Daily Financial Services News Reports in Chronological Order and Additional Material (January – June 2009)

Daily financial services news reports in chronological order and additional material (January – June 2009)

1. General reform covering multiple topics 9.1 Clearing and settlement, moving OTC derivatives onto exchange/central counterparties - regulatory 1.2 Conflicting political agendas "wholesale products"

2.1 Global 9.2 Payment systems and non-consumer banking

2.2 EU 11.1 Insurers/reinsurers/life offices

2.3 UK domestic 11.2 Insurance brokers and intermediaries

3.1 Macro-prudential 12. Funds

4.1 Supervision of firms and individuals 13.1 Consumer banking and finance

4.2 Enforcement (civil and criminal) 13.2 Retail investments

5.1 Too big to fail 13.3 Consumer protection and rights (inc FOS)

5.2 Systemically important firms 13.3A OFT enforcement

5.3 FSCS 13.4 Competition

5.4 Funeral planning 13.4A State aid clearances

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

7. Financial regulation (general)

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

8.3 Remuneration and bonuses

1. General reform covering multiple topics

Chronological materials

Speech by Charlie McCreevy: Some aspects of economic and financial crisis Institute of Chartered Accountants in Ireland (26 June 2009) Topics include: prudential requirements for banks; credit rating agencies; alternative investments directive; OTC derivatives market (a forthcoming paper which will explore possible ways to reduce the impact of OTC derivatives markets on financial stability through increased transparency and improved counterparty risk mitigation is noted); accounting; SEPA. (26/06/09) EUROPA - Press Releases - Charlie McCREEVY European Commissioner for Internal Market and Services Some aspects of economic and financial crisis Institute of Chartered Accountants in Ireland (ICAI) Financial Services Breakfast Seminar Dublin, 26 June 2009

Speech by Dan Waters: The future of financial regulation - insights from a regulator (24 June 2009) Text of a speech given at the International Fund Forum in Monaco follows. Topics include: developing European regulatory framework for fund management and aspects of the alternative investment directive (including depositaries and transparency). The Future of Financial Regulation - Insights from a Regulator

Speech by Verena Ross: Efficient markets and market regulation (18 June 2009) Text of the above, given at the Chartered Financial Analysts Annual Conference, follows. Topics include: market transparency; the Efficient Markets Hypothesis and regulation; valuation of securities; irrationality from an individual retail investor’s perspective; regulators and inefficient markets. (19/06/09) Efficient markets and market Regulation

HMT/BoE: Mansion House speeches Further to today's press reports, the texts of the speeches given last night by Alistair Darling and Mervyn King follow. Alistair Darling remarks "we need to encourage innovation and harness it for the benefit of consumers and investors. But we must also ensure that the greater complexity this involves does not become an excuse for a lack of transparency or for avoiding regulation ... there is also an urgent need for an international mechanism for resolving failed large multinational banks. We will be bringing forward proposals to the G20 finance ministers in the Autumn to ensure that we deal with that. ... we also need to look at the way we approach regulation. I will publish my own proposals shortly, to help lay the foundations of a new financial regime. But it is clear that the solutions must be based on better corporate governance, greater transparency, internationally agreed frameworks, better systems for dealing with bank failure, and greater focus on system-wide risks. We also have to ensure we keep the market for financial products competitive in the face of greater consolidation". He is to set out a new tax code nest week "for how the banks can meet their obligations". (18/06/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech394.pdf Speech by the Chancellor of the Exchequer, the Rt Hon Alistair Darling MP, at Mansion House - HM Treasury

HoC Communities and Local Government Select Committee: Local authority investments Following the Icelandic banking system collapse, which revealed that local authorities had invested nearly £1bn in Iceland, this report considers current practice and roles and responsibilities of various groups and individuals involved in the world of local authority investments, and makes recommendations intended to limit the exposure of local authority funds to risk in future. The report notes that the Committee's inquiry "has exposed a degree of misunderstanding, misinformation and complacency on the part of some crucial players, both within local authorities and in the wider financial sector, which contributed to the putting of taxpayers’ money at unnecessary risk". One of the recommendations is that regular meetings at an appropriately senior level are held between the Audit Commission, the local authority associations, the Chartered Institute of Public Finance and Accountancy and the Department for Communities and Local Government to ensure that the treasury management system is kept under review and that such meetings include links with FSA and BoE to ensure consistent and up-to-date information is passed onto these bodies. (12/06/09)

http://www.publications.parliament.uk/pa/cm200809/cmselect/cmcomloc/164/164i.pdf (NB: over 70 pages long)

FSA: Board minutes FSA has now published the minutes of its 23 April 2009 meeting. Topics include: retail and wholesale management updates (re the latter, it was noted that "FSA would consider disclosure requirements for financial services firms’ accounts, particularly those taking part in the Asset Protection Scheme"); management information; bank charges; FSA’s EU and international engagement in the wake of the financial crisis. (5/06/09) http://www.fsa.gov.uk/pubs/board-minutes/apr09.pdf

FSA: Board minutes FSA has now published the minutes of its 26 March 2009 meeting. Topics include: risk and audit committees; retail and wholesale management updates; FSCS and temporary high deposit balances; FSA's Annual Report; FSPP objectives operating model and appointments. (22/05/09) http://www.fsa.gov.uk/pubs/board-minutes/mar09.pdf

HoC Regulatory Reform Committee: Themes and trends in regulatory reform This is the uncorrected transcript of sessions held on 12 May 2009. Verena Ross of FSA was among the attendees and was questioned on risk and principles based regulation and Stephen Haddrill of ABI was questioned on regulation and the insurance sector. (19/05/09) Uncorrected Evidence 329

FSA: Board minutes FSA has now published the minutes of its 25 February 2009 meeting. Topics include: retail and wholesale management updates; the Turner Review; update on transparency as a regulatory tool; CDS market, risks and workstreams; remuneration policies in banks; mortgage market review. (14/05/09) http://www.fsa.gov.uk/pubs/board-minutes/feb09.pdf

FSA: Board minutes FSA has now published the minutes of its 22 January 2009 meeting. Topics include: retail and wholesale management updates; Management Information report and update on value for money indicators; FSA's 2009/10 Business Plan; Regulatory Fees and Levies 2009/10; Assessing Conduct Risk Outcomes: the example of PPI; December Reports from the Consumer and Practitioner Panels. (11/05/09) http://www.fsa.gov.uk/pubs/board-minutes/jan09.pdf

Budget 2009: General regulatory/financial stability This section of the Budget Report sets out the Government’s response to financial market disruption in two areas: its immediate response aimed at ensuring the stability of the financial system, and the Government’s view of the longer-term action required to renew financial markets for the future. It introduces the forthcoming White Paper (to be published "before the summer") which will cover: key elements of the Government’s approach to the future of financial markets; steps already taken to achieve this approach, including the Turner Review, leading work in the G20, and the Banking Act 2009; and further important action, including renewing financial regulation (including legislative changes where needed to support changes recommended in the Turner Review and to deliver the G20 conclusions), reducing the impact of bank failure (including implementing actions under the Banking Act 2009 and securing action internationally to improve cross-border arrangements for dealing with failures), protecting and supporting consumers, improving efficiency and competition in capital markets, and strengthening regulators and the international regulatory framework. Further to last year's Pre-Budget Report, it notes the establishment of Retail Financial Services Forum (RFSF), chaired by the Economic Secretary to HMT. This has a remit to champion retail financial consumers’ interests and help restore confidence in financial services. The Government will ask the RFSF to act as a steering group for the development of some of the proposals in the White Paper and will identify and take forward others (including a national Money Guidance services and "appropriate levels of consumer protection - including an effective framework of mortgage and credit regulation; and swift redress if things do go wrong"). Other issues covered in this section include discussions of: alternative approaches to regulating the banking sector; remuneration practices in banks; the mutuals sector; taxation of asset management in the UK; a macro- 3

prudential approach to financial regulation. (22/04/09) http://www.hm- treasury.gov.uk/d/Budget2009/bud09_chapter3_222.pdf

