into advertising and pricing practices

Speech by Adam Philips (FSCP): The new financial world – a better deal for consumers (13 October 2009) Text of a speech given at the Building Societies Association follows. He argues that "consumer confidence would be hugely improved if there was a range of financial products from different providers that were presented in a way which is simple and honest, with prices that can be easily compared with other products of the same type. The industry should consider developing design criteria for particular types of product which would guide ‘good’ product innovation and restrict innovation that conceals cost or risk in the pursuit of providing an apparently better price or higher rate of return. Doing this would be a major step towards improving consumer confidence in financial services". (14/10/09) Speech: The New Financial World – A Better Deal for Consumers

FSA: FSCP appointments FSA has announced four new appointments to FSCP. Kay Blair has been appointed vice chairman, taking over from Adam Phillips who was made chairman earlier this year. In addition, Mike Dailly, Bill Martin and Claire Whyley have been appointed as new members. The press release includes short biogs. (13/10/09) FSA makes four new appointments to the Consumer Panel

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FSA: Unfair contract terms FSA has created a page re the above, which includes links to pages detailing key messages for fair terms and examples of unfair terms. (9/10/09) Unfair Contract Terms

FSA: Consumer awareness of the FSA and financial regulation The study provides measures of confidence that consumers have in financial services and regulation, specifically: the perceived confidence that firms follow the regulatory regime; and consumer confidence that they will be dealt with in a fair manner by firms. It also provides information on consumers’ attitudes and behaviour related to financial crime. Among the findings: there has been no change in awareness of FSA since 2008 (less than in 2006, however); there has been a significant drop, among those aware of FSA, in consumer confidence that firms follow FSA rules; only 40% of consumers, who are aware of FSA, are very or fairly confident that firms follow FSA rules (a drop from 67% in 2008; 34% of consumers who are aware of FSA are unconfident that firms follow FSA rules; consumers are significantly more risk averse; there are mixed messages over TCF and the exposure to financial fraud is greater through use of the internet. (8/10/09) http://www.fsa.gov.uk/pubs/consumer-research/crpr80.pdf (NB: over 80 pages long)

FOS: Bank charges and hardship cases FOS has written to major current-account providers and claims-management companies to set out its approach to cases involving current account-charges and financial hardship and to ask for cooperation in ensuring the efficient handling of these complaints. It has also updated its FAQ on the matter. (2/10/09) http://www.financial-ombudsman.org.uk/faq/pdf/hardship-letter-A.pdf http://www.financial- ombudsman.org.uk/faq/pdf/hardship-letter-B.pdf FAQs complaints about bank charges

OFT: The role of self-regulation in the OFT's consumer protection work This policy statement sets out OFT's belief that self-regulation offers benefits for consumer protection and adds value to the functioning of efficient markets. It explains: OFT's commitment to supporting and working with self-regulation, and how it can complement our other work; the potential that is offered by self-regulation, through its flexibility, to benefit consumer protection in a wide range of circumstances; the form that its engagement with self-regulation may take, and the limits of such engagement and key points that OFT will always consider in determining its engagement with any individual self-regulatory initiative or existing scheme. (29/09/09) http://www.oft.gov.uk/shared_oft/reports/consumer- policy/oft1115.pdf (NB: over 30 pages long)

Law Societies: EU legislation on consumer protection (September 2009) This details the current status of various relevant Directives and European-level proposals. (28/09/09) http://www.lawsociety.org.uk/secure/file/181552/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/consumerlawreform_sept09.pdf

FS09/2: Consumer responsibility - feedback on DP08/5 FSA has issued this FS which reaffirms its regulatory approach to balancing the responsibilities of consumers and firms. DP08/5 articulated how FSA considers consumer responsibility in its decision and policymaking. FSA notes that responses reflected a variety of views and there was no consensus. In the absence of wider agreement on where the balance of responsibilities lies between firms and consumers, FSA will maintain its current approach as set out in DP08/5. (23/09/09) FSA reaffirms approach to consumer responsibilities http://www.fsa.gov.uk/pubs/discussion/fs09_02.pdf

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IOSCO: Transparency of structured finance products The report sets out a number of factors to be considered by market authorities when considering enhancing post-trade transparency of structured finance products in their respective jurisdictions. Responses are required by 13 November 2009. (18/09/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD306.pdf

FOS: Update on appointment of new chief ombudsman FOS has announced that it has appointed principal ombudsman, David Thomas, as interim chief ombudsman – to carry out the responsibilities of this post from the date of Walter Merricks' departure on 30 October until the new chief ombudsman starts in due course. It notes that the FOS chairman, Sir Christopher Kelly, has now taken soundings from key consumer organisations and industry bodies on what stakeholders believe the relevant experience should be for the new chief ombudsman, and on the professional and personal attributes the ideal candidate for the post should have - a link to his letter to the stakeholders dated July 2009 is available to download via the following link. (21/09/09) update on appointment of new chief ombudsman

FOS: Ombudsman News - Issue 79 Topics include: the impact of motoring on the FOS; complaints case-studies on hire purchase, leasing agreements and loans to buy cars and motor insurance disputes about the quality of repairs and vehicle modifications. (18/09/09) http://www.financial-ombudsman.org.uk/publications/ombudsman-news/79/79.pdf

FSA: TCF - examples of good and poor practice FSA has set out examples of what it considers good practice and also some examples of poor practices that it has seen during its assessment programme and in its follow up supervision work which in some cases has led to action being taken against the firms concerned, broken down by financial adviser/mortgage broker/general insurance intermediary. (16/09/09) Smaller firms -What is TCF

FSA: FSA warns penny share customers This press release advises that, so far this year, FSA has ordered 11 firms out of the penny share market until they overhaul their business model and prove they no longer pose a risk to consumers. Six of those firms have now ceased trading completely. FSA found that certain stockbrokers targeted people who already own shares, usually people over the age of 50 years, some of whom may have acquired a few shares through privatisations. In some cases the brokers were paid commission to sell a particular share which was then aggressively marketed to consumers regardless of whether or not it was suitable for them. FSA notes that its work in this area will continue into the autumn and the sales practices of CFDs will also be part of the focus, adding that "FSA will not hesitate to refer firms and their senior management to enforcement if unacceptable practices are found". (16/09/09) FSA warns penny share customers

FOS: Complaints data on individual financial businesses FOS has now made available for the first time complaints data relating to individually named financial businesses - including banks, insurance companies and investment firms. The data includes the number of complaints received about individual businesses - and the percentage of complaints upheld by FOS in favour of consumers. It covers consumer complaints handled by FOS between 1 January and 30 June 2009. During this six-month period, FOS received a total of 69,841 new complaints - of which 87% related to 142 financial businesses (out of more than 100,000 businesses covered by FOS). The largest number of new complaints was 8,283 (Barclays). Five banking groups each had more than 3,000 complaints which together accounted for 38,286 cases - over half of all the new complaints received FOS during this six-month period. (15/09/09) ombudsman publishes complaints data on individual financial businesses Complaints data FAQs - number and outcome of complaints – showing individual financial businesses Comment from ABI: Association of British Insurers - FOS complaints data risks misleading consumers Comment from BBA: BBA – British Bankers' Association - Complaints data finds most customers content with bank

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FSA: Update on Lehmans-backed structured products FSA and FOS have been looking at the potential detriment caused for investors in the UK structured products market following the collapse of Lehman Brothers. In this press release, FSA notes that it has has now gained enough information from its review to enable it to move forward and believes it is now appropriate to lift the hold on individual adjudications of complaints on an immediate basis. FSA will report back on the outcomes of its review in more detail in October but confirms that it will be taking action against firms as a result of the findings of the review. (11/09/09) FSA update on Lehmans-backed structured products

FSA: The impact of life events on financial capability: Evidence from the BHPS The Institute of Social and Economic Research was commissioned by FSA to use the British Household Panel Survey to examine how life events such as unemployment, bereavement and household status affect levels of financial capability. This research shows that there are life points at which people’s financial capability level changes, indicating that they are particularly in need of preventative intervention at these points to help them adjust to such challenges. The report concludes that, although these life events only explain 20% of variances in financial capability, it seems their impact is particularly large, leading to significant fluctuations. (2/09/09) http://www.fsa.gov.uk/pubs/consumer-research/crpr79.pdf (NB: over 90 pages long)

FSA/OFT: Online sponsored links This is a guide to advertisers of financial products and services which contains: assistance on how to ensure that links returned from a search on key words do not mislead; information on which products or services come under the FSA and OFT regimes and examples of mock advertisements for sponsored links which would give rise to regulatory concern. (20/08/09) http://www.fsa.gov.uk/pages/Doing/Regulated/Promo/pdf/links.pdf

EC: Overview of the results of the consultation on consumer collective redress/Summary of the main trends of the public hearing on consumer collective redress on 29 May 2009 EC has published a summary of the main trends arising from the stakeholders' contributions to the consultation paper on consumer collective redress by Directorate General Health and Consumers and a summary of the main trends and findings of the public hearing in Brussels in May 2009. (17/08/09) http://ec.europa.eu/consumers/redress_cons/docs/overview_results_coll_redress_en.pdf http://ec.europa.eu/consumers/redress_cons/docs/summary_main_trends_coll_redress_en.pdf

FSA: Wider Implications referral: Lehmans-backed structured products - update In May, FSA and FOS agreed that the issues relating to Lehmans-backed structured products should be considered under the "Wider Implications" process. FSA committed to update FOS three months into its review, and has now provided this update. Although FSA has completed several elements of its work, it has asked FOS to continue to defer its consideration of complaints by a further three months to allow FSA to consider the remaining aspects. Copies of correspondence are included in this link. (14/08/09) case number: WI-A13

EC: Corrigendum to Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC This changes the date by which the CCD must be transposed by member states into national law, from 12 May 2010 to 11 June 2010. (12/08/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:207:0014:0014:EN:PDF

Ministry of Justice: 100 claims companies cancelled as crackdown continues on firms who mislead the public This press release highlights comments made by the head of regulation at the MoJ re the above, noting that 100 companies have been cancelled since 2007 and setting out "top tips" for consumers. (12/08/09) 100 claims companies cancelled as crackdown continues on firms who mislead the public - Ministry of Justice

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FOS: Ombudsman News – Issue 78 Topics include: articles on consumers lack of knowledge relating to purchases made with plastic cards and how to reclaim said payments, transparency and openness at the ombudsman service, recent investment complaints and a Q & A section. (5/08/09) FOS news

FSCP: Annual Report 2008/09 This report reviews the work of FSCP over the past year and highlights the following as key issues for FSA to get right for consumers over the next year: outcomes focused regulation/TCF; mortgage regulation; ensuring banks commit to fair treatment of customers; transparency (ie. it asks FSA to give more feedback on firms’ performance) and ensuring firms comply with FSA rules. It notes "as well as improving its supervision, we have been pleased with the increase in FSA enforcement action over the past year. We want the FSA to take stronger action against firms and individuals that don’t comply, so it becomes much more risky for those who try to bend the rules". (17/07/09) http://www.fscp.org.uk/pdf/annual_report09.pdf

CEPS: Consumer bankruptcy regimes in the US and Europe - further effects and implications of the crisis This CEPS working document explains the consumer bankruptcy procedures in the US in the UK, Ireland, Germany, France and Spain. (17/07/09) http://shop.ceps.eu/downfree.php?item_id=1876

EC/EECS: EESC lukewarm about European Commission's review of consumer rights The EEC and European Economic and Social Committee have published press releases on the above. In an opinion (not as yet published) EESC suggests that full harmonisation of consumer protection rules should be limited to distance and off-premises sales, and not extended to the issue of unfair terms and sales guarantees. (17/07/09) EUROPA - Press Releases - EESC lukewarm about European Commission's review of consumer rights http://www.eesc.europa.eu/activities/press/cp/docs/2009/communique-presse-eesc-100-2009-en.doc

HoL: EU Consumer Rights Directive: getting it right HoL's EU Committee has published this report which concludes that the Government should withhold agreement from the proposal as drafted on the grounds that it may not deliver a cross-border boost in trade and that it may reduce the overall level of protection currently afforded to consumers. (16/07/09) http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeucom/126/126i.pdf (NB: over 50 pages long)

Speech by Adair Turner: Helping consumers through the recession: rebuilding consumer trust in financial services (15 July 2009) Text of the above, given at FSA’s Financial Capability conference in Cambridge, follows. [This is the speech mentioned in today's FT] He discusses financial capability and consumer protection and considers that "what is clear is that consumer protection, financial capability and market intervention to protect consumers needs to be seen as part of a holistic strategy. And this needs to be grounded in an understanding of what role each element plays in empowering consumers and building their confidence in the market. He raises the questions: "Is there too much innovation in some markets - such that it is a barrier to consumers engaging with them effectively? Are some products too complex to be sold to consumers at all? Should we be prepared to intervene on pricing, even at the expense of access to the market for some people?" (15/07/09) Helping consumers through the recession: Rebuilding consumer trust in financial services

BIS/BERR: Government response to the consultation document on the EU proposals for a Consumer Rights Directive The report notes the feedback on its November 2008 consultation and BIS sets out its views on what it considers the key issues are. Chapter 3 particularly notes concerns re distance contracts. Other concerns include the reduction of consumer protection for consumers in the UK and specific definitions in the Directive. (13/07/09) http://www.berr.gov.uk/files/file52168.pdf

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OFT/CC: Road testing of consumer remedies - final report This report was jointly commissioned by OFT and CC. London Economics was asked to examine the potential techniques that could be used by the OFT and CC to evaluate remedies designed to impact on consumer behaviour prior to their implementation. (10/07/09) http://www.competition- commission.org.uk/our_role/analysis/road_testing_report.pdf

CP09/21: Transparency as a regulatory tool and publication of complaints data including feedback to DP08/3 FSA proposes that firms receiving the largest number of complaints publish information on: how many complaints they have opened and closed; the percentage closed within eight weeks; and the percentage of complaints upheld. This information will need to be broken down into five product areas: banking, home finance, general insurance and pure protection, life and pensions, and investments. To make it easier for people to understand the data and compare the standard of different firms’ complaints handling, firms will need to provide contextual information such as the number of complaints per 1000 customer accounts.. In addition, FSA is confirms that it will make greater use of a number of tools already at its disposal, including publishing anonymised results of thematic work and real-life case studies demonstrating where it has taken action against firms for producing poor financial promotions. Responses to proposals relating to the publication of firms’ complaints data are required by 30 October 2009. (9/07/09) http://www.fsa.gov.uk/pubs/cp/cp09_21.pdf

FOS: The Ombudsman and advice-workers - your mini-guide to the Financial Ombudsman Service FOS has published this item aimed at advice workers. (9/07/09) http://www.financial- ombudsman.org.uk/publications/pdf/ConAdsMiniGuide.pdf

FOS: Redress for pension mis-sale cases that fall outside the Pensions Review (with assumptions as at 1 July 2009) This technical note explains how - since 1 October 2005 - FOS has dealt with redress for complaints about pension sales that do not fall in the period covered by the regulatory Pensions Review. (8/07/09) redress for pension mis-sale cases that fall outside the pensions review

FOS: Notes for financial businesses on the practicalities involved in our publishing business-specific complaints data FOS has published this item on its webpages which sets out the practicalities of FOS's publishing business-specific complaints data from autumn 2010. (7/07/09) outcome of complaints – by individual businesses

EC: Harmonised methodology for classifying and reporting consumer complaints and enquiries The EC has announced a blueprint for an EU-wide method for classifying and reporting consumer complaints, inviting public comments on the proposal. The number of consumer complaints is a key indicator of market health. About half of European consumers who are dissatisfied with how their original complaint was handled by a trader turn to a third party such as a consumer organisation or regulator for help. About 700 complaint-handling organisations exist in Europe, and most of them use their own classifications, which makes an overview very difficult, even at a national level. The idea behind today’s proposal is to ensure that organisations across the EU collecting consumer complaints can use a comparable classification method and then report their data to the EC. After collecting and analysing feedback from the consultation, the EC will recommend the final version of the methodology. The complaints classification will be used by organisations on a voluntary basis. (7/07/09) EUROPA - Press Releases - Consumers: EU-wide complaints-classifying system to speed up policy response to failing markets (press release); http://ec.europa.eu/consumers/strategy/docs/communication_harmonised_methodology_en.pdf (Communication); http://ec.europa.eu/consumers/strategy/docs/staff_working_doc_en.pdf (accompanying working document - NB over 40 pages long)

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EC: Commission to strengthen systems to enforce consumer law The EC has adopted a "consumer enforcement package" to strengthen the EU-wide enforcement of consumer rules. The package consists of: a Communication setting out five priority areas for action, and a report on the first two years of application of the Consumer Protection Cooperation (CPC) Regulation. (2/07/09) EUROPA - Press Releases - Consumer protection: Commission to strengthen systems to enforce consumer law

FOS: Letter to claims management companies who refer PPI disputes to FOS FOS has published the text of a letter it sends to claims management companies (dated April 2009) which sets out what it expects them to do before they refer consumer disputes re PPI to FOS. (2/07/09) http://www.financial-ombudsman.org.uk/publications/technical_notes/ppi/ppi-CWletterA.pdf

FOS: Ombudsman News - Issue 77 Topics include: financial disputes involving the use of the internet; recent complaints about private medical insurance; FAQ on FOS and Walter Merricks discusses responsibilities, obligations and rights in relation to complaints about financial services. (1/07/09) http://www.financial- ombudsman.org.uk/publications/ombudsman-news/77/77.pdf

Ministry of Justice: Regulating damages based agreements This consultation highlights concerns about consumer protection issues for claimants using DBAs and seeks views on the requirements to be introduced for statutory regulation of DBAs. It notes that "there is evidence that many do not understand these fee arrangements which could sometimes include terms which might be unfair to consumers. The Government believes that a statutory framework for regulating these agreements would help provide a level playing field between consumers and representatives and remove the unfairness to consumers which can otherwise exist". A new clause in the Coroners and Justice Bill would provide this. Responses are required by 25 September 2009. (1/07/09) http://www.justice.gov.uk/consultations/docs/regulating-damages-based-agreements.pdf (NB: 50 pages long)

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13.3A OFT enforcement

OFT: Information sheets on arrears and default OFT has given notice of a change in the above, to take effect from 22 June 2010. (22/03/10) http://www.oft.gov.uk/shared_oft/business_leaflets/credit_licences/GN86.pdf

OFT: Reset Finance Ltd OFT has imposed requirements on this firm to ensure that it complies with credit advertising regulations after having identified a number of advertisements that it considered breached the Consumer Credit (Advertisements) Regulations 2004. Its advertisements must include the typical APR in circumstances where this must be legally stated; ensure that the typical APR is given greater prominence than certain other information in the advertisements, and clearly state whether security for the loan may comprise a mortgage or charge on the debtor's home. OFT will monitor the firm's compliance with the requirements. It is noted that the firm fully co-operated with OFT during its investigation. The press release also warns other lead generator and price comparison sites with advertising that leads to credit deals that they act as credit brokers and must comply fully with the CCA 1974 and the Regulations. (26/02/10) OFT imposes requirements on Reset Finance over credit brokerage adverts - The Office of Fair Trading

OFT: General Notice No. 83 This General Notice is pursuant to s35(2) of CCA 1974 and sets out the matters required to be entered in the register kept by OFT under that section. (19/01/10) http://www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/GN83.pdf

OFT: OFT imposes requirements on credit broker OFT has imposed requirements on the consumer credit licence of Post Net Ltd and its associates Haymarket Lending Ltd, Financial Processing UK Ltd, and RG Debt Management Services Ltd. It also trades under the names Advantage Loans, Credit Gain Services, Tenant Loans and Loanfinder UK. An OTF investigation found that Post Net was misleading customers by falsely guaranteeing access to credit. The company was also failing to properly refund fees to customers when it was unable to broker suitable credit. OFT's requirements stipulate that Post Net and its associated companies must not mislead consumers by falsely guaranteeing credit or stating that consumers have been pre-approved for credit agreements. They must fully disclose the terms of the application before obtaining an arrangement fee, and refund customers who cancel agreements within a 30-day period. (4/12/09) The Office of Fair Trading: OFT imposes requirements on credit broker

OFT: Criminal charges in suspected pyramid scheme case OFT reports that it has brought charges against three women in connection with its ongoing investigation into a suspected unlawful pyramid scheme in the South West of England and Wales under the Consumer Protection from Unfair Trading Regulations 2008. They will appear at Bristol Magistrates Court on 9 December 2009. OFT notes that its wider investigation into the suspected pyramid scheme is continuing. (2/10/09) The Office of Fair Trading: OFT announces criminal charges in suspected pyramid scheme case

OFT: OFT refuses doorstep lender credit licence OFT has refused an application from U-Turn Financial Solutions Ltd for a consumer credit licence. The company had proposed to offer doorstep loans to consumers using Bills of Sale to secure the loans on customers' cars. It was found that one of the company's directors had operated an unlicensed company Chelsea Loans Ltd, which offered cash loans to consumers; engaged in unfair business practices, including irresponsible lending, using threatening behaviour and allowing employees to pressurise debtors to repay; failed to comply with important legal requirements about the form and content of credit agreements and advertisements, and failed to comply with OFT debt collection guidance by charging debtors excessive and unjustifiable sums for non-payment. (29/09/09) The Office of Fair Trading: OFT refuses doorstep lender credit licence

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OFT: Appeal tribunal upholds OFT refusal of credit licence to debt management firm OFT reports that, in the first appeal of its type, the Consumer Credit Appeal Tribunal has upheld OFT's refusal to grant a credit licence to a debt management company, Qsolvency Ltd, because it had insufficient skills, knowledge and experience in the running of a consumer credit business. OFT found that Qsolvency had failed to demonstrate the competence necessary to carry on a debt management business and failed to comply with OFT's debt management guidance. OFT also found that Qsolvency was engaged in unlicensed trading before it had obtained a licence. OFT notes that it was particularly concerned that the company only required a small amount of information about the consumer's individual circumstances before providing instant, automated debt advice, which included advising the consumer to declare him/herself bankrupt. (24/09/09) The Office of Fair Trading: Appeal tribunal upholds OFT refusal of credit licence to debt management firm

OFT: OFT refuses permission for broker to collect debts OFT notes that James Davenport of Davenport Motors in Manchester, licensed by the OFT to offer credit brokerage services, had recently applied to vary his licence to add debt collection. OFT was not satisfied that he had demonstrated the specialist skills, knowledge or experience to collect debts and refused his application. This decision does not affect his ability to offer credit brokerage services. (9/09/09) The Office of Fair Trading: OFT refuses permission for broker to collect debts

OFT: Michael Reginald Penwill In this press release, OFT notes that it is imposing requirements on this individual, described as "a new entrant to the credit repair market", before his business can start trading. OFT had conducted an investigation into his fitness to be granted a licence which revealed room for improvement in his knowledge of the legislation relating to the provision of credit repair services and of OFT's debt management guidance. He must now undertake additional formal training on credit repair and debt management, and amend his business processes and procedures, including promotional and advertising material, to bring them into line with OFT debt management guidance. He cannot start trading until he has complied fully with the requirements and provided evidence to Bournemouth Trading Standards Service that he has done so. OFT notes that CCA 2006 now require it to take 'credit competence' into account when assessing licence applications and gives the OFT new powers to impose 'requirements'. (17/07/09) http://www.oft.gov.uk/news/press/2009/86-09

OFT: Yes Loans Limited OFT has imposed requirements on the consumer credit licence of Yes Loans Limited following an investigation into its business practices. The company will amend its T&C, and ensure that customers receive a statutory refund of brokerage fees within 30 days of cancelling. In addition, it is required to stipulate clearly on its website and all future literature that it offers "credit brokerage" services. As a result of these changes, the company's licence renewal application has been granted. It is noted that OFT will continue to monitor the situation and that a breach of a requirement can lead to a fine of up to £50,000. (16/07/09) http://www.oft.gov.uk/shared_oft/investigations/YesLoans.pdf

Law Societies: EU legislation on consumer protection (July 2009) This details the current status of various relevant Directives and European-level proposals. (14/07/09) http://www.lawsociety.org.uk/secure/file/180547/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/euconsumerlawreform_july09.pdf

OFT: A & H Debt Dissolvers Ltd OFT has refused an application for a consumer credit licence from A & H Debt Dissolvers Ltd, a debt management business based in Ormskirk, Lancashire. OFT found that it had committed an offence by offering debt management services whilst unlicensed, failed to demonstrate the competence necessary to carry on a debt management business and failed to comply with OFT's debt management guidance, including by making a number of misleading website statements and by not being transparent regarding fees. The firm had misleadingly advertised "free help and advice" and "expert advice" to consumers with serious debt problems through its own website and the website of an associated company. These websites

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have now been closed down. (10/07/09) The Office of Fair Trading: OFT refuses credit licence to Lancashire debt management firm

OFT: Vrajlal Laxmidas Sodha In this press release, OFT notes that it has refused to renew the consumer credit licence of Vrajlal Laxmidas Sodha, a credit broker based in North Lincolnshire following FSA's rejection of his application for permission to carry out regulated activities. OFT considered that a history of consumer complaints, intransigence in the face of warning and disciplinary action, and a lack of respect for regulatory requirements raised risks which, in OFT's view, made the individual unfit to hold a licence. He appealed this decision but the CCAT confirmed the OFT's view and as a result Mr Sodha's application to renew his licence has been refused. The licence refusal also means that Mr Sodha's businesses, MNS Financial and MNS Consultancy, are no longer able to introduce consumers to lenders, or engage in any other licensable activity. See also 16 April 2009 news update for the CCAT decision. (7/07/09) The Office of Fair Trading: OFT refuses to renew credit broker's licence

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13.4 Competition

See chapter 9 of White paper - Reforming financial markets

See pages 48/49 of Conservative Party alternative White Paper

See article from European Commission’s Competition Policy Newsletter: “Competition and the financial markets: Financial sector conditions and competition policy”.

Chronological Reports

EC: Commission approves acquisition of asset management arm of Société Générale by Crédit Agricole The EC has cleared under the EU Merger Regulation the proposed acquisition of most of the activities of Société Générale Asset Management by Crédit Agricole Group, also based in France. After examining the operation, the EC concluded that the transaction would not significantly impede effective competition in the EEA or any substantial part of it. The businesses to be acquired include the majority of Société Génerále's European and Asian traditional asset management activities, but not non-"traditional" or "alternative" asset management activities in Europe, such as Lyxor Asset Management. (22/12/09) EUROPA - Press Releases - Mergers: Commission approves acquisition of asset management arm of Société Générale by Crédit Agricole

EC: Commission clears proposed merger of Towers Perrin and Watson Wyatt, subject to conditions The EC has approved under the EU Merger Regulation the proposed merger between US-based consultancy companies Towers Perrin and Watson Wyatt. The approval is conditional upon the parties' commitment to divest Watson Wyatt's life actuarial software business, VIPitech. The Commission had concerns that the transaction, as originally notified, would have raised competition issues in the field of actuarial software for life insurance in the EEA. In the light of the commitments offered by the parties, the EC has now concluded that the proposed transaction would not significantly impede effective competition in the EEA or any substantial part of it. (7/12/09) EUROPA - Press Releases - Mergers: Commission clears proposed merger of Towers Perrin and Watson Wyatt, subject to conditions

Speech by Neelie Kroes: Policy Keynote address at European State Aid Law Institute conference (27 November 2009) Text of the above follows. She discusses state aid reform, saying "More than 100 state aid decisions later, we are slowly turning the corner to an economy that is stable and growing. But I hasten to add that we have dealt with only one quarter of the banks that need to be restructured ...: 9 out of 37. And if we don't end the Temporary Framework as planned at the end of the 2010, it could be a slippery slope back into protectionism". (27/11/09) EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Policy Keynote address at conference organised by EStALI (European State Aid Law Institute) London, 27th November 2009

EC: Commission approves proposed Euro TLX SIM joint venture between UniCredit and Banca IMI The EC has cleared under the EU Merger Regulation the proposed joint venture between the Italian financial institutions Unicredit S.p.A. and Banca IMI S.p.A. The planned transaction would transform the existing joint venture TLX S.p.A. into a new full function joint venture, Euro TLX Societa Intermediazione Mobiliare S.p.A (Euro TLX SIM). After examining the operation, the EC concluded that the transaction would not significantly impede effective competition in the EEA or any substantial part of it. (23/11/09) EUROPA - Press Releases - Mergers: Commission approves proposed Euro TLX SIM joint venture between UniCredit and Banca IMI

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EC: Commission confirms sending of Statement of Objections to Standard & Poor's The EC has announced that it has sent a Statement of Objections to Standard & Poor's which outlines the EC’s preliminary view that S&P is abusing its dominant position by requiring, as the sole-appointed National Numbering Agency for US securities, financial institutions and ISPs to pay licensing fees for the use of ISINs in their own databases. The EC takes the preliminary view that this behaviour amounts to unfair pricing and constitutes an infringement of Article 82 EC Treaty. (19/11/09) EUROPA - Press Releases - Antitrust: Commission confirms sending of Statement of Objections to Standard & Poor's

Speech by Peter Freeman (Chairman, CC): 'We are here in a very melancholy Situation’ - financial crisis and competition policy Text of the above, given on 3 November in Edinbugh, follows. Taking as his starting point David Hume’s reference to, and Adam Smith’s description of, the Ayr Bank collapse in 1772, he discusses the Lloyds/HBOS case and its aftermath and emphasises that there is no case for exempting the banking sector from competition. (18/11/09) http://www.competition- commission.org.uk/our_role/speeches/pdf/freeman_031009.pdf