HoL Economic Affairs Committee: Banking supervision and regulation EAC has published the uncorrected oral evidence of the hearings on 31 March 2009 which were attended by Lord Myners and Mridul Hegde, Director of Financial Services at HMT and (separately) representatives from UKFI. Topics include: the Turner Review; the Tripartite and the banking crisis; the LTSB/HBOS merger; corporate governance in the banking sector; competition issues in the banking sector. (17/04/09) Corrected evidence now to be found on p186 of the following http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeconaf/101/101ii.pdf ( NB: document is over 260 pages long)

Speech by David Strachan: The regulatory response of the G20 to the financial crisis (1 April 2009) Text of the above, given at the ICFR Inaugural Summit, follows. Topics include: Pillar 2; countercyclical requirements and buffers; discretionary capital add-ons; scope of regulation; international supervisory cooperation. (6/04/09) The Regulatory Response of the G20 to the Financial Crisis

TSC: Banking crisis TSC has published a further volume of written evidence for the above inquiry. (3/04/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144iii.pdf (NB: over 160 pages long)

TSC: The international dimension of the banking crisis TSC has published a call for evidence and TOR in respect of the above new "short inquiry". One of its areas of concern is that of potential reforms to the international financial regulatory system, particularly with regard to potential areas of improvement in European financial regulation (including the de Larosière Report, "passporting" and deposit protection) and global cross-border financial regulation and the creation of colleges of supervisors. TSC will also accept further evidence on offshore financial centres in relation to the above topics. Responses are requested by 30 April 2009. (2/04/09) UK Parliament - TC0809PN27

TSC: Banking crisis TSC has published the oral and written evidence for the above inquiry in the following PDFs. (1/04/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144i.pdf (NB: over 340 pages long) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144ii.pdf (NB: over 500 pages long)

Speeches by Adair Turner, Alistair Darling and Paul Tucker: Turner Review Conference (27 March 2009) Text of three of the speeches at today's conference has been published, together with accompanying slides. FSA intends to make a recording of the event available, a link to which will appear in a future update. (27/03/09) The Turner Review Conference http://www.fsa.gov.uk/pubs/other/at_slides.pdf Turner Review conference - HM Treasury http://www.bankofengland.co.uk/publications/speeches/2009/speech384.pdf

FSA: The Turner Review FSA has today published the Turner Review of global banking regulation. It identifies three underlying causes of the crisis - macro-economic imbalances, financial innovation of little social value and important deficiencies in key bank capital and liquidity regulations. These were underpinned by an exaggerated faith in rational and self-correcting markets. It stresses the importance of regulation and supervision being based on a system-wide "macro-prudential" approach rather than focusing solely on specific firms. It recommends: • Fundamental changes to bank capital and liquidity regulations and to bank published accounts;

• More and higher quality bank capital, with several times as much capital required to support risky trading activity; • Counter-cyclical capital buffers, building up in good economic times so that they can be drawn on in downturns, and reflected in published account estimates of future potential losses; • A central role for much tighter regulation of liquidity; • Regulation of "shadow banking" activities on the basis of economic substance not legal form: increased reporting requirements for unregulated financial institutions such as hedge funds, and regulator powers to extend capital regulation; • Regulation of Credit Rating Agencies to limit conflicts of interest and inappropriate application of rating techniques; • National and international action to ensure that remuneration policies are designed to discourage excessive risk-taking; • Major changes in FSA’s supervisory approach, building on the existing Supervisory Enhancement Programme (SEP), with a focus on business strategies and system wide risks, rather than internal processes and structures; and • Major reforms in the regulation of the European banking market, combining a new European regulatory authority and increased national powers to constrain risky cross-border activity. The Turner Review distinguishes between those areas where FSA has already taken action, those where it can proceed nationally, and those where international agreement needs to be achieved. It also recognises that there may be alternative specific ways to achieve the essential objectives of effective regulation. In addition the Review highlights areas where it is premature to recommend specific action, but where wide- ranging options need to be debated. These include product regulation in retail (e.g. mortgage) and wholesale (e.g. CDS) markets. Lord Turner warns that the transition to higher bank capital will need to be managed carefully. UK banks are now capitalised at a level which will enable them to absorb severe stresses, and the short-term priority is to maintain bank lending to the real economy. (18/03/09) http://www.fsa.gov.uk/pubs/other/turner_review.pdf (NB: over 120 pages long) Turner Review Press Conference: Speaking notes and slides for the press http://www.fsa.gov.uk/pubs/speeches/turner_18mar09.pdf

DP09/2: A regulatory response to the global banking crisis This DP underpins The Turner Review, which is being published simultaneously. This DP covers the issues set out in Chapter 2 of The Turner Review and the associated actions, providing further analysis and background material. Both documents have a common analysis of the main causes of the current financial crisis. This overview concludes with the list of actions required to create a stable and effective banking system set out in The Turner Review. This DP contains no further actions or recommendations. Instead, it discusses options for the policy choices that need to be made to enable supervisory authorities around the world both to deal decisively with the current problems and to equip them to react swiftly and effectively to any future developments that may, once the current crisis is over, again threaten to undermine financial stability. Responses are required by 18 June 2009. (18/03/09) http://www.fsa.gov.uk/pubs/discussion/dp09_02.pdf (NB: over 200 pages long)

ABI: Regulation and markets for the 21st century ABI has published this discussion paper containing five "key principles to help ensure that regulatory reform brings real benefits for consumers", ahead of the Turner review and the G20 London Summit (a safe and secure financial services system, prudentially sound firms, competition and innovation; regulation that works across borders; capital markets that are connected to consumer needs). ABI also calls for an EU body that would act as a ‘supervisor of supervisors’ to improve oversight across the single market which would, over time, take the lead in the development of supervisory rules. (13/03/09) Association of British Insurers - Regulation and Markets for the 21st Century

FSA: Financial Risk Outlook 2009 This year’s FRO is divided into three sections: • Financial and economic crisis sets out an integrated view of the macroeconomic, financial and regulatory developments which lie behind the crisis. It outlines issues relating to the regulation of 5

banks and bank-like institutions which will be covered by the Turner Review and an FSA DP due to be published in March; • Economic outlook describes a central economic scenario drawn from various forecasts focusing in particular on how deleveraging is likely to affect firms, markets, consumers and the FSA. Three alternative scenarios explore the ways in which the economy and financial sector could plausibly evolve over the medium and long term to highlight the substantial uncertainties that face both firms and consumers; • Outlook for financial sectors and consumers identifies the risks and implications of the financial and economic environment for firms, market participants and consumers. FSA notes that there is a "key messages for firms" section at the end of each of the above. (9/02/09) http://www.fsa.gov.uk/pubs/plan/financial_risk_outlook_2009.pdf (NB: 90 pages long)

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

The Tripartite Review - a review of the UK’s Tripartite system of financial regulation in relation to financial stability - Preliminary Report The Sassoon Review, available to download via the following link, was commissioned by the Conservative Party. Recommendations include: new responsibilities and powers for BoE "so it can call time on debt"; fundamental reform FSA to minimise the risk of individual institutions being able to again endanger the stability of the financial system; a full analysis of the separation of ‘utility’ and ‘investment’ banks; increased capabilities for safeguarding financial stability in all the authorities. (9/03/09) The Conservative Party | News | News | Osborne welcomes Sassoon report into tripartite financial regulation

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

TSC: Banking crisis - international dimension TSC has published the uncorrected oral evidence from the hearing on 16 June, attended by three economics professors in which they discuss the credit crisis and the recent EC proposals on financial regulation. (22/06/09) Uncorrected Evidence 615

FSB: Inaugural meeting in Basel The press release notes the holding of its inaugural meeting in Basel on 26-27 June and sets out its institutional structures and notes other matters discussed at the meeting, including progress in work to strengthen financial systems. Adair Turner has been appointed chairman of FSB’s Standing Committee for Supervisory and Regulatory Cooperation. (29/06/09) http://www.financialstabilityboard.org/press/pr_090627.pdf Lord Turner appointed chair of FSB¿s Standing Committee for Supervisory and Regulatory Co-operation

OECD: Finance, competition and governance: priorities for reform and strategies to phase-out emergency measures OECD has published this report which recommends priorities for financial sector reform and principles for phasing out emergency measures. (22/06/09) http://www.oecd.org/dataoecd/55/47/43091457.pdf

TSC: Banking crisis - international dimensions TSC has published the uncorrected oral evidence from the hearing held on 9 June 2009 attended by Peter Chowla of the Policy and Advocacy Office, Bretton Woods Project in which the effect of regulatory change on developing nations is discussed. (15/06/09) Uncorrected Evidence 615

IOSCO: Annual Conference and statement on IAS IOSCO has published press releases concerning its Annual Conference - the first item is a synopsis of matters discussed. The second release notes that IOSCO will shortly issue final reports setting out recommended principles for the regulation of short selling and the oversight of hedge funds, while it will also consult on disclosure principles for offerings of asset-backed securities and investment managers' due diligence in relation to structured products investment. A report on the impact on emerging markets and their responses to the financial crisis will also be published. The third link is a statement with regard to IAS and international standards on auditing. (11/06/09) http://www.iosco.org/library/statements/pdf/statements-6.pdf http://www.iosco.org/news/pdf/IOSCONEWS145.pdf http://www.iosco.org/library/statements/pdf/statements-7.pdf

IOSCO: Annual Report 2008 IOSCO has published its annual report, which includes a section on "responding to the sub-prime crisis". (10/06/09) http://www.iosco.org/annual_reports/annual_report_2008/pdf/annualReport2008.pdf (NB: over 30 pages long)

TSC: Banking crisis - international dimensions It has been announced that TSC is to hold its first evidence session re the above on 9 June 2009. The attendees have not yet been announced. The TOR for this inquiry follows. (5/06/09) UK Parliament - TC0809PN27

OECD: Policy framework for effective and efficient financial regulation - general guidance OECD has published this draft consultation which contains a checklist of principles that should be adopted or considered as a general means of furthering the attainment of an effective and efficient framework for government intervention and regulation in the financial system. (18/05/09) http://www.oecd.org/dataoecd/61/57/42772017.pdf (NB: over 30 pages long)

Speech by Adair Turner: Building a more stable global banking system (27 April 2009) Text of the above, given at the Global Financial Forum in New York follows. Topics include: need for a macro-prudential approach, major changes to capital adequacy regulation, and major changes in the regulation of liquidity. (27/04/09) Building a more stable global banking system

BIS: International banking and financial market developments This quarterly review of developments in the sector includes special features on assessing the risk of banking crises and the evolution of electronic execution methods. (14/04/09) http://www.bis.org/publ/qtrpdf/r_qt0903.pdf (NB: over 90 pages long)

G20: Declaration on delivering resources through the international financial institutions/ FSF/FSB: Recommendations and principles to strengthen financial systems/FSF re-established as FSB/ EC: London G20 results: "much more ambitious than expected": President Barroso's remarks at press conference Further to yesterday's update, the following was also published, giving further details on the proposed reforms, which include: the scope of the Financial Stability Board, prudential regulation, the scope of regulation and exec remuneration. The text of a speech made by President Barroso notes that the EC will "come forward with" initiatives on executive pay, hedge funds and private equity on 21 April and will propose the new financial supervision structures in May so that the June European Council can agree on the architecture. FSF has issued reports today covering recommendations for addressing procyclicality in the financial system; principles for sound compensation practices; and principles for cross-border cooperation on crisis management as well as an update on the implementation of the recommendations contained in the FSF’s April 2008 report on enhancing market and institutional resilience - all are available via the second link. As noted at the G20 summit, FSF is to be re-established as FSB and the third link gives further details on this. (3/04/09) 2009 G20 London Summit Declaration on Strengthening the Financial System http://www.fsforum.org/press/pr_090402a.pdf http://www.financialstabilityboard.org/press/pr_090402a.pdf http://www.financialstabilityboard.org/press/pr_090402b.pdf EUROPA - Press Releases - José Manuel Durão Barroso, President of the European Commission, London G20 results: "much more ambitious than expected": President Barroso's remarks at press conference., G20 London Summit , London, 2 April 2009

G20: Leader's statement With regard to strengthening financial supervision and regulation, the leaders have agreed. to implement the action plan agreed at its last meeting, as set out in the attached progress report. It will establish a new Financial Stability Board with a strengthened mandate, as a successor to the Financial Stability Forum, including all G20 countries which will "reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks; extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds ... to take action against non-cooperative jurisdictions, including tax havens ... call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards; and to extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest". (2/04/09) http://www.londonsummit.gov.uk/resources/en/PDF/final-communique

IOSCO: IOSCO welcomes 50th signatory in fight against cross border market misconduct IOSCO has announced that 52 IOSCO members are now full signatories of the IOSCO Multilateral MoU concerning Consultation, Cooperation and the Exchange of Information. This follows the acceptance of 10

the members from Guernsey, Kenya and Montenegro as full signatories to Appendix A. The members from Argentina, Colombia, Egypt, the Former Yugoslav Republic of Macedonia and Uruguay have been invited to join Appendix B as IOSCO has identified some gaps in their legal systems which need to be addressed before becoming full signatories to Appendix A. (1/04/09) http://www.iosco.org/news/pdf/IOSCONEWS141.pdf

2.2 EU

For background information produced prior to the adoption of the EU’s September proposals [see main detailed materials document], 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

EU: Presidency conclusions "Conclusions" following the European Council meeting last week have been published. Paragraphs 15- 22 cover financial regulation/financial crisis issues. With regard to the proposed new framework, the Conclusions note that this needs to be "adopted swiftly in order for the new framework to be fully in place in the course of 2010. The European Council will take stock of progress at its meeting in October 2009 and will if necessary provide further direction". In addition, the European Council invites the Council and the EC ensure that a coordinated EU position is thoroughly prepared in advance of the 24/25 September 2009 G20 summit and calls on the Presidency and the EC to take up the issue of global regulation and supervision systematically in their contacts with international partners. (22/06/09) http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/108622.pdf (NB: over 30 pages long)

HoL Economic and Financial Affairs, and International Trade (Sub-Committee A): EU Financial Regulation and Supervision The report welcomes moves to improve the regulation and to strengthen the supervision of financial institutions and markets in the EU, but criticises the EC over the recent "speed and manner" of proposals to regulate alternative investments. It also criticises the proposals for reform of EU supervisory bodies. Although the report welcomes moves to establish colleges of supervisors for all major cross- border financial institutions in the EU, Lord Woolmer comments that "financial services are a key, strategic industry for the UK. London operates in a global market place as well as in Europe. Many other EU member states do not share this perspective. The UK government must ensure these national interests are properly reflected in new regulations or in structural reforms. ... The timing and pace of Commission proposals appeared dictated by the timetable of the European Parliament elections and the twilight days of the old Commission. .... The UK government have appeared to be behind the ball game at times. Getting things done right is now more important than getting things done fast." (17/06/09) http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeucom/106/106i.pdf (NB: over 80 pages long)