Speech by Neelie Kroes: Market behaviour: the rules of the game (12 November 2009) Text of a speech given at a seminar of Algemene Pensioen Groep in Amsterdam follows. She comments: "we support choice in consumer markets. But there should not be choice in regulation. A bank should not be able to 'cherry pick' the lightest regulation, knowing it might end up harming the taxpayer in the process.The only way to avoid that is a proper European rule book, and international co-operation. ... Regulators need to demonstrate that they have the capacity to control their national banks and make sure the financial system is safe. And part of that means promoting culture change in banks. I believe the smartest regulation in the world can't make up for bad or reckless judgment. If a banker can't exercise good judgment and due diligence, then it doesn't matter how smart they are or how hard they work. The taxpayer is still left with the same bill, and that simply isn't good enough. .... Too often bankers think they are better, smarter people who deserve different rules and different pay to everyone else. They can only think that if others let them. So we must change that culture – regulators and investors together. That means asking questions, demanding answers and speaking publicly about these issues. Banks should not be allowed to go back to business-as-usual simply because they have the best paid lobbying voices or because others are afraid to ask questions". (12/11/09) EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Policy Market behaviour: the rules of the game Address at seminar of Algemene Pensioen Groep Amsterdam, 12th November 2009

EC: Commission opens formal proceedings against Thomson Reuters concerning use of Reuters Instrument Codes The EC has opened formal anti-trust proceedings against Thomson Reuters concerning a potential infringement of the EC Treaty's rules on abuse of a dominant market position (Article 82). It will investigate Thomson Reuters' practices in the area of real-time market datafeeds, and in particular whether customers or competitors are prevented from translating Reuters Instrument Codes to alternative identification codes of other datafeed suppliers to the detriment of competition. (10/11/09) EUROPA - Press Releases - Antitrust: Commission opens formal proceedings against Thomson Reuters concerning use of Reuters Instrument Codes

EC: Commission opens in-depth investigation into Portugal's state guarantee for Banco Privado Português The EC has opened, under EC Treaty state aid rules, an in-depth investigation into the state guarantee on a €450 million loan granted to Banco Privado Português by six Portuguese banks. The EC initially approved the measure on 13 March 2009 for a period of six months, subject to the submission of a restructuring plan outlining the future of the bank without state aid. Such a plan has not yet been submitted to the EC. On 5 June 2009 Portugal prolonged the guarantee for a further six months without prior notification to the EC. (10/11/09) EUROPA - Press Releases - State aid: Commission opens in- depth investigation into Portugal's state guarantee for Banco Privado Português 179

EC: Commission opens in-depth investigation into support measures for German savings bank Sparkasse KölnBonn The EC has opened under EC Treaty state aid rules an in-depth investigation into support measures for the German savings bank Sparkasse KölnBonn and has invited Sparkasse KölnBonn to submit a restructuring plan. (4/11/09) EUROPA - Press Releases - State aid: Commission opens in-depth investigation into support measures for German savings bank Sparkasse KölnBonn

BIS/BERR: The Financial Transparency (EC Directive) Regulation 2009 – impact assessment and guidance notes BIS has published a costs and benefits appraisal for the statutory instrument transposing the EU Transparency Directive into UK law, together with guidance notes. The Regulation aims to underpin the state aid regime by requiring aid to be more transparent. (15/10/09) http://www.berr.gov.uk/files/file53178.pdf http://www.berr.gov.uk/files/file52860.pdf

OFT: Government in markets: Why competition matters – a guide for policy makers This guide sets out the rationale for Government intervention in markets and demonstrates that for these interventions to be effective in the long term, their impact on competition needs to be a central consideration. It sets out some of the major ways that Government intervenes, both in setting market frameworks and through its wider impact on markets and identifies ways that policy makers can spot and minimise unintended consequences that impact on effective market dynamics beyond the short term. It includes case studies of the impacts in practice (including Northern Rock at Box 8.2) The second link is to the text of a speech by John Fingleton, OFT's CEO, which introduces the paper and was given at the Regulatory Policy Institute in Oxford. (8/09/09) http://www.oft.gov.uk/shared_oft/business_leaflets/general/OFT1113.pdf (NB: over 50 pages long) http://www.oft.gov.uk/shared_oft/speeches/2009/spe1009.pdf

EC: Commission approves acquisition of joint control by Volkswagen and Fleet Investments over LeasePlan The EC has cleared under the EU Merger Regulation the proposed acquisition of joint control by Volkswagen AG (Volkswagen) and Fleet Investments BV (Fleet Investments) over LeasePlan Corporation (LeasePlan). After examining the operation, the EC concluded that the transaction would not impede effective competition in the EEA or any substantial part of it and has therefore approved the concentration. Currently, LeasePlan is jointly controlled by Volkswagen, MDC-LP Holding S.à.r.l. and by Crescent Beteiligungsverwaltung GmbH; the latter two companies will sell their shares in Leaseplan to Fleet Investments. As a result of the transaction, LeasePlan will be jointly controlled by Volkswagen and Fleet Investments. (20/08/09) EUROPA - Press Releases - Mergers: Commission approves acquisition of joint control by Volkswagen and Fleet Investments over LeasePlan

OFT: Financial Services Plan This sets out OFT's approach to the financial services sector in the short and medium term. OFT notes that it plans to play a strong role as an advocate of choice and competition in financial services both in the UK and internationally and has set three high-level competition advocacy objectives: • Regulatory Reform - OFT will seek to work in partnership with government, regulators, and other agencies responsible for regulating financial markets (both nationally and internationally) to ensure competition considerations are adequately taken into account in the design and implementation of new regulation. • Government intervention in the banking sector - OFT will aim to work with Government to ensure that any short-term actions taken by it to stabilise financial markets do not unduly distort competition over the long-term, and that its divestment of UK banks is as pro-competitive as possible • Competition in financial markets - OFT will evaluate competition in financial markets more generally and further understand the drivers and limitations of competition in these markets. (29/07/09) OFT financial services plan

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OFT: Annual Report 2008/09 The report sets out the achievements of the OFT across its consumer and competition work, including: its first criminal investigation under the Consumer Protection Regulations - an alleged unlawful pyramid scheme; market studies on sale and rentback and personal current accounts and investigating significant mergers including LloydsTSB/HBOS. (27/07/09) The Office of Fair Trading: OFT publishes Annual Report 2008/09

Speech by Neelie Kroes: Commission enforcement policy and the need for a competitive solution to the crisis (17 July 2009) Text of the above, given to the Irish Centre for European Law, follows. Topics include: banks - restructurings and sustainability. She says "it's now time to move into the second stage of our tried and tested state aid rules. In other words: restructuring must follow the rescue aid that was given to around 30 banks in 2008 and early 2009. We added real value in helping to save banks from collapse, now we have to add real value getting them back to long-term viability". (17/07/09) EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Commission Enforcement Policy and the Need for a Competitive Solution to the Crisis Address to the Irish Centre for European Law Dublin, 17 July 2009

CC: Market investigation into PPI CC has published a draft order for consultation setting out how measures to introduce competition into the PPI market will be implemented. Responses are required by 7 August 2009. CC is also offering two technical briefings to providers with input from OFT and FSA - see last link for details. (8/07/09) http://www.competition-commission.org.uk/press_rel/2009/july/pdf/31-09.pdf (press release); http://www.competition- commission.org.uk/inquiries/ref2007/ppi/pdf/notice_intention_to_make_an_order.pdf (Order - NB: 40 pages long); http://www.competition- commission.org.uk/inquiries/ref2007/ppi/pdf/draft_order_explanatory_note.pdf (Explanatory Note); Competition Commission (briefings)

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13.4A State aid clearances

Chronological Reports

EC: Hypo Group Alpe Adria The EC has authorised under EU state aid rules the rescue of BayernLB's subsidiary Hypo Group Alpe Adria (HGAA) by Austria and the Land Carinthia for reasons of financial stability. At the same time, the EC is extending its in-depth investigation, opened on 12 May 2009 into the total aid received so far by both banks. HGAA will have to provide an in-depth restructuring plan by end-March 2010. BayernLB has to revise the restructuring plan it has already submitted to take due account of the new rescue aid to HGAA. The EC has decided to extend the scope of its in-depth investigation to cover the new aid. In the meantime, the EC approved the measures temporarily for a maximum period of up to six months as urgent rescue aid to remedy a serious disturbance in the Austrian economy (Article 107(3)(b) of the Treaty on the Functioning of the European Union - TFEU). (23/12/09) EUROPA - Press Releases - State aid: Commission temporarily approves rescue of BayernLB's Austrian subsidiary Hypo Group Alpe Adria and extends in-depth investigation

EC: WestLB The EC has temporarily approved, under EU state aid rules, the setting up of a "bad bank" for WestLB which takes over a portfolio of toxic and non-strategic assets with a nominal value of €85.1 billion. To this end, WestLB is receiving capital of €3 billion from Germany (SoFFin). The EC has given its temporary approval of the measures because it is necessary for reasons of financial stability. However, it says it has doubts that the measures are compatible with state aid rules for impaired asset relief as well as with those for the restructuring of banks and has therefore opened a formal in-depth investigation under Article 108(2) of the Treaty on the Functioning of the European Union. (22/12/09) EUROPA - Press Releases - State aid: Commission temporarily approves urgent rescue aid for WestLB; opens in-depth investigation into bad bank

EC: BAWAG P.S.K. The EC has authorised under EU state aid rules a €550 million capital injection and a €400 million guarantee in favour of BAWAG. P.S.K. The EC found the measures to be in line with EU state aid rules and approved the measures as emergency aid for a period of six months. Austria has committed to submit a modified restructuring plan for the bank within three months from the date of the decision. (22/12/09) EUROPA - Press Releases - State aid: Commission temporarily authorises aid measures for Austrian bank BAWAG P.S.K.

EC: Commission temporarily approves €18 billion state guarantees for German bank Hypo Real Estate The EC has temporarily approved two state guarantees of €8 billion and €10 billion respectively for Hypo Real Estate (HRE) under EU state aid rules. The EC found that the guarantees are an appropriate means to remedy a serious disturbance in the German economy and as such compatible with Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU). These guarantees will be used by HRE to cover urgent liquidity needs of the bank. These, as well as previous rescue measures in favour of HRE, will be taken into due account when the EC takes its final decision on HRE's restructuring plan. (21/12/09) EUROPA - Press Releases - State aid: Commission temporarily approves €18 billion state guarantees for German bank Hypo Real Estate

EC: Commission approves Polish bank recapitalisation scheme The EC has approved, under EU state aid rules, a Polish scheme aimed at maintaining stability in the Polish financial sector by underwriting capital increases to eligible financial institutions. This scheme complements the liquidity support granted under the support scheme for banks' funding in Poland. (21/12/09) EUROPA - Press Releases - State aid: Commission approves Polish bank recapitalisation scheme

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EC: Overview of national measures adopted as a response to the financial/economic crisis The EC has published an updated table in respect of the above. (17/12/09) EUROPA - Press Releases - State aid: Overview of national measures adopted as a response to the financial/economic crisis

EC: Commission approves impaired asset relief measure and restructuring plan of Royal Bank of Scotland The EC has approved under EU state aid rules the impaired asset relief measure and the restructuring plan of RBS. Neelie Kroes comments: "RBS will itself pay a sufficient share of the restructuring costs and distortions of competition will be limited by substantial divestments. I wish a better and more sustainable future to this bank. But be aware that in case RBS does not deliver on its balance sheet reduction targets by 2013, the Commission will be able to intervene again and more divestments will be required". (14/12/09) EUROPA - Press Releases - State aid: Commission approves impaired asset relief measure and restructuring plan of Royal Bank of Scotland

EC: Commission approves Slovak bank support scheme The EC has approved a Slovak scheme aimed at maintaining stability in the Slovak banking sector by providing capital injections and guarantees to eligible financial institutions. The potential beneficiaries of the aid are systemically relevant banks incorporated in Slovakia, including subsidiaries of foreign financial institutions. (8/12/09) EUROPA - Press Releases - State aid: Commission approves Slovak bank support scheme

EC: Commission approves revised Irish guarantee scheme for financial institutions The EC has approved, under EC Treaty state aid rules, an Irish measure aimed at stabilising financial markets by providing guarantees on deposits and debt to eligible banks active on the Irish market. (20/11/09) EUROPA - Press Releases - State aid: Commission approves revised Irish guarantee scheme for financial institutions

EC: Commission approves €103 million capital injections for 'Mortgage and Land Bank of Latvia' The EC has approved, under EC Treaty state aid rules, two capital injections in favour of the Mortgage and Land Bank of Latvia. It notes that the bank is currently in the process of phasing out its remaining commercial activities so as to become a pure development bank and concluded that the part of the capital injections that benefits its development bank activities does not constitute state aid, because, within the scope of those activities, the bank only administers and operates state-supported lending programmes in accordance with the EC state aid rules. Insofar as the aid measures also benefit the remaining commercial activities of the bank, the EC found them in line with the EU's state aid rules because they will be phased out by 31 December 2013. (19/11/09) EUROPA - Press Releases - State aid: Commission approves €103 million capital injections for 'Mortgage and Land Bank of Latvia'

EC: Commission approves restructuring plan of Lloyds Banking Group The EC has approved under EC Treaty state aid rules the restructuring plan of Lloyds Banking Group. Having assessed the past and new aid on the basis of the notified plan, and in view of amendments agreed by the UK authorities, the EC is satisfied that it is in line with its restructuring communication and as such compatible with EU rules on state aid to remedy a serious disturbance in a Member State's economy Article 87(3)(b) of the EC Treaty. It notes that the measures foresee that Lloyds will pay a significant proportion of the restructuring costs, ensure a sustainable future for Lloyds without continued state support and that there will not be undue distortions of competition. (18/11/09) EUROPA - Press Releases - State aid: Commission approves restructuring plan of Lloyds Banking Group EUROPA - Press Releases - State aid: Commission decisions on KBC, ING and Lloyds – frequently asked questions EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Policy Commission outlines conditions for state aid to KBC, ING and Lloyds Opening remarks at press conference Brussels, 18th November 2009

EC: Commission approves ING restructuring plan and illiquid asset back-up facility The EC has approved under EC Treaty state aid rules the restructuring plan for ING, including an illiquid asset back-up facility provided by the Dutch State. The approval of the facility has become possible after 183

an additional agreement between the Dutch State and ING. On the basis of the notified restructuring plan, ING will pay a significant proportion of the restructuring costs, ING's long term commercial viability will be restored, and the aid will not lead to undue distortions of competition. The restructuring plan foresees that ING will reduce the risk profile and complexity of its operations and will sell its insurance activities over time. ING will also carve out, according to a detailed trustee-supervised timetable, a business unit (Westland Utrecht Hypotheekbank (WUH) / Interadvies), to step up competition in the Dutch retail banking market. Based on the proposed plan, the EC concluded that the measures are compatible with EU rules on state aid. (18/11/09) EUROPA - Press Releases - State aid: Commission approves ING restructuring plan and illiquid asset back-up facility EUROPA - Press Releases - State aid: Commission decisions on KBC, ING and Lloyds – frequently asked questions EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Policy Commission outlines conditions for state aid to KBC, ING and Lloyds Opening remarks at press conference Brussels, 18th November 2009

EC: Commission approves asset relief and restructuring package for KBC The EC has approved under EC Treaty state aid rules an asset relief and restructuring package for KBC Group. The restructuring package foresees structural and financial restructuring through the divestment, run-down and listing of various businesses. The press release notes that, following an in-depth investigation, the EC has concluded that the asset relief measure launched on 30 June 2009 is in line with state aid rules and no doubts remain concerning the valuation and remuneration of the measure. (18/11/09) EUROPA - Press Releases - State aid: Commission approves asset relief and restructuring package for KBC EUROPA - Press Releases - State aid: Commission decisions on KBC, ING and Lloyds – frequently asked questions EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Policy Commission outlines conditions for state aid to KBC, ING and Lloyds Opening remarks at press conference Brussels, 18th November 2009