European Council: Backing for a new two-tier supervisory system for financial markets This press release notes that the suggested new regime for financial regulation will be submitted to heads of state and government on 18 and 19 June, with a view to reaching a consensus. It notes that the aim is to have both components of the new system fully in place in the course of 2010. (A link to the ECOFIN Conclusions is included at the bottom of this press release). (17/06/09) CONSILIUM - Homepage

CEBS: Rethinking the supervisory process CEBS has published the presentation given by Kerstin af Jochnick, chairman of CEBS, at a Bank of Spain/World Bank event in Madrid in which she discusses the latest EU proposals from CEBS' point of view. (16/06/09) http://www.c-ebs.org/getdoc/77b4d146-678e-4091-a5ea-9373ab6c4937/15-June- 2009_Rethinking-the-supervisory-process_Ke.aspx

Law Societies: EU legislation on company law and financial services (June 2009) This details the current status of various relevant Directives and European-level proposals. It highlights some forthcoming items from the EC, including: a White Paper on crisis management in the financial sector (June); consultation to deal with inconsistencies in the application of the UCITS Directive highlighted by the Madoff scandal (by end of June); proposals for amendments to the Prospectus Directive (September) and proposals for a recast of MAD (November). (12/06/09) 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 (NB: over 40 pages long)

Speech by Lord Myners to the Association of Foreign Banks (11 June 2009) Lord Myners discusses the Asset Protection Scheme and concludes "We must have greater cooperation between European regulators. We must make sure that we plug the gaps that have become very apparent over the last couple of years. What we could not live with - and we have made clear to our European colleagues that this is a point of principle - is an agreement at a European level that would have had domestic fiscal consequences for domestic governments. That is why supervision of individual institutions must remain a matter for national supervisors. (11/06/09) Speech by the Financial Services Secretary to the Treasury, Paul Myners to the Association of Foreign Banks - HM Treasury

CEBS: Annual Report 2008 The document provides a comprehensive overview of CEBS achievements in 2008. A work programme for 2009 appears at Annex 5.4.2. (9/06/09) http://www.c-ebs.org/getdoc/3fb34ccd-f7e1-4659-8c3c- 9709b4a9f742/AR2008.aspx (NB: over 50 pages long)

CESR: Call for evidence on mutual recognition with non-EU jurisdictions It is noted that, in order to technically support the activities carried out at EU level and to identify the economic advantages and drawbacks in entering into negotiations with third countries a CESR Task Force on mutual recognition was set up in May 2008 and this call for evidence covers questions to the industry concerning trading venues, intermediaries and products including CIS. Responses are required by 4 September 2009. (8/06/09) [CESR] - Document

CEIOPS: Annual Report 2008 and Work Programme 2009 The document provides a comprehensive overview of CEIOPS achievements in 2008 and an outline of CEIOPS objectives for the current year. Section 5 of the report covers Solvency II work. (8/06/09) http://www.ceiops.eu/media/files/publications/annualreports/CEIOPS-Annual-Report-2008.pdf (NB: over 90 pages long)

HoL Select Committee on Economic Affairs: Banking supervision and regulation This report considers why the framework of regulation and supervision in Britain and elsewhere failed to fulfil its principal purpose of avoiding or mitigating financial crisis. It particularly criticises the Tripartite, saying that it "failed to maintain financial stability and were found wanting in dealing with the crisis, in part because the roles of the three parties were not well enough defined and it was not clear who 13

was in charge; too little attention was paid in the United Kingdom to macro-prudential supervision ... only the Bank of England and the FSA were in a position to assess it; the FSA concentrated on its responsibility for conduct-of-business supervision (concerned mainly with consumer protection) and did not pay full attention to micro-prudential supervision; the FSA had an inadequate understanding of the complexity and limitations of the risk assessment models used by the banks it was supervising". The report argues that "it seems clear that the causes of the crisis were not simply management failure at some (but by no means all) banks but also commensurate failures in regulation and supervision, together with shortcomings on the part of the ratings agencies". It recommends that the Government should "as a matter of priority" revisit the Tripartite system and return responsibility for macro-prudential supervision to BoE, with executive powers to be exercised through a broader-based Financial Stability Committee, including substantial representation from FSA and HMT, and give further thought to where responsibility for micro-prudential supervision should lie. It also recommends that: supervisors and regulators should subject bank risk models to much more rigorous stress-testing; CDSs should be reported and centrally cleared; regulatory capital requirements for assets on banks’ trading books should be substantially increased and UK branches of multinational banks should be subject to greater oversight by the British authorities. Other issues raised include the role of rating agencies, the role of auditors and bank governance. (2/06/09) http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeconaf/101/101i.pdf (NB: over 60 pages long)

CESR/CEBS/CEIOPS: Delegation of responsibilities This document gives an overview of the pros and cons of delegation of responsibilities between the committees and possible issues that need to be tackled. (2/06/09) [CESR] - Document

CEPS: A crisis is a terrible thing to waste This commentary argues that "the EU seems to be incapable of drawing the necessary lessons from the financial crisis. In its proposals on financial supervision, it is attempting to accommodate the demands of most member states, without implementing a truly integrated system of financial supervision. The core of its proposals for European supervision places a huge responsibility on the colleges of supervisors for cross-border banks, as if this model has not proven its complete inadequacy over the last few months. If Europe is serious about tackling the crisis and wants to be seen as such, it needs to make proposals for a European system of financial supervisors, not a network. This means empowering a strong centre which can, following the principle of subsidiarity, effectively and unequivocally act on behalf of the European interest and police national supervisory authorities". (29/05/09) http://shop.ceps.eu/downfree.php?item_id=1847

EC: Communication on financial supervision in Europe The EC has adopted a Communication on Financial Supervision in Europe which proposes a set of reforms to the current architecture of financial services committees, with the creation of a new European Systemic Risk Council and European System of Financial Supervisors, composed of new European Supervisory Authorities. Legislation to embody these proposals will follow in the autumn. The EC also invites comments on the Communication which must be received by 15 July 2009. (27/05/09) EUROPA - Press Releases - Financial services: Commission proposes stronger financial supervision in Europe (full press release) EUROPA - Press Releases - Financial Supervision – Frequently Asked Questions (FAQ) http://ec.europa.eu/internal_market/finances/docs/committees/supervision/communication_may2009/C- 2009_715_en.pdf (text of Communication) http://ec.europa.eu/internal_market/finances/docs/committees/supervision/communication_may2009/imp act_assessment_summary_en.pdf (Impact Assessment) EUROPA - Press Releases - José Manuel Barroso, Charlie McCreevy and Joaquín Almunia , President of the European Commission, European Commissioner for Internal Market and Services, European Commissioner for Economic and Monetary Policy, Introductory remark (Introductory remarks at the Joint Press Conference on European Financial Supervision)

CEIOPS: Annual Conference CEIOPS has announced its annual conference, which will take place on 18 November 2009 and published a programme. The main topics will include Solvency II implementation and Jacques de Larosière will present his views on the follow-up to the report issued by the high level group on financial supervision. (26/05/09) http://www.ceiops.eu/media/files/Conference-2009/CEIOPS-Conference-Programme- 20090807.pdf

Law Societies: EU legislation on company law and financial services (May 2009) This details the current status of various relevant Directives and European-level proposals. (21/05/09) http://www.lawsociety.org.uk/secure/file/179760/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/eucompanylawupdate_may09.pdf (NB: over 30 pages long)

EC: Summary of public submissions received on the proposals of the de Larosière report regarding financial supervision in Europe EC has published a summary of the 116 submissions received in respect of the above-mentioned report. (18/05/09) http://ec.europa.eu/internal_market/consultations/docs/2009/fin_supervision/summary_en.pdf

CEBS: The future of financial regulation and supervision CEBS has published the slides of the presentation given by Kerstin af Jochnick, Chair of CEBS, at the IACPM Spring General Meeting 2009 (15/05/09) http://www.c-ebs.org/getdoc/176267cb-a2df-419e- 8132-0b7ed1285417/15-May-2009_IACPM-Spring-General-Meeting-2009_Kers.aspx

EC: Infringement proceedings The EC has decided to launch infringement proceedings against Austria, Greece, Poland and Portugal in various areas, including referring Portugal to the ECJ for failing to communicate measures transposing the Eligible Assets Directive and sending reasoned opinions to Belgium, Cyprus, Greece, Hungary and Italy over non-implementation of the Third Company Law Directive. (14/05/09) EUROPA - Press Releases - Internal Market: infringement proceedings against Austria, Greece, Poland and Portugal EUROPA - Press Releases - Company law and corporate governance: Commission takes action to ensure that five Member States implement EU laws

EC: Single Market News Includes interviews with David Wright and articles on remuneration, alternative investments and packaged retail products - these can be downloaded separately from the link below. (14/05/09) European Commission » Internal Market » Single Market News » SMN 53

Speech by Charlie McCreevy: Looking beyond the financial and economic crisis (11 May 2009) Text of a speech made at the Friends First Conference "Today's World for Financial Advisors" follows in which Charlie McCreevy gives an overview of recent initiatives in the FS area. He notes forthcoming reviews of the adequacy of existing guarantee schemes in insurance (by the end of 2009, to be followed by a White Paper) and on the IMD (in early 2010). (14/05/09) EUROPA - Press Releases - Charlie McCREEVY, European Commissioner for Internal Market and Services, Looking beyond the financial and economic crisis, Friends First Conference "Today's World for Financial Advisors", Dublin, 11 May 2009

Speech by Charlie McCreevy: The future of regulation (13 May 2009) Text of this speech, Reform Scotland's Spring Lecture, follows, in which Charlie McCreevy gives an overview of recent initiatives in the FS area. (13/05/09) EUROPA - Press Releases - Charlie McCREEVY, European Commissioner for Internal Market and Services, The future of regulation , Reform Scotland's Spring Lecture , Edinburgh, 13 May 2009

CEIOPS: Report on Convergence 2008/Roadmap for Convergence for 2009 CEIOPS Report on Convergence 2008 offers an overview of CEIOPS' achievements in respect of the ECOFIN Roadmap on convergence during 2008 while the CEIOPS Roadmap on Convergence presents 15

the 2009 CEIOPS' work streams following ECOFIN Conclusions, G20 recommendations and the revised EC Decision establishing CEIOPS. (11/05/09) http://www.ceiops.eu/media/files/publications/reports/CEIOPS-Report-on-Convergence-2008.pdf http://www.ceiops.eu/media/files/2009-Work-Programmes/CEIOPS-Roadmap-on-Convergence-2009.pdf

Speech by Charlie McCreevy: Keynote speech at High Level Conference "Towards a New Supervisory Architecture in Europe" (7 May 2009) Charlie McCreevy notes that "in line with the de Larosière recommendations, we will soon present the details of an enhanced European financial supervisory framework based on two new pillars: The first pillar is the European Systemic Risk Council (ESRC), which has been discussed this morning. This Council will monitor and assess the risks to the stability of the financial system as a whole. It would provide early warning of systemic risks and, where necessary, present recommendations for action to address these risks. ... The second pillar is the creation of the European System of Financial Supervisors (ESFS) consisting of a network of national supervisors working in tandem with the new European Supervisory Authorities. The new European network will be built on shared and mutually reinforcing responsibilities, combining nationally based supervision of firms with the centralisation of specific tasks at the European level. The driver behind the network is to foster harmonised rules as well as coherent supervisory practice and enforcement. ... In order to make rapid progress our Communication will set out the basic architecture for a new European financial supervisory framework. And we will invite the June European Council to endorse this architecture. It is envisaged that the legislative changes to give effect to the proposed framework will follow in the autumn of this year - after further stakeholder consultation. Our objective is to have these reforms adopted in time for the renewed supervisory framework to be up and running in 2010". (7/05/09) EUROPA - Press Releases - Charlie McCREEVY, European Commissioner for Internal Market and Services, Keynote Speech, European Parliament - High Level Conference "Towards a New Supervisory Architecture in Europe", Brussels, 7 May 2009

Speech by Charlie McCreevy: Programme to support specific activities in the field of financial services, financial reporting and auditing and Capital Requirements Directive (EP Plenary Session - Joint Debate on Finances, 6 May 2009) The EC has published the text of this speech, in which Charlie McCreevy notes "the prospect of a first reading agreement on two key measures: the Community Programme to support specific activities in the field of financial services, financial reporting and auditing and the review of the Capital Requirements Directive" and discusses proposed amendments to these. He comments that "in three weeks' time, a Commission Communication will set out its views on follow-up actions to the recommendations of the de Larosière Report on financial supervision. Upon endorsement by the June European Council, further legislative proposals will be presented in the autumn ... Requirements for securitisation and trading book will be strengthened in June together with provisions for regulatory review of remuneration policies. Supplementary measures to help constrain the build-up of leverage in the banking sector will be proposed in October". (6/05/09) EUROPA - Press Releases - Charlie McCREEVY, European Commissioner for Internal Market and Services, Programme to support specific activities in the field of financial services, financial reporting and auditing and Capital Requirements Directive, EP Plenar

European Council: Council strengthens tools to counter financial market instability and to enhance liquidity This press release notes that the Council has adopted a directive amending the directives 98/26/EC on settlement finality in payment and securities settlement systems and 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims, following a first reading agreement with the EP. (28/04/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/misc/107390.pdf

CESR/CEBS/CEIOPS: Joint response to the EC consultation on improving the supervision of EU financial markets The 3L3 Committees have published the above, including, in an annex, their sectoral views on the de Larosière report. They support the proposal to introduce a two-tier institutional architecture for the supervision of the EU financial markets, with the 3L3 Committees providing the link at a European level between the envisaged macro and micro-supervisory arrangements. The response highlights the 16

following key aspects of the new EU supervisory architecture: the need for a harmonised set of core rules;; the establishment of colleges as core structures for cross-border supervision; the need for a coherent framework for crisis resolution; and the need for increased and further formalised co-ordination among the sector regulators and supervisors. (23/04/09) http://www.c-ebs.org/getdoc/fcdf11d5-00e4- 411c-8093-1caa detailed materials 6a5e0faa/10-April-2009_3L3-Joint-Response.aspx

EC: Towards a new supervisory architecture in Europe As part of the consultation process on the future of EU financial supervision, the EC is to hold a conference on the above in Brussels on 7 May 2009. It is designed to enable a wide and open discussion on the future reform of the European supervisory framework and to provide the EC with valuable suggestions to improve the quality and comprehensiveness of its policy proposals. Agenda below. (20/04/09) http://ec.europa.eu/internal_market/finances/docs/committees/supervision/070509programme_en.pdf

CEBS: The New Financial Europe Conference - supervision and banking regulation Kerstin af Jochnick, chairman of CEBS, presented at yesterday's BBA seminar. A copy of her slides follows. (1/04/09) http://www.c-ebs.org/getdoc/2f62beab-7f0c-4e3d-b7df-3e9f6883315b/31-March- 2009_BBA_The-New-Financial-Europe-Confere.aspx