EC: Commission extends in-depth investigation into restructuring of Hypo Real Estate and finds state capital injections compatible The EC has extended its in-depth investigation into a support package in favour of the German Hypo Real Estate Group opened under EC Treaty state aid rules on 7 May 2009, saying that the extension is necessary in order to examine additional restructuring measures which Germany has carried out or intends to carry out in the future. It also found capital injections of approximately €6 billion temporarily compatible with the EC Treaty state aid rules in the interim period until a final decision on the restructuring plan is reached. (16/11/09) EUROPA - Press Releases - State aid: Commission extends in- depth investigation into restructuring of Hypo Real Estate and finds state capital injections compatible

EC: Good progress in talks on LBBW The EC reports that it is hoping to reach a final decision with regard to state aid to Landesbank Baden- Württemberg before the end of the year. (13/11/09) EUROPA - Press Releases - State aid: good progress in talks on LBBW

EC: Overview of national measures adopted as a response to the financial/economic crisis The EC has published an updated table in respect of the above. (12/11/09) EUROPA - Press Releases - State aid: Overview of national measures adopted as a response to the financial/economic crisis

EC: Commission approves temporary prolongation of guarantee granted by Belgium, France and Luxembourg on Dexia's debt The EC has authorised, under EC Treaty state aid rules, the temporary prolongation of the guarantee jointly granted by Belgium, France and Luxembourg on the debt of Dexia. The EC found that the prolongation of the measure, previously authorised is justified by the funding situation of the group and its systemic importance for the economies of the three Member States. The prolongation is limited to four months (until the end of February 2010), by which time the EC intends to reach a final decision on the compatibility with the rules on restructuring aid of the overall state aid package granted to Dexia. This package is currently the subject of an in-depth investigation opened in March 2009. (3/11/09) EUROPA - Press Releases - State aid: Commission approves temporary prolongation of guarantee granted by Belgium, France and Luxembourg on Dexia's debt 184

EC/HMT: Northern Rock The EC has approved a package of measures to support the restructuring of Northern Rock. The bank will be split into a 'good' bank that will continue the economic activities of Northern Rock and a 'bad' bank, an asset management company which will run down the remaining assets. Following an in-depth investigation, the EC has concluded that the aid is compatible with the EU rules on state aid and that the aid package in the UK's revised restructuring plan was kept to a necessary minimum. (28/10/09) State aid: Commission approves restructuring package for Northern Rock European Commission approves aid to Northern Rock

EC: Commission opens in-depth investigation into aid package for German HSH Nordbank AG The EC has opened, under EC Treaty state aid rules, an in-depth investigation into the €10 billion risk shield and €3 billion recapitalisation provided by the German Länder of Hamburg and Schleswig-Holstein to HSH Nordbank AG. The EC initially authorised the risk shield for six months for reasons of financial stability on 29 May 2009. During its investigation, the EC will analyse the complex measures in the light of its recent Communications on the restructuring of financial institutions during the crisis and on the treatment of impaired assets. It is noted that the EC has doubts as to the compatibility of the measures with the impaired assets Communication, in particular as regards the eligibility and valuation of assets covered by the risk shield and remuneration of the Länder for the risk shield provided. Furthermore, the EC must verify whether the measures are liable to restore the long-term viability of the bank. (23/10/09) EUROPA - Press Releases - State aid: Commission opens in-depth investigation into aid package for German HSH Nordbank AG

EC: Overview of national measures adopted as a response to the financial/economic crisis The EC has published an updated version of its table setting out the measures member states have adopted in response to the financial/economic crisis. (13/10/09) EUROPA - Press Releases - State aid: Overview of national measures adopted as a response to the financial/economic crisis

EC: EC recalls rules concerning Tier 1 and Tier 2 capital transactions for banks subject to a restructuring aid investigation Following questions from market operators regarding the possibility for banks which are the subject of pending EC investigations regarding the grant of restructuring aid to repay bonds before maturity, it would like to recall that its Communication on restructuring aid to financial institutions of July 2009 sets out that "banks should not use state aid to remunerate own funds (equity and subordinated debt) when their activities do not generate sufficient profits”. In a restructuring context, measures which reduce the total amount of own funds (payments on hybrid instruments, avoidance of loss absorption, buy-backs, exercise of call options) are in principle not compatible with the objective of "burden sharing" (i.e. banks must pay a significant share of the costs of restructuring) and the "minimum necessary" requirement (i.e. the amount of state aid must not exceed the minimum necessary to allow the bank to restructure). For that reason, banks subject to a state aid investigation should consult the EC before making announcements to the market concerning Tier 1 and Tier 2 capital transactions. (8/10/09) EUROPA - Press Releases - State aid: Commission recalls rules concerning Tier 1 and Tier 2 capital transactions for banks subject to a restructuring aid investigation

EC: Commission approves temporary additional aid to German Landesbank WestLB The EC has approved, under EC Treaty state aid rules, a temporary increase of the guarantee for a portfolio of securities of German Landesbank WestLB. The aid measure amounts to €6.4 billion and is provided by SoFFin, a fund administrating the German support scheme for financial institutions. WestLB is currently in the process of implementing a restructuring plan that was approved by the EC in May 2009. The plan foresees, among other measures, the creation of a "bad bank". (7/10/09) EUROPA - Press Releases - State aid: Commission approves temporary additional aid to German Landesbank WestLB

EC: Commission approves Polish support scheme for financial institutions The EC has approved under EC Treaty state aid rules a Polish scheme intended to stabilise the financial system. The measure would guarantee short and medium term debt to encourage inter-bank lending and 185

offer liquidity to financial institutions under strict conditions. The EC found the measure to be in line with its Guidance Communication on state aid to overcome the current financial crisis. The Polish scheme foresees two categories of support measures: State Treasury guarantees for the issuance of new senior debt by banks and liquidity support measures in the form of Treasury bonds, either as a loan or to be sold with deferred payment. (25/09/09) EUROPA - Press Releases - State aid: Commission approves Polish support scheme for financial institutions

EC: Commission approves acquisition of Barclays Global Investors by BlackRock The EC has cleared under the EU Merger Regulation the proposed acquisition of Barclays Global Investors UK Holdings Limited by BlackRock, Inc. After examining the operation, the EC concluded that the transaction would not significantly impede effective competition in the EEA or any substantial part of it. (23/09/09) EUROPA - Press Releases - Mergers: Commission approves acquisition of Barclays Global Investors by BlackRock

EC: Commission prolongs temporary clearance for ING's illiquid back-up facility; extends in- depth investigation The EC has extended, under EC Treaty state aid rules, its investigation of the illiquid asset back-up facility provided by the Dutch State to the financial group ING and extended its temporary clearance of the measure until the assessment of the measure is finalised. It is noted that, on the basis of information provided so far, the EC has doubts as to the compatibility of the measure with the Impaired Assets Communication, in particular as regards valuation and burden sharing. This decision is without prejudice to the final outcome of the investigation. (15/09/09) EUROPA - Press Releases - State aid: Commission prolongs temporary clearance for ING's illiquid back- up facility; extends in-depth investigation

EC: Commission approves Finnish capital injection scheme for financial institutions The EC has approved under EC Treaty state aid rules a Finnish support scheme to stabilise financial markets by providing capital injections to eligible financial institutions. The EC found the measure to be in line with its Guidance Communications on state aid to overcome the financial crisis. Under the scheme the Finnish State would subscribe non-cumulative and unsecured subordinated loan instruments issued by eligible banks up to a quarter of the required amount of their own funds. The subordinated loans would be reimbursed after three years and upon the approval of the Financial Supervisory Authority. (11/09/09) EUROPA - Press Releases - State aid: Commission approves Finnish capital injection scheme for financial institutions

Overview of national measures adopted as a response to the financial/economic crisis The EC has published an updated version of its table setting out the measures member states have adopted in response to the financial/economic crisis. (9/09/09) EUROPA - Press Releases - State aid: Overview of national measures adopted as a response to the financial/economic crisis

EC: Commission communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules (Text with EEA relevance) (2009/C 195/04) This text has now been published in the Official Journal. (19/08/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:195:0009:0020:EN:PDF

EC: Commission approves additional aid for IKB The EC has approved, under EC Treaty state aid rules, guarantees amounting up to EUR 7 billion to the German bank IKB, a bank which has already received aid. The EC says that additional support has become necessary to protect IKB's liquidity and financial stability in Germany. After obtaining a commitment from Germany to provide a revised restructuring plan within three months, the EC considers the measure as compatible with Article 87.3.b of the EC Treaty. IKB is prohibited from any proprietary trading as a mean to inflate profits with taxpayer money. However, it is noted that, given that IKB is facing a significant funding gap, despite the fact that the funding constraints have eased in general, the EC has doubts regarding IKB's financial capacity to implement the original restructuring plan and has thus 186

allowed this aid only following Germany's commitment to notify a revised restructuring plan. (17/08/09) EUROPA - Press Releases - State Aid: Commission approves additional aid for IKB

State aid: Review of national aid schemes introduced during the financial crisis The Directorate-General for Competition has issued a review of the aid schemes introduced by Member States and approved by the Commission during the financial crisis. The review was carried out in the context of the renewal process of the guarantee and recapitalisation schemes, which started in April 2009. A number of such schemes have meanwhile been prolonged for a further period of six months for reasons of financial stability. (10/8/09) EUROPA - Press Releases - State aid: Review of national aid schemes introduced during the financial crisis

EU: State aid: Commission approves German asset relief scheme The EC has approved, under EC Treaty state aid rules, a German scheme designed to further stabilise the financial markets by providing financial institutions with the possibility of asset relief, as an addition to the German rescue package authorised by the EC in October 2008 and is in line with its Guidance Communication on the treatment of impaired assets. The enrolment period for asset relief is limited to six months. (3/08/09) EUROPA - Press Releases - State aid: Commission approves German asset relief scheme

EC: Commission opens in-depth investigation into aid package for Latvian JSC Parex Banka The EC has opened under EC Treaty State aid rules an in-depth investigation into state support measures for the Latvian JSC Parex Banka. A restructuring plan for Parex was submitted on 11 May 2009. The EC now will examine whether the restructuring plan will enable Parex to return to long-term viability while avoiding undue distortions of competition (29/07/09) State aid: Latvian JSC Parex Banka

EC: Commission presents guidelines on restructuring aid to banks The EC has agreed a Communication explaining its approach to assessing restructuring aid given by Member States to banks. The approach is based on three fundamental principles: i) aided banks must be made viable in the long term without further state support, ii) aided banks and their owners must carry a fair burden of the restructuring costs and iii) measures must be taken to limit distortions of competition in the Single Market. The guidelines, which are in force until 31 December 2010, explain in particular how the EC intends to apply these principles in the context of the current systemic financial crisis, with a view to contributing to the return to viability of the European banking sector. (23/07/09) http://ec.europa.eu/competition/state_aid/legislation/restructuring_paper_en.pdf (Communication) EUROPA - Press Releases - State aid: Commission presents guidelines on restructuring aid to banks (full press release) EUROPA - Press Releases - State aid: Commission presents guidelines on restructuring aid to banks - frequently asked questions (FAQ)

EC: Commission finds recapitalization of Hypo Steiermark does not constitute state aid The EC has concluded under EC Treaty State Aid rules that a recapitalization of Hypo Steiermark, a regional Austrian bank, which was carried out by the public and the private owners pro rata to the pre- existing ownership structure does not constitute state aid. (23/07/09) EUROPA - Press Releases - State Aid: Commission finds recapitalization of Hypo Steiermark does not constitute state aid

EC: Bank Burgenland - Commission refers Austria to Court for failure to recover illegal state aid The EC has decided to refer Austria to the ECJ under EC Treaty state aid rules for failure to comply with an EC decision of 30 April 2008 by which it had requested Austria to recover an estimated €41.5 million of illegal aid (plus interest) from the Austrian insurance group Grazer Wechselseitige (GRAWE), in the context of the privatisation of Bank Burgenland. To date, Austria has not yet recovered the aid from GRAWE. (14/07/09) EUROPA - Press Releases - State aid: Bank Burgenland - Commission refers Austria to Court for failure to recover illegal state aid

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EC: Commission approves Hungarian Mortgage Support Scheme to help households affected by financial downturn The EC has approved under EC Treaty state aid rules the Hungarian Mortgage Support Scheme which is aimed at helping homeowners affected by the current economic downturn. Under the scheme, the Hungarian State would guarantee "bridging loans" which cover part of the monthly instalments of the original mortgage loans for a period of up to two years. The EC concluded that the measure is compatible with Article 87.2.a of the EC Treaty that allows state support to individual consumers under certain conditions. (14/07/09) EUROPA - Press Releases - State aid: Commission approves Hungarian Mortgage Support Scheme to help households affected by financial downturn

EC: Commission authorises restructuring aid for Kaupthing Bank Luxembourg The EC has approved under EC Treaty state aid rules a loan of €320 million granted by Luxembourg for the restructuring of Kaupthing Bank Luxembourg S.A. The measure will contribute to the stability of the financial system while avoiding undue distortions of competition and is therefore compatible with Article 87(3)(b) of the EC Treaty, as explained in the EC guidance on state aid to banks during the crisis. (9/07/09) EUROPA - Press Releases - State aid: Commission authorises restructuring aid for Kaupthing Bank Luxembourg

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14 Building societies and other mutuals (friendly societies, credit unions, industrial and provident societies)

See FSA press release: FSA consults on additional guidance for building societies 5 June 2009.