ABI: The insurance industry - rebuilding confidence in Europe This proposes three steps to help build trust in European capital markets: better use of the information exchange offered by colleges of supervisors; more resources for Level Three committees and a debate over the feasibility of a single prudential supervisor. The report also includes principles to underpin any new legislation or proposed solutions to reform financial supervision, including: the need for better, targeted regulation rather than simply adding to existing rules; the importance of consumer needs; risk and principles-based regulation (as opposed to “light-touch” regulation) and the need for a global response and the dangers of protectionism. (12/02/09) http://www.abi.org.uk/content/contentfilemanager.aspx?contentid=24990

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 International Banking Conference - speeches by Adair Turner, Neelie Kroes and Angela Knight Adair Turner discusses how to deal with banks which are too-big-to-fail; how to deal with cross-border banks; legal separation between narrow banks and investment banking, going on to remark on what he refers to as "the latest twist in the FSA/Bank/Treasury, Adair/Mervyn/Alistair soap opera. I read accounts of this soap with interest but with little recognition", suggesting that "any change we make in structural responsibilities will have some advantages - some important interfaces will work much better - and will create new disadvantages, new dangers of different problems falling between the stools. Separating bank supervision from insurance supervision creates the danger that an institution like AIG can inhabit a regulatory no man’s land. Separating conduct supervision from prudential supervision can also reduce the effectiveness with which issues are addressed: the problems of subprime lending in the US and in the UK simultaneously raise issues about financial stability and about consumer protection". Neelie Kroes heavily criticises RBS in her speech, saying "this bank was not merely too big to fail, it was too big to supervise; too big to operate; too complex to understand and highly dangerous to the European Single Market" and warns "I’ve already met with two dozen bank CEOs and my starting point is a pragmatic approach to fixing this mess. ... There can’t be a second bail-out. The world's largest economies are piling 19

on roughly 9 trillion pounds of extra debt over the next three years: there is no money left for a second bailout". (30/06/09) Address to the British Bankers' Association Annual International Banking Conference 2009 ; EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Did government interventions help in the crisis? Address at International Banking Conference of British Bankers Association London, 30 June 2009 ; http://www.bba.org.uk/content/1/c6/01/61/91/Angela_Knight_-_Annual_Banking_Conference.pdf

FSA: Annual Report 2008/09 The report details how the FSA performed during the year against its statutory objectives and how it has delivered outcomes for both firms and consumers. Hector Sants noted: "I hope we have begun the process of rebuilding confidence in the system and the regulator by demonstrating that we are an organisation that is willing to learn and that we have the ability to change radically. I believe enduring and respected organisations are forged in times of adversity and that this will ultimately be seen as such a time for the FSA". Appendices to the report, published today on FSA’s website, provide further statistical information on its work during the year. (24/06/09) http://www.fsa.gov.uk/pubs/annual/ar08_09/ar08_09.pdf (NB: over 120 pages long) Annual Report 2008/09: Appendices

Speech by Hector Sants: The challenges facing bank regulation (14 May 2009) Text of the above, given to the Association of Corporate Treasurers, follows. Topics include: FSA proposals re bank structuring and supervision, including Significant Influence Function review; the roles of senior management, shareholders and auditors. He concludes: "there appears, from my perspective, to have been a mismatch between society’s expectations of what regulation can achieve and the reality. In particular, whether society understands and will tolerate a regulatory regime where failure of individual firms is allowed ... My view is society’s revealed preference definitely tells us that UK consumers need protection. They cannot be expected to judge the riskiness of a deposit-taking institution. If this view is accepted it needs to be reconciled with the requirement to minimise the likelihood of cost to the taxpayer whilst allowing investors and management to continue to bear risk". (15/05/09) The challenges facing bank regulation

HMT: Banking Liaison Panel HMT has established the Banking Liaison Panel in accordance with s10 Banking Act 2009. A list of members, who include representatives from the Tripartite and industry groups, is included in the attached link. The Panel will meet quarterly, and HMT will publish summaries of the minutes. (1/05/09) Banking Liaison Panel - HM Treasury

BBA: Turner Review BBA has published the text of a letter from Angela Knight to Adair Turner ahead of its official response to the Turner Review in order to "put on public record the UK banking industry’s support in principle for many of the objectives set out in your review and to provide an early indication of the views beginning to emerge within the industry at both a senior and a technical level". One issue that she highlights is "whether and how the FSA plans to change its approach to enforcement and its policy/rules making process ... does the FSA plan to take steps to ensure greater clarity for both firms and consumers on the requirements they are expected to meet? ... Similarly, how practically will the FSA modify or amend its approach to principles-based regulation, or its revised description of ‘outcomes-focused’ regulation? In particular, how will it address the lack of certainty that firms and consumers currently face and the concern that changes could be seen, perhaps unfairly, as being symptomatic of 'light touch' regulation?" (24/04/09) http://www.bba.org.uk/content/1/c6/01/57/67/22nd_April_letter_to_Lord_Turner.pdf

FSA Business Plan for 2009/10 The plan sets out FSA's programme of work for the year ahead to address the risks highlighted by the Financial Risk Outlook published earlier this week. It outlines FSA’s priorities and specific initiatives for the year ahead, which reflect the continuing difficulties and challenges facing the financial services industry. Hector Sants notes that “we will need additional financial resources to meet these demanding priorities for the coming year. This will mean higher fees for regulated firms, although we have been 20

careful to ensure, as far as possible, that firms requiring the most regulatory work and engagement pay proportionately. There will be no increase in fees for the smallest firms, and many of them will actually experience a fee reduction.” To fund its proposed plan of work, FSA says it will need to increase the amount it raises from firms by £117m. The largest component of this increase, approximately £70m, is due to the cost of embedding and delivering higher quality supervision, especially of higher impact firms. To support the enhancement of its supervisory process, FSA will also be investing an additional £12m in technology and property infrastructure. (12/02/09) http://www.fsa.gov.uk/pubs/plan/pb2009_10.pdf (NB: over 50 pages long)

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) See main detailed materials document for post-September announcements.

Chronological Reports

TSC: Banking crisis - regulation and supervision TSC has published the uncorrected oral evidence from the hearing on 24 June, attended by representatives from BoE (including Mervyn King) in which they discuss macro-prudential regulation and bank exec remuneration amongst other matters. Mervyn King was asked "how can it possibly be that a White Paper is anticipated in the early future without one of the more important parts of the tripartite not being consulted on it?" and he replied "there has not been a principals meeting of the tripartite to discuss a draft White Paper. That is all I can say". (30/06/09) Uncorrected Evidence 767

BoE: Financial Stability Report BoE has published its bi-annual Financial Stability Report which assesses the current state of the financial system and discusses ways to strengthen the system in the future. Among the policy areas specifically discussed: • Strengthening market discipline. Richer and more frequent public disclosures by banks are required. To control risk-taking, financial institutions need to face a credible threat of closure or wind down, via resolution regimes. BoE supports a risk-based, pre-funded deposit insurance system. • Greater self-insurance by financial institutions. Institutions will require: higher levels of loss- absorbing bank capital and larger, high-quality liquidity buffers; a cushion to be built up to absorb future losses during the upswing of a cycle; reduced reliance on ratings agencies; contingency plans for accessing capital and funding in times of stress, and for restructuring or winding up an institution in the event of distress. • Improved management of risks arising from interactions among financial institutions. The authorities need better information on connections between institutions. To prevent the build-up of financial imbalances, countercyclical instruments are needed. BoE also supports greater use of central counterparties for standardised and liquid financial contracts and more trading of key financial instruments on exchanges or other open platforms. • Size and structure of the financial system compatible with maintaining financial stability. Banks should not be too big or complex. Possible measures could include limiting the scope of banks’ businesses to a narrower range of relatively low-risk activities, or imposing higher capital and liquidity charges on institutions that pose greater risks to the economy or taxpayer in the event of failure. • Principles for future support from public authorities. When in future self protection fails, interventions to contain crises should be guided by explicit principles – for example, for acting as market maker or capital provider of last resort – to ensure that they do not encourage imprudent behaviour by financial institutions and minimise risks to the public finances. (26/06/09) Bank of England|Publications|Main Publications|Financial Stability Report|June 2009 Contents

Speech by Spencer Dale (BoE): Inflation targeting – learning the lessons from the financial crisis (23 June 2009) Topics include the asset purchase programme. (24/06/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech395.pdf

Speech by Adair Turner: Regulating financial markets to secure economic stability (16 July 2009) Text of the above, given at Central Party School in Beijing, follows. He discusses "six key measures" in financial regulation at national and global level to ensure stability and notes "one of the striking features of this crisis is how poor economists and policy analysts were at foreseeing it. Indeed, not only did we fail to foresee it, there were many reports from respected international bodies and papers by eminent academic economists, explaining that the development of the financial system over the last ten to fifteen years, with its complex innovations of structured credit and credit derivatives, had made the financial system more resilient. Those reports turned out to be quite wrong, but they reflected a dominant conventional wisdom, an overconfident assertion that financial markets were rational and self adjusting and that countries should pursue complete financial market liberalisation as rapidly as possible. We need to create mechanisms to guard against intellectual fashion, to ensure that we deliberately challenge dominant conventional wisdoms. ... We need above all to see markets not as ends in themselves, but as tools to achieve desirable social objectives .... But they will not operate perfectly and smoothly without effective regulation and oversight. Much of that regulation and oversight can be achieved at national level, but some has to be achieved through international agreement". (16/06/09) Regulating financial markets to secure economic stability

CEPS: What lessons from the 1930s? This paper explores areas in which the experience of the Great Depression might be relevant today, including with respect to the systemic stability of the banking system. It notes that its investigation of the US banking system showed that commercial banking operations (deposit-taking and lending) remained profitable even during the worst years and argues that "to prevent future crises of this type, one should make sure that losses from the investment banking arms cannot impair commercial banking operations. At least a partial separation of commercial and investment banking thus seems justified by the greater stability of commercial banking operations". (7/05/09) http://shop.ceps.eu/downfree.php?item_id=1839

FSA: Milestones FSA has updated its 2009/10 milestones timetable in respect of financial stability and supervision of firms. (5/05/09) http://www.fsa.gov.uk/pubs/plan/fsa_milestone09_10.pdf

CEPS: Keep it simple - policy responses to the financial crisis This study proposes new rules of the game - imposed through G20 and the IMF - for the macroeconomic and exchange rate policies of the main players, including the US. It also advocates stricter prudential rules for banks, centred around the introduction of a simple leverage ratio calculated with reference to total assets, with no exemptions or risk mitigation. The authors warn against the risk of a massive wave of new regulation, and call instead for a simplification and a better enforcement of rules. (3/04/09) http://shop.ceps.eu/downfree.php?item_id=1818 (NB: over 90 pages long)

FSA: The behaviour and determinants of UK bank capital and lending and the costs and benefits of prudential regulation FSA is carrying out research to discover how banks respond to capital requirements and to examine the relationship between changing capital requirements, banks’ behaviour and the macro-economy. The objective of this research is to show how the capital requirements FSA imposes affects bank capital and lending, and how this affects macroeconomic outcomes. (2/03/09) The behaviour and determinants of UK bank capital and lending and the costs and benefits of prudential regulation

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

FSA: Finance director and two lawyers charged with insider dealing Andrew King, an FD, and Michael McFall and Andrew Rimmington, both lawyers, have appeared at City of Westminster Magistrates’ Court charged with 8 counts of insider dealing, contrary to s52 of the Criminal Justice Act 1993. Andrew King is charged with disclosing inside information relating to the proposed takeover of Neutec Pharma plc (the "inside information") to Michael McFall, having had that inside information by virtue of being Neutec Pharma plc’s FD, and disclosing it to Michael McFall other than in the proper performance of his job. Michael McFall is charged with: disclosing the inside information to Andrew Rimmington; and on three separate occasions, acquiring a total of 3955 shares in Neutec Pharma plc on the basis of the inside information. Andrew Rimmington is charged with: on three separate occasions, acquiring a total of 6961 shares in Neutec Pharma plc on the basis of the inside information. Michael McFall and Andrew Rimmington are charged jointly with: acquiring 3012 shares in Neutec Pharma plc on the basis of the inside information. Proceedings have been adjourned until 28 July 2009 when the Magistrates will consider committal to the Crown Court for trial. All three accused were granted unconditional bail. (17/06/09) Finance director and two lawyers charged with insider dealing

Speech by Hector Sants: The regulator's role in judging competence (7 May 2009) Text of the above, given at the Securities & Investment Institute Conference 2009, follows. Topics include: FSA’s supervisory approach and what it means for directors and non-execs, including Significant Influence Function interviews. He notes: "Taking tough enforcement action against individuals, for integrity or competency failures ... is one of the most difficult areas to get outcomes. Cases against individuals are more fiercely contested, the timelines are longer and settlements more difficult to reach. Despite these difficulties, we are committed to holding senior managers to account. I would draw your attention to the fact that the number of SIFs under investigation increased threefold in the last 12 months". (7/05/09) The regulators role in judging competence

Speech by Thomas Huertas: The outlook for banking and banking regulation (1 April 2009) Text of the above, given at the ICFR Inaugural Summit, follows, in which he considers the future of banking regulation and how banks must respond to it. He notes: "In the new environment banks will have to do two things: They will have to conduct themselves correctly and they will have to keep themselves in sound condition. Under correct conduct I include conduct in the market (no market abuse, no insider dealing, etc.) and conduct vis-à-vis the customer (treating customers fairly, segregating client assets properly, managing conflicts of interest, etc.). Banks can expect supervisors to police conduct vigorously and for the FSA in particular to make vigorous use of the greater powers that we have been given to bring criminal proceedings for offences such as insider dealing". (3/4/09) The Outlook for Banking and Banking Regulation 25

Speech by Hector Sants: Delivering intensive supervision and credible deterrence (12 March 2009) Text of this speech, given at a Reuters Newsmakers event, follows. Topics include: origins of the credit crisis; FSA's new "intensive supervisory model"; principles-based regulation. He notes that "in the future we will seek to make judgements on the judgements of senior management and take actions if in our view those actions will lead to risks to our statutory objectives. This is a fundamental change. It is moving from regulation based only on observable facts to regulation based on judgements about the future" and concludes "The FSA is already a radically different organisation. The FSA has been seared by recent events but it is tougher and better as a result. The FSA has grown up". (12/03/09) http://www.ceiops.eu/media/files/consultations/consultativepanel/cp-26022009/P-Skinner-CEIOPS- Consultative-Panel-letter-Solvency-II-timeline.pdf

FSA: Supervisory Enhancement Programme: closing summary FSA has published this note on its website signed off by Hector Sants. It notes key components of "wider interest", including: • A compulsory and irreducible programme of regular meetings with the senior management, control functions and non-executive directors of firms subject to FSA's "close and continuous" regime (that is, High Impact Firms - HIFs). This is to establish and communicate to the firm the minimum level of interaction FSA expects, and will now include: an annual meeting with the firm’s senior management to focus specifically on the business and strategic plans for the firm; an annual meeting with the external auditors; and specific items of management information to support these meetings. • A regulatory period between formal ARROW assessments of maximum two years for each HIF. During this period, FSA is now holding more formal internal "checkpoints" on a six-monthly basis to provide more FSA senior management input and oversight of the supervisory approach for the firm. • Increased scrutiny of candidates for Significant Influence Functions (SIFs). This scrutiny includes interviewing SIF candidates where appropriate and a greater focus on their personal accountability in post. • A new group of supervision advisory specialists who will conduct a regular quality review of the supervisory process for all HIFs. It will also provide support to the supervisory teams. It notes that there are a small but critical number of outstanding elements remaining, each with a longer- term delivery time frame - policy development and implementation, where market events have since identified a need for a more fundamental review of potential international reforms (which is to be taken forward in a DP due in March 2009); FSA's ability to collect and then harness effectively the use of information and intelligence so that front-line supervision staff benefit from more timely and relevant financial analysis, business model and other data based on peer firm review and delivery of a T&C regime for FSA supervisory staff, which is part way through development, although the training element of this has already gone live. (12/02/09) Supervisory Enhancement Programme: closing summary