See pages 129 to 134 of the White paper - Reforming financial markets

Chronological Reports

The Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2010 (Draft) This Order removes a number of burdens imposed by the Industrial and Provident Societies Act 1965, the Friendly and Industrial and Provident Societies Act 1968 and the Credit Unions Act 1979. Full details of the changes are set out in the accompanying Explanatory Memorandum. (4/12/09) http://www.opsi.gov.uk/si/si2010/draft/pdf/ukdsi_9780111488829_en.pdf http://www.opsi.gov.uk/si/si2010/draft/em/ukdsiem_9780111488829_en.pdf (NB: 40 pages long)

FSA: Credit Union law and regulation: forthcoming changes and the way forward FSA has published the slides accompanying its recent roadshows for credit unions. (3/12/09) http://www.fsa.gov.uk/smallfirms/resources/pdfs/cu_slidesnov09.pdf

Co-operative and Community Benefit Societies and Credit Unions Bill The Bill and Explanatory Notes have now been published. (20/11/09) www.parliament.uk | Bills before Parliament

CP09/27**: Review of the Credit Unions Sourcebook (CRED) In this paper, FSA proposes to: increase capital and liquidity requirements for credit unions; reduce the submission period for annual returns from seven months to four months; and provide additional guidance on provisioning requirements. Although it proposes no changes to rules or guidance on senior management arrangements, systems and controls, FSA will increase its supervisory focus on governance issues. FSA notes the forthcoming Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2010 (the LRO), which has implications for FSA's prudential rules and the guidance on the operation of credit union legislation in CRED and has included some amendments to CRED requirements to ensure consistency with the proposed legislative changes. The paper also proposes the restructuring of the CRED sourcebook, to be called "CREDS", which will remove guidance on credit union legislation and putting it in a separate Credit Unions Regulatory Guide (CURG). Responses are required by 10 February 2010. (11/11/09) http://www.fsa.gov.uk/pubs/cp/cp09_27.pdf (NB: 160 pages long)

The Mutual Societies (Transfers of Business) (Tax) Regulations 2009/2971 In accordance with s124 of the Finance Act 2009 these Regulations make provision for and in connection with the tax consequences of a transfer of the business or engagements of a mutual society. (Date in force: 1/12/09) (10/11/09) The Mutual Societies (Transfers of Business) (Tax) Regulations 2009 No. 2971

HoC Scottish Affairs Committee: Credit unions in Scotland: Government response to the Committee's Second Report The Committee notes its disappointment that the Government chosen to reject its recommendation of a cap on interest rates and notes the forthcoming results of the Government’s review of high cost credit which will examine whether borrowers are being treated fairly. (3/11/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmscotaf/982/982.pdf

FSA: Credit Union Newsletter No. 9 Topics include: Changes to credit union legislation and CRED; business planning (there is also a separate note on this – second link below); annual returns and the Growth Fund. (17/08/09)

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http://www.fsa.gov.uk/pubs/newsletters/cu_newsletter9.pdf http://www.fsa.gov.uk/pubs/newsletters/cu_newsletter9_note.pdf

FSA: FSA confirms transfer of business of Britannia Building Society to the Co-operative Bank plc FSA has confirmed the transfer of the business of the Britannia Building Society to the Co-operative Bank plc under the Building Societies Act 1986. A link to its Decision Notice follows. (24/07/09) http://www.fsa.gov.uk/pubs/final/disc_notice_britannia.pdf

The Building Societies (Financial Assistance) Order 2009 (Draft) This Order modifies the application of the Building Societies Act 1986 (c. 53) (“the 1986 Act”), in specified circumstances, to facilitate the provision of financial assistance by a qualifying institution to building societies. It is made under ss251 and 259 of the Banking Act 2009 (c.1). Section 257 of the Banking Act 2009 states that financial assistance “includes giving guarantees or indemnities and any other kind of financial assistance (actual or contingent)”. Part 1 makes provision concerning commencement, citation and interpretation. Article 2 defines terms used in the Order. It also provides that references to a qualifying institution include any person acting for or on behalf of the institution or providing financial assistance to a building society on the basis of financial assistance from the institution. This could include another institution which provides financial assistance to a building society on the basis of, for example, an indemnity or guarantee from the qualifying institution, provided the conditions in article 2(2)(b) are met. Part 2 sets out modifications to the 1986 Ac t which apply in relation to a building society which receives, or may receive, financial assistance from HMT, BoE, another central bank of a state in the European Economic Area, or the European Central Bank (a “qualifying institution”). Article 3 modifies the application of section 5 of the 1986 Act so that no building society shall be regarded, by virtue of any financial assistance it receives from a qualifying institution, as failing to comply with the requirement that its purpose or principal purpose is that of making loans which are secured on residential property and funded substantially by its members. Article 4 disapplies section 6 of the 1986 Act where, as a consequence of any financial assistance received from a qualifying institution, a building society has transferred, assigned or otherwise disposed of any of its assets, and the society would otherwise be in breach of the lending limit in section 6. Article 5 modifies the application of section 7 of the 1986 Act, so that any financial assistance a society receives from a qualifying institution is disregarded for the purposes of the funding limit in that section. Article 6 disapplies s8(1)(c) of the 1986 Act, so that the restriction in that section on raising funds from a body corporate does not apply in relation to financial assistance from a qualifying institution. Article 7 disapplies s9B of the 1986 Act, so that a building society may create a floating charge in favour of a qualifying institution in connection with financial assistance received from it. Article 8 makes various modifications to the application of Schedule 2 to the 1986 Act, to remove any restrictions on the receipt of financial assistance arising from the memorandum or rules of a building society. Articles 9, 10 and 11 make various modifications to the application of s90A of, and Schedules 15 and 15A to, the 1986 Act. These ensure that the relevant law on administrative receivers applies, with the appropriate modifications, in relation to any administrative receiver appointed by a qualifying institution under the terms of a loan secured by a floating charge. 190

Schedule 15A already provides that references in the applicable insolvency legislation to “company” and “the registrar of companies” have effect as references to “building society” and “the Financial Services Authority” respectively: see paragraph 2(1) of Schedule 15A. Article 12 makes a consequential modification to the application of regulation 14 of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (S.I. 1999/2979). This is necessary as the administration provisions in Part 2 of the Insolvency Act 1986 (1986 c. 45) and Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), rather than the provisions in Schedule B1 to that Act and to that Order, apply in relation to a building society. Part 3 disapplies s9B of the 1986 Act (restriction on creation of floating charges) in relation to floating charges created by a building society in favour of a participant in a designated system, over realisable assets (including money) and for the purpose of securing rights and obligations potentially arising in connection with that system. (21/07/09) http://www.hm- treasury.gov.uk/d/buildingsocs_financial_assistance_order2009.pdf

HMT: Proposals for a Legislative Reform Order for credit unions and industrial & provident societies in Great Britain Among the LRO’s proposals are: replacing the “common bond” requirement for credit unions with a “field of membership” test; allowing credit unions to admit bodies corporate, unincorporated associations or partnerships to their membership and allowing credit unions to offer interest on deposits provided certain conditions are met and, for industrial & provident societies, modifying the provision on minimum age for membership of an IPS and minimum age for becoming an officer of an IPS; modifying the rules on share capital and giving societies the flexibility to choose their own year-ends. (9/07/09). http://www.hm-treasury.gov.uk/d/consult_lro230708.pdf

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15 Getting the third pillar to work – active investors and listed company regulation

See also the Bank of England’s June 2009 Financial Stability Report: section 3.1, “Stronger market discipline through richer, more consistent and more timely disclosure, including intra-period data and more granular information on balance sheet risks” – in particular see pages 37/38.

Chronological Reports

FSA: List! Issue 23 Topics include: communications on structured products (FSA notes "we would urge issuers, offerors and advisers to carefully consider whether their activities, or the activities of others that repackage an issuer’s structured securities to create an investment product, actually fall within one of the exemptions"); dealing with leaks; share buybacks - mix and match; Listing Categories. (31/12/09) http://www.fsa.gov.uk/pubs/ukla/list_dec09.pdf

Takeover Panel: Extending the Code's disclosure regime This response statement sets out the response of the Takeover Panel's Code Committee in relation to the proposals re the above. (18/12/09) http://www.thetakeoverpanel.org.uk/wp- content/uploads/2008/11/RS200901.pdf (NB: over 115 pages long)

CESR: FAQ regarding the Transparency Directive: common positions agreed by CESR members CESR has published the second version of the above. (28/10/09) http://www.cesr.eu/data/document/09_965.pdf

CP09/24**: Listing regime review - Policy statement for CP08/21 and further minor consultation This paper incorporates amendments to the LR and FSA's responses to comments on CP08/21 – Amendments to the Listing Rules and feedback to DP08/1 (A review of the structure of the Listing Regime). It has now included two areas for further consultation. The first relates to the rule requiring overseas companies in the Premium segment to offer pre-emption rights to their shareholders - FSA is seeking technical input from market participants on whether the rule achieves FSA's policy objective effectively. The second relates to the draft rule changes in respect of a clarification that listed equity securities with a Standard Listing must be admitted to trading on a Regulated Market. Responses on these items must be received by 2 December 2009. FSA notes that it is bringing forward the timetable for making the Standard segment available to UK companies, so that the rule changes to implement this will be effective from 6 October 2009. This is in response to demand from a small number of issuers with specific capital-raising needs. Other rule changes will be in force on 6 April 2010. FSA has also announced that it is carrying out an exercise to allocate all securities to the relevant listing category. The vast majority of securities will be easily allocated but in a small number of cases FSA will need to tighten the existing definitions or amend the scope of current LR chapters. These include the treatment of convertibles, preference shares, options and subscription warrants. A separate consultation on this is scheduled to be issued in mid-November. (2/10/09) http://www.fsa.gov.uk/pubs/cp/cp09_24.pdf (NB: over 50 pages long)

Takeover Panel: Practice statement on collective shareholder action It is noted that the Executive does not believe that the relevant provisions of the Takeover Code have either the intention or the effect of acting as a barrier to co-operative action by fund managers and institutional shareholders or of constraining normal collective shareholder action. In summary, a mandatory offer may only be triggered by activist shareholders if certain tests, set out in this document are satisfied. (11/09/09) http://www.thetakeoverpanel.org.uk/wp-content/uploads/2008/11/PS26.pdf

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Principles, Continuing Obligations (noting "It is generally not acceptable for issuers to attempt to choreograph the assessment and possible disclosure of various and offsetting information that may individually meet the tests for inside information. In this context we have, in our capacity as the UK Listing Authority, recently privately warned an issuer as a result of concerns that it may have delayed announcing inside information until it was ready to announce other, off-setting news"); Equity Markets Group webpage. (28/08/09) http://www.fsa.gov.uk/pubs/ukla/list_aug09.pdf

CESR: Report on the mapping of supervisory powers, administrative and criminal sanctioning regimes of Member States in relation to the Transparency Directive CESR has published this review of supervisory powers and sanctioning regimes assigned to CESR Members in relation to the TD which gives a factual overview of the differences in supervisory powers, as well as administrative and criminal sanctioning regimes across Europe in relation to the TD and its implementing measures. It includes a stock taking exercise of the coherence, equivalence and actual use of powers among EU Member States as well as of the variance of sanctioning regimes. It does not cover the actual day-to-day supervision of TD provisions. (2/07/09) [CESR] - Document (press release); [CESR] - Document (full report - NB: over 120 pages long); [CESR] - Document (Annex - NB: over 100 pages long)

IOSCO: Principles for periodic disclosure by listed entities The Periodic Disclosure Principles are aimed at setting out what issues should be considered by securities regulators in developing or reviewing their disclosure regimes for the periodic reports of listed entities with securities listed or admitted to trading on a regulated market in which retail investors participate. These periodic reports enhance investor protection by providing relevant information which facilitates investor decision-making, by allowing investors to compare the performance of the same company over regular intervals and by enabling investors to make comparisons between different companies. This consultation forms part of IOSCO’s ongoing work to develop principles for disclosure by issuers of listed securities to investors in the public capital markets. Responses are required by 31 August 2009. (2/07/09) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD298.pdf

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16 Business as usual (inc money-laundering and bribery)

Chronological Reports

FSA: Handbook Development 118 The latest edition of FSA's publication giving information about recently issued publications, an updated timetable for forthcoming publications and details of coming events/industry training. (24/12/09) http://www.fsa.gov.uk/pubs/handbook/hb118.pdf

Takeover Panel: Extending the Code's disclosure regime This response statement sets out the response of the Takeover Panel's Code Committee in relation to the proposals re the above. (18 December 2009) http://www.thetakeoverpanel.org.uk/wp- content/uploads/2008/11/RS200901.pdf

FSA: Handbook Notice 95/Instruments FSA has now published Handbook Notice 95, which covers Instruments passed at its meeting on 27 November 2009 [see 4 December 2008 update] and on 10 December 2009. Instruments published on 10 December 2009: • make minor administrative corrections to the Handbook, none of which represents any change in FSA policy - these are all detailed in para 2.38 of the Handbook Notice (Handbook Administration (No 16) Instrument 2009/69 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_69.pdf) • correct an omission to rules on application fees (Fees (Miscellaneous Amendments) (No 2) Instrument 2009/70 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_70.pdf); • correct an anomaly in the rules for calculating Modified Eligible Liabilities in fees (Fees (Building Societies) Instrument 2009/71 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_71.pdf); • introduce a new chapter (SYSC 20) that will require firms to test their business model to failure (reverse stress testing), clarify existing requirements on stress testing and scenario analysis in Pillar 2 and clarify that firms must consider in their stress tests an appropriate range of adverse scenarios of varying nature, severity and duration (Prudential Requirements (Stress Testing) Instrument 2009/72 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_72.pdf); • lower the capital requirements for some short-term trade finance transactions carried out by large UK banks (Prudential Sourcebook for Banks, Building Societies and Investment Firms (Short-Term Trade Finance Transactions) Instrument 2009/73 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_73.pdf); and • strengthen controls over the investment activities of retail authorised funds (Collective Investment Schemes Sourcebook (Amendment No 5) Instrument 2009/74 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_74.pdf) (14/12/09) http://www.fsa.gov.uk/pubs/handbook/hb_notice95.pdf(NB: over 60 pages long)

OECD: Governments agree to step up fight against bribery This press release notes that 38 countries have signed the OECD Anti-Bribery Convention. These include new provisions for combating small facilitation payments, protecting whistleblowers and improving communication between public officials and law enforcement authorities. (10/12/09) Governments agree to step up fight against bribery

SFO: Interview with Richard Alderman An audio interview with the Director of the Serious Fraud Office, Richard Alderman, on the global fight against corruption. http://www.sfo.gov.uk/media/58221/56323-sfo6thdec09(1).mp3

JMLSG: JMLSG Board appoints new chair Following the appointment of Jonathan Taylor, the chairman of JMLSG, as Director, Financial Services at HMT from 1 January 2010, Sally Scutt, Deputy CEO of BBA, takes over as JMLSG chair with

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immediate effect. Her position as Chair of the JMLSG Editorial Panel is taken over by David Broadway of IMA. (7/12/09) BBA – British Bankers' Association - JMLSG Board appoints new chair

FSA: Analysis of activity in the energy markets 2009 FSA has published an analysis of information provided by energy market brokers concerning trading volumes and values in the gas, power, coal and emissions markets for the 12 months of trading to 31 July 2009. FSA notes that most surveyed asset classes have witnessed volume growth. It draws particular attention to "a significant increase in preference towards voice brokered deals in all six asset classes over the observed period. In the European power, coal, and emissions market more deals were conducted via the phone than on screen. These observations reverse the previous trend we had noted in recent years of a steadily increasing preference towards executing deals electronically". (7/12/09) http://www.fsa.gov.uk/pubs/other/energy_2009.pdf

JMLSG: Amendments to 2007 Guidance After reviewing comments received on the consultation version published in August (Part I) and September (Part II), JMLSG has published final amendments to its December 2007 Guidance, which have been submitted to HMT for approval. Part I amendments proposed in August have been broadly confirmed, and a number of additional, relatively minor amendments have been made. A version of the revised Part I, marked up from the consultative version, is at the first link below. Part II amendments proposed in September were also broadly confirmed, although further changes have been made to sector 15 (trade finance) in response to comments received, and to sector 20 (brokerage services to funds) in order to make the text flow better. A number of additional, relatively minor amendments to the text have also been made. The text of sector A (wire transfers) has also been reinstated into Part II, pending the development of a Part III in which this (and some other texts) will be grouped. A version of the revised Part II text, marked up from the consultative version, appears at the second link below. (4/12/09) http://www.jmlsg.org.uk/content/1/c6/01/69/72/Part_I_-_Post_Consultation.pdf (NB: 175 pages long) http://www.jmlsg.org.uk/content/1/c6/01/69/73/Part_II_Board_approved_Nov_09.pdf (NB: over 189 pages long)

FSA Instruments FSA has published the following Instruments, passed on 27 November 2009, which: • update the Handbook to take into account the changes in terminology that have resulted from the Treaty of Lisbon (Treaty of Lisbon (Consequential Handbook Amendments) Instrument 2009/67 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_67.pdf) • amend several modules of the Handbook from 1 December 2009, in line with the liquidity BIPRU 12 rules, as well as the phased approach of the other elements of the regime that switch on between June and November 2010 (Prudential Sourcebook for Banks, Building Societies and Investment Firms (Liquidity) (Consequential Amendments) 2009/68 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_68.pdf) (NB: over 30 pages long) More details are available in Handbook Notice 95 [see 14/12/09] (4/12/09)

FSSC: RDR appropriate examinations FSSC has announced that its Professional Standards Advisory Group have signed off the final version of the core standards for the QCF Level 4 (SCQF level 8) benchmark Appropriate Examinations for retail investment advice. On behalf of FSA, it has launched a similar consultation process for the specialist standards (feedback to be received by 5 February 2010). The proposed draft specialist standards for retail investment advisers that have been developed will cover packaged products, securities and derivatives. (2/12/2009) http://www.fssc.org.uk/20091130___professional_standards_advisory_group_agrees_final_core_standard s_for_rdr_appropriate_examinations_1.pdf Financial Services Skills Council

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FSA: Complaints Commissioner report GE-L01055 The complainant was unhappy about having to pay full annual fees for FSA's accounting period (1 April 2008-31 March 2009) when the firm had ceased trading on 8 April 2008. The Complaints Commissioner did not uphold the complaint, noting that the firm had not applied for a cancellation until mid-July 2008. (30/11/09) http://www.fsa.gov.uk/pubs/complaints/complaint_fsa_gel1055.pdf

SOCA: SARs Annual Report 2009 SOCA has published the above, which covers the operation of the SARs regime over the year from October 2008 to the end of September 2009. In this document, the SARs Committee sets out a strategy for the regime for the next three years with the overall objective to increase the value and impact of the SARs regime. (30/11/09) http://www.soca.gov.uk/assessPublications/downloads/SARs_Annual_Report_2009.pdf (NB: over 60 pages long)

FSA: Handbook Development 117 The latest edition of FSA's publication giving information about recently issued publications, an updated timetable for forthcoming publications and details of coming events/industry training. (30/11/09) http://www.fsa.gov.uk/pubs/handbook/hb117.pdf

Government Response to the conclusions and recommendations of the Joint Committee Report on the Draft Bribery Bill The Government response to the July HoC/HoL Joint Committee report has been published. (24/11/09) http://www.official-documents.gov.uk/document/cm77/7748/7748.pdf

Coroners and Justice Act 2009 An Act to amend the law relating to coroners, to investigation of deaths and to certification and registration of deaths; to amend the criminal law; to make provision about criminal justice and about dealing with offenders; to make provision about the Commissioner for Victims and Witnesses; to make provision relating to the security of court and other buildings; to make provision about legal aid and about payments for legal services provided in connection with employment matters; to make provision for payments to be made by offenders in respect of benefits derived from the exploitation of material pertaining to offences; to amend the Data Protection Act 1998; and for connected purposes. [See Part 3 - Criminal evidence, investigations and procedure re FSA] (23/11/09) http://www.opsi.gov.uk/acts/acts2009/pdf/ukpga_20090025_en.pdf

Bribery Bill The Bill and Explanatory Notes have now been published. (20/11/09) http://www.publications.parliament.uk/pa/ld200910/ldbills/003/2010003.pdf http://www.publications.parliament.uk/pa/ld200910/ldbills/003/en/2010003en.pdf

The Scottish and Northern Ireland Banknote Regulations 2009/3056 (previously reported on when in draft) These Regulations are made under Parts 6 and 8 of the Banking Act 2009 (c. 1) and make provision about the treatment, holding and issuing of banknotes by the banks who are authorised to issue banknotes in Scotland and Northern Ireland (other than the BoE). (Date in force: 23/11/09) (20/11/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20093056_en.pdf

Speech by Margaret Cole: The FSA's agenda for fighting financial crime (19 November 2009) Text of the above, given at the BBA, follows. Topics include: FSA's frontline work as "gatekeeper" and "supervisor"; enforcement and criminal prosecutions. (19/11/09) The FSA's agenda for fighting financial crime

HoC Home Affairs Committee: The work of the Serious Organised Crime Agency This report discusses SOCA's role in the recovery of criminal assets, saying it is important that SOCA is able to quantify its results, possibly through the use of targets, and consequentially justify its budget and 196

also raises concerns about the transparency of the organisation. It recommends the establishment of "some form of police authority" for SOCA. (18/11/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmhaff/730/730.pdf (NB: over 30 pages long)

Bribery Bill Details of the Bill, as announced in the Queen's Speech, this morning, have been published. It is intended to replace current legislation with a consolidated bribery law, based on the recommendations of the Law Commission. The offences would cover the offering, promising or giving of a bribe and the requesting, agreeing to receive or accepting of a bribe either at home or abroad, in the public or private sectors. The Bill would create a discrete offence of bribery of a foreign public official in order to obtain or retain business. The Bill would create a new offence in relation to commercial organisations which fail to prevent a bribe being paid by those who perform services for or on behalf of the organisation. It will be a defence if the organisation has adequate procedures in place to prevent bribery. (18/11/09) http://www.commonsleader.gov.uk/output/page2917.asp BBA reaction BBA – British Bankers' Association - BBA reaction to the Queen's Speech

OFT: OFT: Money Laundering Regulations FAQ OFT has published a new version of the above. (16/11/09) http://www.oft.gov.uk/shared_oft/business_leaflets/general/AML-FAQs.pdf

ICO Decision Notice: FSA The complainant requested information from FSA about details concerning complaints provided to FSA in 2006 and 2007 by the top 125 most complained about companies. FSA refused to disclose the requested information by virtue of the exemption in s44 FOIA (‘prohibitions on disclosure’). The Commissioner has investigated and found that the requested information would be exempt by virtue of s44(1)(a) FOIA. (13/11/09) http://www.ico.gov.uk/upload/documents/decisionnotices/2009/fs_50212106.pdf

FATF: United Kingdom mutual evaluation - follow-up Report FATF notes that the UK has made significant progress in addressing deficiencies identified in its June 2007 Mutual Evaluation report and that the UK has therefore been removed from the regular follow-up process and will henceforth report on any further improvements to its AML/CFT system on a biennial basis. (12/11/09) http://www.fatf-gafi.org/dataoecd/44/8/44048060.pdf

Law Societies: Developments from the European Court of Justice (October 2009) Section 13 covers recent judgements on AML issues. (11/11/09) http://www.lawsociety.org.uk/secure/file/182272/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/ecjupdate_oct09.pdf

HMT: Statement on money laundering controls in overseas jurisdictions This notice constitutes advice issued by HMT about risks posed by unsatisfactory money laundering controls in a number of jurisdictions. It notes that, on 16 October 2009 FATF issued a further statement drawing attention to deficiencies in several jurisdictions of concern. The UK additionally draws attention to, and supports, the public statements of MONEYVAL (a FATF style regional body under the auspices of the Council of Europe) in respect of Azerbaijan in December 2008, March 2009 and September 2009. This advice is effective immediately. (10/11/09) Statement on money laundering controls in overseas jurisdictions - HM Treasury

Wolfsberg Statement: AML Screening, Monitoring and Searching 2009 This report supersedes a 2003 paper and provides more guidance on the design, implementation and ongoing maintenance of transaction monitoring frameworks for real-time screening, transaction monitoring and retroactive searches. (10/11/09) http://www.wolfsberg- principles.com/pdf/Wolfsberg_Monitoring_Screening_Searching_Paper-Nov_9_2009.pdf

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FSA: Handbook Notice 92 At its meeting on 5 November 2009, the FSA Board made changes to the Handbook in the following instruments which: • extend the definition of ‘EEA authorised payment institution’ (Payment Services (Gibraltar-based Firms) Instrument 2009/57, FOS 2009/5 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_57.pdf); • extend the Basel I capital floors beyond 2009 (Prudential Sourcebook for Banks, Building Societies and Investment Firms (Capital Floors) Instrument 2009/58 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_58.pdf); • exempt certain types of investment firms from the large exposure regime from 2011 onwards due to a change in the CRD (Prudential Sourcebook for Banks, Building Societies and Investment Firms (Large Exposures Transitional Provisions) (Amendment) Instrument 2009/59 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_59.pdf); • bring up to date the base capital resources requirement for insurers to align with recent updates to European Directive requirements and make technical amendments to the determination of capital resources and mathematical reserves (Prudential Requirements for Insurers (Amendment No 4) Instrument 2009/60 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_60.pdf); • make permanent a rule change granted by waiver to the Society of Lloyd’s to allow reinsurance contracts written by Centrewrite Limited to be treated as approved reinsurance to close contracts (Approved Reinsurance to Close Instrument 2009/61 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_61.pdf); • amend the capital resources, requirements and professional indemnity insurance rules for personal investment firms (Capital Resources and Professional Indemnity Insurance Requirements for Personal Investment Firms Instrument 2009/62 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_62.pdf) (NB: over 60 pages long); • amend the existing close links notification requirements (Close Links Reporting Instrument 2009/63 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_63.pdf); • make changes to SUP in relation to the disclosure of information in connection with applications to FSA (Supervision Manual (Amendment No 16) Instrument 2009/64 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_64.pdf); • make consequential changes to the PII guidance in the retail mediation activities returns (Supervision Manual (Retail Mediation Activities Return) (Amendment) • Instrument 2009/65 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_65.pdf); and • ensure deposit takers put in place appropriate systems to create and maintain a single customer view which will enable them to provide aggregate balance held by each eligible depositor within one authorised entity (Financial Services Compensation Scheme (Single Customer View Supervision and other Amendments) Instrument 2009/66 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_66.pdf).(6/11/09) http://www.fsa.gov.uk/pubs/handbook/hb_notice94.pdf (NB: over 50 pages long)

FSA: Handbook Development 116 The latest edition of FSA's publication giving information about recently issued publications, an updated timetable for forthcoming publications and details of coming events/industry training. (2/11/09) http://www.fsa.gov.uk/pubs/handbook/hb116.pdf

Financial Services and Markets Act 2000 (Disclosure of Confidential Information) (Amendment) Regulations 2009/2877 These Regulations amend the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (S.I. 2001/2188) (“the principal Regulations”) to allow for the disclosure of certain information by (a) primary recipients as defined in s348(5) of the Financial Services and Markets Act 2000 (c. 8) (“the 2000 Act”) and (b) persons obtaining such information directly or indirectly from primary recipients (together referred to as “recipients”). The principal Regulations define the circumstances in which recipients are permitted to disclose “confidential information” as defined in section 348(2) of the 2000 Act. The table in Schedule 2 to the principal Regulations provides a list of 198

persons to whom confidential information not subject to single market directive restrictions (within the meaning of those Regulations) may be disclosed and the functions of that person for the purposes of regulation 12 of those Regulations. These Regulations amend that table to add the Claims Management Regulator (designated in accordance with section 5 of the Compensation Act 2006 c. 29) and its functions as such. (Date in force: 18/11/09) (28/10/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092877_en.pdf

FATF: Money laundering and terrorist financing in the securities sector The objectives of this typology report are to: raise overall awareness of the ML/TF risk in the securities industry for industry participants, regulators and law enforcement; udentify specific ML/TF risks based on product type, intermediary, market type and payment/distribution channel; provide a comprehensive set of suspicious indicators and case studies that are applicable to the securities industry; and identify any current and emerging issues which would benefit from further consideration by FATF. (27/10/09) http://www.fatf-gafi.org/dataoecd/32/31/43948586.pdf (NB: over 80 pages long)

DP09/5: Enhancing financial reporting disclosures by UK credit institutions In this DP, FSA asks for discussion on the main issues that have an impact on the quality of credit institutions’ financial reporting disclosures, with an emphasis on disclosures about financial instruments. This will affect the largest, UK-headquartered listed credit institutions, which are focused on in the DP. It is noted that FSA, in the course of developing the DP, held discussions with Barclays plc, HSBC Holdings plc, Lloyds Banking Group plc, Nationwide Building Society, Standard Chartered Plc and The Royal Bank of Scotland Group plc, both individually and through the BBA. BBA’s Code for Financial Reporting Disclosure is included in an Appendix. Responses are required by 30 April 2009. (23/10/09) http://www.fsa.gov.uk/pubs/discussion/dp09_05.pdf (NB: over 60 pages long)

HMT: Changes to the FSA Board HMT has announced the appointment of Mick McAteer, Brian Pomeroy, Andrew Scott & James Strachan as non-executive directors of FSA. It is also noted that Michael Slack is stepping down from the Board at the end of October. The item includes short biogs. (20/10/09) Changes to the Financial Services Authority Board - HM Treasury

The Scottish and Northern Ireland Banknote Regulations 2009 (Draft) These Regulations are made under Parts 6 and 8 of the Banking Act 2009 (c. 1) and make provision about the treatment, holding and issuing of banknotes by the banks who are authorized to issue banknotes in Scotland and Northern Ireland (other than BoE). Part 2 of the Regulations sets out provision in relation to BoE. In particular, regulation 3 gives BoE a power to make banknote rules. Part 3 sets out provision in relation to backing assets. In particular, regulation 9 makes provision in relation to the ownership of, and interests in, backing assets. Part 4 sets out various requirements in relation to banknotes. Part 5 concerns the provision of information and reports to BoE. Part 6 sets out provision in relation to the insolvency of a note issuing bank. In particular, regulation 21 requires BoE to conduct a note exchange programme, whereby the banknotes of the insolvent bank are exchanged for banknotes of another bank (which may include BoE). Part 7 sets out provision in relation to enforcement of these Regulations and the banknote rules. Schedule 1 specifies modifications to the law of insolvency as it applies to note issuing banks. Schedule 2 specifies similar processes and laws in the Republic of Ireland. Schedule 3 sets out further provision in relation to the imposition of penalties by BoE. (Date in force: 23/11/09) (16/10/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111486306_en.pdf 199

CEBS/CEIOPS/CESR: Compendium Paper on the supervisory implementation practices across EU Member States of the Third Money Laundering Directive [2005/60/EC] This compendium paper provides a collective overview of EU Member States’ practices in relation to the application of customer due diligence and customer identification and verification requirements of the Third Money Laundering Directive, identifies divergences of supervisory practices across EU Member States and provides a compendium of the legal frameworks within the EU Member States. It is noted that this paper does not cover all the obligations of the Third Money Laundering Directive. (15/10/09) http://www.ceiops.eu/media/files/publications/reports/3L3-AML-TF-Compendium-Paper-supervisory- implementation-practices-re-3MLD.pdf (NB: over 100 pages long)

FSA: Consolidators FSA has published this webpage saying that it has become aware that some authorised firms are considering using consolidator business models as their eventual exit route from the industry. It notes that a number of these consolidators are unregulated. It warns firms that "they must continue to act, honestly, fairly and professionally in line with the client’s best interests. While there could be consumer benefits from an adviser looking at dormant client accounts more regularly there are also issues firms must consider in order to ensure the fair treatment of consumers ... any additional costs to the customer need to be suitable for the individual customer’s needs and circumstances. It is not enough to disclose these and agree them with the clients before the transfer". (15/10/09) Smaller firms online - Your Firm type

The Financial Restrictions (Iran) Order 2009/2725 This Order contains a direction given by HMT, under Schedule 7 to the Counter-Terrorism Act 2008 (c.28) (“the Act”), in response to the significant risk to the UK’s national interests posed by activity in Iran that facilitates the development or production of nuclear weapons. The direction is given to all persons operating in the UK financial sector, as defined in paragraphs 4 and 6 of Schedule 7 to the Act. The direction prohibits such persons entering into new transactions or business relationships with the two entities named in article 3 (Bank Mellat and Islamic Republic of Iran Shipping Lines) (or their branches), or continuing to participate in transactions or business relationships with them. HMT may grant licences under paragraph 17 of Schedule 7 to the Act to exempt certain acts from these prohibitions. The Order will cease to have effect at the end of the period of one year beginning with the day it is made, in accordance with paragraph 16(4) of Schedule 7 to the Act. (Date in force: 10.30am on 12/10/09). HMT has also published an accompanying interpretive note and three general licenses and the text of a ministerial statement on the reasons for the decision. Links below (12/10/09). http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092725_en.pdf http://www.hm- treasury.gov.uk/d/fin_crime_interpretive_note.pdf http://www.hm- treasury.gov.uk/d/fin_crime_gen_licenses.pdf http://www.hm- treasury.gov.uk/d/fin_crime_ministerial_statement.pdf

FSA: Online Notifications and Applications FSA sets out details of a ONA, a new web-based system that will allow firms to submit a number of regulatory applications / notifications online (Approved Persons; Appointed Representatives; Variations of permissions; Passports; Cancellations; Waivers; and Standing data. which will replace existing paper-based processes and systems. FSA is currently testing the new system and plans to launch it "this winter". (9/10/09) Online Notifications and Applications (ONA)

HMT: Call for evidence, to inform Review of Money Laundering Regulations 2007 HMT has published a call for evidence on the Money Laundering Regulations 2007 and of the UK’s anti- money laundering policies and procedures under them. The call is designed to help inform a review of the Regulations, and look at how effective and proportionate the UK’s anti-money laundering rules are. Part A of the call for evidence is aimed at money-laundering experts and practitioners, such as businesses supervised under the Regulations and money laundering supervisors. Part B is focused on private individuals and business customers. Responses are required by 11 December 2009. (9/10/09) http://www.hm-treasury.gov.uk/d/mlr_parta.pdf (NB: over 50 pages long) 200

http://www.hm-treasury.gov.uk/d/mlr_partb.pdf (NB: over 30 pages long)

The Proceeds of Crime Act 2002 (References to Financial Investigators) (Amendment) Order 2009/2707 This Order amends the Proceeds of Crime Act 2002 (References to Financial Investigators) Order 2009 (“the 2009 Order”) which provides that references to accredited financial investigators in the Proceeds of Crime Act 2002 (“the Act”), as amended by the Serious Crime Act 2007 are to be read as references to accredited financial investigators within the descriptions specified in the 2009 Order. (Date in force: 2/11/09) (9/10/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092707_en.pdf

CP09/25* Quarterly Consultation No. 22 In this CP, FSA invites comments on miscellaneous amendments to the Handbook. It proposes amendments to: • FEES for application fees for guidance or permission under the CRD; • PERG for the introduction of legislation for the regulation of sukuk; and • GLOSS, GENPRU, SYSC, BIPRU, IPRU (BANK), IPRU (BSOC) and SUP, due to the implementation of BIPRU 12 (liquidity standards). Responses are required by 6 November 2009. FSA proposes to finalise the application fees for permission under the CRD by 10 December 2009. (6/10/09) http://www.fsa.gov.uk/pubs/cp/cp09_25.pdf

FSA: Handbook Development 115 The latest edition of FSA's publication giving information about recently issued publications, an updated timetable for forthcoming publications and details of coming events/industry training. It is noted that a new “effective date” feature has now been introduced to the Handbook online. The dates appearing under a provision number will advise as to when that provision was last amended. This feature only applies for those changes commencing from 1 January 2005 onwards. (5/10/09) http://www.fsa.gov.uk/pubs/handbook/hb115.pdf

FSA: Complaints Commissioner report GE-L01037 The complainant expressed concerns with the way his complaint had been handled. The Complaints Commissioner did not uphold the complaint. However, he noted that although FSA had apologised for its "poor service", it had not sufficiently explained to the complainant the rationale as it why an ex gratia compensation payment was not justified and recommended that FSA in future does so, and also explains its reasons when a complaints handler is changed during an investigation. (5/10/09) http://www.fscc.gov.uk/documents/final/GE-L01037.pdf

FSA: Financial Promotions Industry Update - Issue 3 This issue deals with the topic of "stand alone compliance". FSA notes that its routine monitoring and risk mitigation work has identified a trend of firms seeking to defend the non-compliance of their financial promotions on the basis that: the promotions were far removed from potential customers’ purchasing decisions; they were followed up by other promotions, communications or KFDs that clarified the risks; they were not ‘direct offer’ financial promotions that potential customers could use to purchase products; or all resulting sales were advised. FSA says that "this reasoning undermines the very purpose of the financial promotions regime, from a perspective of consumer protection and fair competition between firms. Powerful messages are left by advertising and it is important that consumers’ expectations are met by reality, which is why all financial promotions must be stand-alone compliant”. (2/10/09) http://www.fsa.gov.uk/pages/Doing/Regulated/Promo/pdf/compliance.pdf

CP09/22: Regulating sale and rent back - the full regime This paper sets out and seeks views on FSA's proposed approach to the application of a full regulatory regime to the sale and rent back market, including the rules and guidance it proposes to apply to firms carrying on these activities. Proposals include: a cooling-off period to give consumers more time to make decisions; banning cold calling and prohibiting firms from dropping promotional leaflets through letter

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boxes; prohibiting the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature; ensuring consumers have security of tenure; and a requirement that in every sale firms check that the consumer can afford the deal and it is right for them. Responses are required by 30 November 2009. FSA will finalise proposals in light of the responses received and intends to publish a PS and final rules in the new year, with a view to implementing the full regime on 30 June 2010. (28/09/09) http://www.fsa.gov.uk/pubs/cp/cp09_22.pdf (NB: over 160 pages long)

The Alternative Finance Arrangements (Amendment) Order 2009/2568 This Order amends Chapter 5 of Part 2 of the Finance Act 2005 (c. 7) and Chapter 6 of Part 6 of the Corporation Tax Act 2009 (c. 4). These provisions deal with alternative finance arrangements in the income tax and corporation tax codes respectively. Where certain conditions apply, these provisions allow for amounts paid or received under Shari’a-compliant financial arrangements, which do not involve interest, to be treated as interest for income tax purposes or as loan relationship debits and credits for corporation tax purposes. Article 2 introduces four amendments to Chapter 5 of Part 2 of the Finance Act 2005. Article 2(2) amends s46 (alternative finance arrangements), which sets out the definition of “financial institution”, in three ways. First, a new section 46(2)(da) is substituted which extends the categories of bond-issuers to include profit share agency arrangements under s49A (alternative finance arrangements: profit share agency). Secondly, a new s46(2)(f) adds an insurance company as defined by s431(2) (interpretative provisions relating to insurance companies) of the Income and Corporation Taxes Act 1988 (c. 1) (“ICTA”). Thirdly, a new s46(2)(g) adds a person authorised in a jurisdiction outside the UK to carry on a business which consists of effecting or carrying out contracts of insurance or substantially similar business, but not an insurance special purpose vehicle. Article 2(3) amends s49A(1) so as to enable either a principal or an agent in a profit share agency arrangement to be a financial institution. Article 3 introduces similar amendments to Chapter 6 of Part 6 of the Corporation Tax Act 2009. Article 3(2) amends s502 (meaning of “financial institution”) in three ways. First, a new s502(1)(e) is substituted which extends the categories of bond-issuers to include profit share agency arrangements under s506 (profit share agency arrangements). Secondly, a new s502(1)(g) adds an insurance company as defined by s431(2) of ICTA. Thirdly, a new s502(1)(h) adds a person authorised in a jurisdiction outside the UK to carry on a business which consists of effecting or carrying out contracts of insurance or substantially similar business, but not an insurance special purpose vehicle. Article 3(3) amends s506(1) so as to enable either a principal or an agent in a profit share agency arrangement to be a financial institution. (Date in force: 15/10/09) (24/09/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092568_en.pdf

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HMT: Review of the Money Laundering Regulations 2007 HMT, together with the Better Regulation Executive, is planning to review the anti-money laundering regime under the 2007 Money Laundering Regulations. This will focus on the full scope of the 2007 Regulations (not simply changes made in 2007), on guidance, and on other communication and engagement with stakeholders. The review will also consider supervisory arrangements, industry practice and the customer experience under the regulations. HMT plans to issue a Call for Evidence document early in October, with the opportunity for evidence to be submitted running to December 2009. It is noted that the wider operation of the separate suspicious activity reporting or consent regimes will not be subject to review. (23/09/09) Review of the Money Laundering Regulations 2007 - HM Treasury

SFO: Cambridge International Symposium on Economic Crime SFO has now published documents in connection with this symposium, which had been held between 30 August-6 September 2009. Links to the keynote speech by Richard Alderman (SFO Director) and presentations on business ethics by Jennifer Board (HR Director, Prudential UK & Europe) and Phillippa Foster Back (Institute of Business Ethics) are available via the following link. (23/09/09) Serious Fraud Office | Cambridge International Symposium on Economic Crime

JMLSG: Proposed revision to Part II of the Guidance The JMLSG Board has carried out a review of its Money Laundering Guidance for the Financial Sector, looking at: areas of omission; provisions of the Guidance that are difficult to implement or effect and provisions of the guidance that no longer reflect current practice. The Board has approved a number of amendments to Part II of the Guidance, and today publishes the text, showing the amendments proposed. Comments on the proposed changes must be received by 21 October 2009. (21/09/09) http://www.jmlsg.org.uk/content/1/c6/01/65/70/PART_II_-_Cover_note_to_consultation.pdf (summary of proposed changes) http://www.jmlsg.org.uk/content/1/c6/01/65/69/Part_II_sectors_1-21_Sep_09.pdf (amended text – NB: over 170 pages long)

FSA: Common misreporting errors On this webpage, FSA notes that its work on financial returns has highlighted the number of firms misreporting or submitting inaccurate data and sets out some examples. (16/09/09) Smaller firms - Regulatory requirements

FSA: Financial Crime Newsletter - Issue 13 Topics include: FSA Annual Financial Crime Conference; sanctions and offshoring thematic review; illegal money lending; National Fraud Authority's National Fraud Strategy; measuring the scale and impact of financial crime; anti-bribery and corruption in commercial insurance brokers: interim findings (see separate item below for more details); recent relevant enforcement cases; CIFAS fraud trends and the draft Bribery Bill. The newsletter also notes the retirement of Philip Robinson at the end of the year. (11/09/09) http://www.fsa.gov.uk/pubs/newsletters/fc_newsletter13.pdf

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publication of the final report, following a secondment of a small number of its Financial Crime Operations team to support the work of its Major Retail Groups Division. (11/09/09) Interim findings: anti-bribery and corruption in commercial insurance brokers

The Financial Services and Markets Act 2000 (Amendment) Regulations 2009/2461 These Regulations continue the implementation of Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation and Commission Directive 2004/72/EC of 29 April 2004 implementing Directive 2003/6 of the European Parliament and of the Council as regards accepted market practices, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers’ transactions and the notification of suspicious transactions. They replace s96B(2) FSMA, which defines a person “connected” with a person discharging managerial responsibilities within an issuer in part by reference to section 346 of the Companies Act 1985. The new s96B(2) and the Schedule 11B to FSMA which is inserted by these Regulations sets out the substance of the provisions now in s96B FSMA, s346 of and Schedule 13 (Part 1) to the 1985 Act in full. This is being done to ensure that the amendment of s96B(2) inadvertently made by paragraph 181(2) of Schedule 1 to the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (S.I. 2009/1941) will not take effect. (Date in force: 1/10/09) (9/09/09) The Financial Services and Markets Act 2000 (Amendment) Regulations 2009 No. 2461

The National Savings Bank (Investment Deposits) (Limits) (Amendment) Order 2009/2460 This Order further amends the National Savings Bank (Investment Deposits) (Limits) Order 1977 (“the 1977 Order”) by increasing, from £3,600 to £5,100, the limit on the annual amount which can be accepted by the Director of Savings from any person by way of a deposit in an ISA at the National Savings Bank with effect from 6 April 2010. The Order also varies the 1977 Order, for the period from 6 October 2009 until 6 April 2010, by increasing the limit on the annual amount which can be accepted by the Director of Savings into an ISA from any person who will be aged 50 or over not later than 5th April 2010 to £5,100. (Dates in force: 8/10/09 - Article 4 - 6/4/10). (9/09/09) The National Savings Bank (Investment Deposits) (Limits) (Amendment) Order 2009 No. 2460 http://www.opsi.gov.uk/si/si2009/uksi_20092460_en_1

The Financial Collateral Arrangements (No. 2) Regulations 2003 (Amendment) Regulations 2009/2462 These Regulations continue the implementation of Directive of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (2002/47/EC). They make a number of consequential amendments to the Financial Collateral Arrangements (No. 2) Regulations 2003, in relation to the Companies Act 2006 (c. 46). (Date in force: 1/10/09) (9/09/09) http://www.opsi.gov.uk/si/si2009/em/uksiem_20092462_en.pdf

FSA: Complaints Commissioner report GE-L0969 The complainant alleged that FSA did not act upon information given to it re a rights issue undertaken by "Firm A" by the firm's former risk manager (Firm A had subsequently entered into a merger), as well as concerns over how FSA protects shareholders and whether it "hid behind" s348 FSMA (confidential information) in this matter. The Complaints Commissioner did not uphold any part of the complaint. (4/09/09) http://www.fscc.gov.uk/documents/final/GE-L0969.pdf

FSA: Handbook Development 114 The latest edition of FSA's publication giving information about recently issued publications, an updated timetable for forthcoming publications and details of coming events/industry training. (28/08/09) http://www.fsa.gov.uk/pubs/handbook/hb114.pdf

ICO: FOIA and FSMA ICO has published this guidance, which is intended to explain to public authorities which hold information which subject to FSMA why s348 FSMA is a bar to disclosure under FOIA and also clarifies the meaning of some key terms. It is noted that this guidance will be reviewed and considered from time 204

to time in line with new Information Commissioner decisions. (28/08/09) http://www.ico.gov.uk/upload/documents/library/freedom_of_information/detailed_specialist_guides/170 809_fsma_act_sec44_ v1.pdf

FSA: Scale and impact of financial crime project - impacts of financial crimes and amenability to control by the FSA: proposed framework for generating data in a comparative manner/ FSA’s scale & impact of financial crime project (Phase One) - critical analysis The first report, prepared by John Howell & Co Ltd for FSA, considers ways for the regulator to allocate its resources against a range of financial crimes. The report recommends the development of two top- level indicators, representing what can be known or estimated (i) about harmful impacts of financial crimes and (ii) about their amenability to actions by FSA and (where appropriate) partner agencies. The second report explores the methods and concepts currently used in literature measuring financial crime to measure the scale and impact of financial crime; and the likely fitness for purpose of these methods/concepts for FSA’s risk assessment needs. (26/08/09) The Scale & Impact of Financial Crime - add to existing 26/08 item http://www.fsa.gov.uk/pubs/other/scale_and_impact_paper.pdf (NB: over 50 pages long) http://www.fsa.gov.uk/pubs/other/critical_analysis.pdf (NB: over 80 pages long)

FMLC: Issue 108: Administration set-off and expenses FMLC has published the text of a letter it has sent to the Insolvency Service. FMLC draws the Insolvency Service's attention to a paper it published in 2007, suggesting that issues of legal uncertainty identified in this paper have materially affected market participants in their dealings with Lehman Brothers International (Europe) Limited after its collapse. It suggests that the Lehman administration has also raised a number of issues regarding set-off, some of which are to be considered in the LBIE client asset scheme of arrangement. FMLC notes that, as some issues were beyond the scope of its 2007 paper, it is considering whether to convene the same or another working group to address these further issues. (21/08/09) http://www.fmlc.org/papers/Issue108LeinsterLtr.pdf

SOCA: The UK threat assessment of organised crime 2009/10/ The National Intelligence Requirement for organised crime The first report describes and assesses the threats posed to the UK by organised criminals and considers how these threats may develop. The second report acts as a guide to agencies and organisations who can provide relevant information by defining those areas where SOCA is developing its ongoing knowledge of organised crime. (19/08/09) http://www.soca.gov.uk/assessPublications/downloads/2009- 10_UKTA_NPM.pdf http://www.soca.gov.uk/assessPublications/downloads/NIR 2009-10_NPM.pdf

HMT/BoE/FSA: Market-wide Exercise 2009 It has been announced that this exercise, taking place on 17 and 20 November 2009, will explore the impact of a severe weather and flooding scenario and includes disruption to several key infrastructure providers. It will explore the effects of geographical concentration; dependence on suppliers; practicality of remote working; reliance on telecommunications; use of recovery sites; cash distribution and the return to business as usual. This is in addition to the address of the relationship between the Tripartite and the sector during such an event. It is noted that the exercise was originally due to take place in November 2008, but was postponed due to the conditions in the market. (14/08/09) UK Financial Sector Continuity

JMLSG: Proposed revision to Part I of the Guidance It is noted that, over the past few months, the JMLSG Board has carried out a review of its Money Laundering Guidance. The Board has approved a number of (mostly minor) amendments to the Guidance, and has published the Part I text, showing the amendments proposed. Amendments to the text of Part II are still being considered, and proposed revised text will be published for comment in due course. (7/08/09) http://www.jmlsg.org.uk/content/1/c6/01/64/34/JMLSG_GUIDANCE_- _cover_note_Jul_09_doc.pdf http://www.jmlsg.org.uk/content/1/c6/01/64/33/Part_I__August_09_pdf.pdf

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HMRC: Money Laundering Regulations fee review - information for businesses HMRC is looking at the way that it charges businesses an annual fee for supervision under the MLR, the findings of which will be published in the autumn. (7/08/09) HM Revenue & Customs: Money Laundering Regulations fee review - information for businesses

OFT: OFT launches anti-money laundering registration In this press release, OFT notes that registration starts today for businesses supervised by the OFT under Government anti-money laundering regulations and emphasises that consumer credit financial institutions and estate agents need to register with OFT within six months of registration starting. OFT will be writing to relevant businesses in the UK, to remind them that they have until 31 January 2010 to be on the OFT register. (31/07/09) OFT launches anti-money laundering registration

HoC/HoL Joint Committee: Draft Bribery Bill The Committee has published a report re the above (dated 16 July, but published today). Among the points made: "we are disappointed that the Government has given us so little time to carry out our task. Our dissatisfaction will be shared by many others if the Government does not now find time promptly to introduce a Bribery Bill that reflects the changes that we have proposed. We support the two proposed offences of bribing (clause 1) and being bribed (clause 2), including the “improper” performance test that has been developed by the Law Commission. The proposals have, to this extent, overcome the hurdle that defeated the draft Corruption Bill in 2003. We do, however, acknowledge concerns about the test’s potential to catch conduct that should properly be viewed only as a civil wrong. We ask the Government to address this issue. The specific offence of bribing foreign public officials (clause 4) represents an important step in putting the United Kingdom’s compliance with its international obligations ... we particularly welcome the proposed offence that targets companies and partnerships which fail to prevent bribery by persons performing services on their behalf (clauses 5 to 6). ... however, we are concerned by the draft Bill’s focus on whether a “responsible person” was negligent, rather than on the collective failure of the company to ensure that adequate anti-bribery procedures were in place. This introduces a narrow and complex solution to a pressing problem. We therefore recommend the removal of the need to prove negligence under clause 5(1)(c). While it would lead to the commercial organisation being strictly liable, subject to an adequate procedures defence, nevertheless we do not believe this would be unfair, particularly given the parallel with the approach taken in other leading countries". (28/07/09) Hoc/HoL - Bribery Bill

Fraud Advisory Panel: Anti-money laundering and data protection The guide outlines the possible conflict between certain provisions of the Data Protection Act 1998 and AML legislation. In particular, it focuses on the relationship between the "tipping off" provisions under AML legislation and the data subject access provisions under section 7 of the DPA. (28/07/09) fraudadvisorypanel guide AML/DPA

FSA: Handbook Notice 90 At its meeting on 23 July 2009, the FSA Board made changes to the Handbook in the following instruments which: • make minor administrative corrections to the Handbook - see para 2.4 of this doc for a synopsis of changes (Handbook Administration (No 14) Instrument 2009/37); • maintain protection for customers whose dormant deposits are transferred to a reclaim fund (Dormant Bank and Building Society Accounts Instrument 2009/38); • give guidance on one of the threshold conditions following implementation of the Banking Act 2009 (Threshold Conditions (Banking Act 2009) Instrument 200939); • allow a more accurate calculation of the capacity of a firm to absorb losses (Reclassification of Available-For-Sale Debt Instrument 2009/40); • remove unfair outcomes for with-profits policyholders (With-Profits Funds: Payments of Compensation and Redress Instrument 2009/41); [see also PS below]

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• improve FSA's approach to significant influence functions by ensuring that those likely to exert a significant influence on a firm fall within the scope of the approved persons regime (Supervision Manual (Controlled Functions) (Amendment No 2) Instrument 2009/42); • extend the additional protection provided for depositors under FSCS where there is a merger between building societies, a merger of a building society with the subsidiary of another mutual, or a transfer of deposits under the property transfer powers of the Banking Act 2009 (Compensation Sourcebook (Mutual Society Mergers and Protected Transfers under the Special Resolution Regime) (Amendment) Instrument 2009/43); • enable authorised fund managers to be more flexible by permitting single subfund umbrellas (Collective Investment Schemes Sourcebook (Single Sub-fund Umbrellas Instrument 2009/44); • clarify guidance in PERG and also the definition of personal pension schemes (Perimeter Guidance Amendment (No 2) Instrument 2009/46); and • facilitate fast payout of compensation to depositors by FSCS in the event of a deposit taker failure, and increase depositor confidence and levels of awareness in FSCS (Financial Services Compensation Scheme (Banking Compensation Reform) Instrument 2009/47). This item also notes the Interim Permitted Regulated Sale and Rent Back Activities Instrument 2009/36 [see 1 July 2009 update]. (24/07/09) http://www.fsa.gov.uk/pubs/handbook/hb_notice90.pdf.

HoL EU Committee: Money laundering and the financing of terrorism The report considers how effective EU and international cooperation is in countering money laundering and the financing of terrorism; whether enough effort being invested in confiscation of the proceeds of crime; the part played by the UK government, and what could be done to enhance the effort and cost required of the private regulated sector proportionate and effective for compliance with EU and UK legislation on money laundering and whether such legislation is compatible with fundamental human rights. It notes that in the UK last year "the banks alone submitted 145,000 suspicious activity reports to the Serious Organised Crime Agency. The cost of doing so is considerable: one bank spent £36 million in that year to carry out this and related duties. We have considered whether the benefit is commensurate; the feedback is insufficient, and there is practically no way of knowing whether in any specific case the provision of information was fruitful. Access to the database of suspicious activity reports is too wide, and the data are retained unnecessarily long. We have made recommendations on how these matters might be improved". (23/07/09) http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeucom/132/132i.pdf (NB: over 60 pages long)

TSC: Women in the City TSC has announced this new inquiry which will take evidence on the role of women in the City, developing themes which have emerged in the course of its banking crisis inquiry relating to corporate governance. It seeks written evidence on: the proportion of women occupying senior positions in major financial institutions and the extent of glass ceilings to promotion; pay inequalities; the prevalence of flexible working practices; the extent to which the culture of the City is sexist, and the prevalence of sexual harassment and exploitation. (23/07/09)UK Parliament - tc0809pn220709

FSA: Financial Promotions Industry Update Issue 2 This newsletter covers the topic of white labelling in respect of investment packaged products and insurance products. (21/07/09) http://www.fsa.gov.uk/pages/Doing/Regulated/Promo/pdf/white_labeling.pdf

The Terrorism (United Nations Measures) Order 2009/1747 This Order replaces the Terrorism (United Nations Measures) Order 2006 (S.I.2006/2657) (“the 2006 Order”) which implemented the requirements of UNSCR 1373 and the EC Regulation. This Order makes changes to the nature of the prohibitions against funds, financial services and economic resources being made available to or for the benefit of persons subject to asset freezes and those acting on their behalf set out in the 2006 Order. Provision is made for licences to be granted for humanitarian and other purposes

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for certain acts to be exempted from the prohibitions. There are also reporting requirements and information gathering powers set out in the Order. (Date in force: 10/8/09) (17/07/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091747_en.pdf

The Financial Restrictions Proceedings (UN Terrorism Orders) Order 2009/1911 This Order adds the Terrorism (United Nations Measures) Order 2009 (S.I. 2009/1747) (“the 2009 Order”) to the definition of “UN terrorism orders” for the purposes of s63 of the Counter-Terrorism Act 2008 (c.28) and omits the Terrorism (United Nations Measures) Order 2001 (S.I. 2001/3365) (“the 2001 Order”) and the Terrorism (United Nations Measures) Order 2006 (S.I 2006/2657) (“the 2006 Order”) from that definition. Section 63 enables a person affected by a decision made by HMT in connection with the exercise of their functions under a UN terrorism order to apply to the court to have the decision set aside. (Date in force: 10/8/09, apart from Article 2(2) which comes into force on 31/8/10) (17/07/09) The Financial Restrictions Proceedings (UN Terrorism Orders) Order 2009 No. 1911

The Terrorism (United Nations Measures) Order (Consequential Amendments) Regulations 2009/1912 These Regulations make amendments consequent to the coming into force of the Terrorism (United Nations Measures) Order 2009 (S.I. 2009/1747) (“the 2009 Order”) by adding references to that Order in three Regulations. The Money Laundering Regulations 2007 (S.I. 2007/2157) implement in part Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (O.J. L 309, 25.11.2005, p.15). The Transfer of Funds (Information on the Payer) Regulations 2007 (S.I. 2007/3298) make provision for the enforcement of the obligations set out in EC Regulation 1781/2006/EC on information on the payer accompanying transfers of funds (O.J. L 345, 8.12.2006, p.1). The Payment Services Regulations 2009 (S.I. 2009/209) implement Directive 2007/64/EC on payment systems in the internal market (O.J. L 319, 5.12.2007, p.1). In each case reference is made to offences under the Terrorism (United Nations Measures) Order 2006 (S.I. 2006/2657). These Regulations add references to the equivalent offences under the 2009 Order. (Date in force: 10/8/09) (17/07/09) The Terrorism (United Nations Measures) Order (Consequential Amendments) Regulations 2009 No. 1912

FSA: Financial Promotions Industry Update Issue 1 This new newsletter covers the topic of pensions unlocking. (16/07/09) http://www.fsa.gov.uk/pages/Doing/Regulated/Promo/pdf/update1_jul09.pdf

FSA: Small Firms’ Financial Reporting FSA notes that its work on financial returns has highlighted the number of firms mis-reporting or submitting inaccurate data. A recent piece of thematic research aimed at testing and validating the accuracy of financial data submitted by firms supervised by the Small Firms and Contacts Division resulted in over 60 firms being visited. Of these, only one in three firms had submitted accurate data; one in three directors were assessed as having a poor understanding of financial reporting or an over-reliance on external consultants; where FSA assessed firms as having mis-reported, either in error or to mislead, half of these were subsequently found to have undeclared financial resources deficits and are currently subject to further supervisory action. (16/07/09) Smaller firms - Regulatory requirements

IOSCO: Principles on outsourcing by markets - final report The Principles are designed to help exchanges (but not alternative trading systems or multilateral trading facilities) and market authorities when they are considering outsourcing arrangements entered into by markets. (14/07/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD299.pdf

FATF: Risk-based approach guidance for money service businesses This guidance focuses on the transfer of money or value and money and currency changing operated by MSBs. The overall document is structured into three interdependent sections. Section one sets out the key elements of the risk-based approach and provides the basis for interpreting section two (Guidance for Public Authorities) and section three (Guidance for Money Services Businesses). There is also Annex 1, 208

which contains descriptions of additional sources of information. The Guidance aims to set out the key elements of an effective risk-based approach and identifies the types of issues that both public authorities and MSBs may wish to consider when applying a risk-based approach. (6/07/09) http://www.fatf- gafi.org/dataoecd/45/1/43249256.pdf

FSA: Financial promotions - real life examples On its website, FSA has published 10 examples of examples it has acted upon, covering various breaches of COBS, ICOBS and MCOB. FSA emphasises that each example is intended to be used for information purposes only and they are not intended to set any precedent or act as a guide to how it may resolve any cases in the future. (3/07/09) Real life cases

EC: Compliance with the anti-money laundering directive by cross-border banking groups at group level This working paper compares the legislative framework in the AML field with supervisory expectations regarding global AML risk management by banks; presents how banks generally comply with AML measures at group level; describes the costs of compliance; shows the main differences between groups and single institutions, with a particular analysis of the information flows within the group; describes the level of stakeholders' acceptance of the rules and underlines some consistency issues. (2/07/09) http://ec.europa.eu/internal_market/company/docs/financial-crime/compli_cbb_en.pdf (NB: over 60 pages long)

OFT: Money Laundering Regulations 2007 - core guidance OFT has updated this document. (1/07/09) http://www.oft.gov.uk/shared_oft/business_leaflets/general/oft954.pdf (NB: over 40 pages long)

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