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

FSA: FSA refers firms to enforcement in clampdown on poor mortgage arrears handling The latest FSA review found continued weaknesses in the way specialist lending firms and third party administrators are handling mortgage arrears and repossessions. Four firms have been referred to enforcement for investigation and several more firms are being assessed for referral. In many cases FSA found a high incidence of mortgages moving straight into arrears and potential breaches of responsible lending rules. All firms investigated will be required to take action to remedy failures identified in the arrears review. New data on mortgage lending published by FSA, shows the number of consumers facing arrears and repossessions continues to increase. (23/06/09) FSA refers firms to enforcement in clampdown on poor mortgage arrears handling Statistics on mortgage lending

FSA: FSA refers firms to enforcement in clampdown on poor mortgage arrears handling FSA notes that four firms have been referred to enforcement for investigation and several more firms are being assessed for referral. In many cases FSA found a high incidence of mortgages moving straight into arrears and potential breaches of responsible lending rules. All firms investigated will be required to take action to remedy failures identified in the arrears review. FSA has undertaken a review focusing on specialist lenders to the impaired credit market who are no longer lending, and on third party administrators (TPAs) contracted to handle mortgage arrears and repossessions work on behalf of lenders. It also looked at arrears charges and the treatment of borrowers whose mortgages have been securitised. It found that poor practice was still prevalent among specialist lenders and TPAs including: operating an approach focused too strongly on recovering arrears without reference to the borrower's individual circumstances; being too ready to take court action; imposing arrears-related charges unfairly; and specialist lenders not exercising sufficient oversight of contracted TPAs. It also identified terms in securitisation covenants which could lead to inequitable treatment of borrowers in arrears. FSA has outlined some examples of good and bad practices (second link below). The issues identified during the review are being factored into FSA’s Mortgage Market Review on which a DP is due to be published in September. (22/06/09) FSA refers firms to enforcement in clampdown on poor mortgage arrears handling Mortgage arrears and repossessions handling Statistics on mortgage lending

FSA: Six arrested in FSA insider dealing investigation Full text of statement follows: Five men and one woman, aged between 27 and 34, were today arrested in connection with an ongoing investigation by the Financial Services Authority (FSA) into suspected organised insider dealing. Search warrants were also executed at eight addresses in London and Essex as part of the investigation.

Today's operation was jointly carried out by the FSA and the City of London Police Economic Crime Directorate (ECD). The operation and investigation are part of the FSA's work to tackle market abuse.

No further details can be confirmed at this time. (28/05/09)

FSA: Seven arrests in FSA operation on boiler rooms FSA, in close cooperation with the City of London Police Economic Crime Directorate and with assistance from Hertfordshire Constabulary Fraud Squad, earlier today conducted a major operation to search a number of premises in Surrey, West Sussex, London and Hertfordshire. The investigation, which is being conducted with assistance from Eurojust, Europol, the anti-money laundering unit of the Malta Police, and several European law enforcement agencies, focuses on share fraud and boiler room activity in the UK and Europe which has taken approximately £28 million of victims' funds. Seven people have been arrested in the south of England. (6/05/09) Seven arrests in FSA operation on boiler rooms

Speech by Margaret Cole: Delivering Credible Deterrence (27 April 2009) Text of the above, given at FSA's Annual Financial Crime Conference, follows. Topics include: FSA's credible deterrence strategy; insider dealing and share fraud, including details of recent cases. She notes: Our pipeline of cases include investigations into serious organised crime. We have made it a priority to tackle business professionals, repeat offenders and organised rings. We do also expect to pursue some cases of 'opportunistic' abuse, especially where those involved are, because of their profession or role, committing a serious breach of trust". (29/04/09) Delivering Credible Deterrence

Speech by Sally Dewar: Tackling financial crime in the current economic climate (27 April 2009) Text of the above, given at FSA's Annual Financial Crime Conference, follows. Topics include: FSA’s approach to tackling financial crime, including its risk based approach to financial crime, what it sees as some of the most serious financial crime risks, its credible deterrence strategy and programme of work to raise consumer awareness of financial crime. (29/04/09) Tackling financial crime in the current economic climate

FSA statement: Two arrested in FSA insider dealing investigation Full text of statement follows:

The Financial Services Authority (FSA) today arrested two people, including a senior corporate finance adviser, in connection with an ongoing investigation into suspected organised insider dealing. Search warrants were also executed by the FSA at a number of addresses in Greater London as part of the investigation.

The operation carried out this morning involved 25 FSA staff, assisted by 11 officers from the City of London Police, and is part of the FSA’s work to tackle market abuse.

No further details can be confirmed at this time. (1/04/09)

FSA statement: First FSA criminal insider dealing case results in prison sentence Christopher McQuoid and his father-in-law, James William Melbourne have been each sentenced to eight months in prison for insider dealing. Christopher McQuoid's sentence is effective immediately while James William Melbourne's sentence has been suspended for 12 months. (30/03/09)

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).

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

BIS: Core Principles for Effective Deposit Insurance Systems The Core Principles are reflective of, and designed to be adaptable to, a broad range of country circumstances, settings and structures. The Core Principles are intended as a voluntary framework for effective deposit insurance practices; national authorities are free to put in place supplementary measures that they deem necessary to achieve effective deposit insurance in their jurisdictions. The Core Principles are not designed to cover all the needs and circumstances of every banking system. Instead, specific country circumstances should be more appropriately considered in the context of existing laws and powers to fulfil the public policy objectives and mandate of the deposit insurance system. (19/06/09) http://www.bis.org/publ/bcbs156.pdf?noframes=1

CEPS: Deposit-Protection Schemes: Issues for an EC Directive This paper notes that, in April 1992, the EC proposed a directive on deposit protection schemes that used a modified home-country approach for branches of banks from other member states and involved a limited amount of harmonisation. The member states had urged the EC to propose a home-country deposit insurance directive, primarily because of the shift to home-country supervision and regulation of EU branches mandated by the Second Banking Directive. This report attempts to identify and analyse the major issues facing the member states as they seek agreement on the EC proposals. (8/06/08) http://shop.ceps.be/downfree.php?item_id=1852

CP09/16: Financial Services Compensation Scheme: Verification of the single customer view and changes to deposit compensation In this CP, FSA proposes to extend until December 2010 interim rules which allow separate compensation cover for customers with deposits in two merging building societies. It also proposes a similar extension for customers of a building society which merges with a subsidiary of another mutual 31

society and for customers whose deposits are transferred from a failed firm to another deposit taker where they already have an account. The rules had been due to expire on 30 September 2009. FSA notes that the Deposit Guarantee Schemes Directive has recently been amended to introduce an EU-wide common deposit protection limit of €100,000 from 31 December 2010, but that this amendment will only take effect if the EC reports that such a change would be appropriate and financially viable for all EU Member States. The report is due by the end of this year, but even then it may not be clear what the eventual outcome will be. In these circumstances FSA decided that an extension to December 2010 is the right course now allowing a permanent decision to be made later when the final DGSD position is known. The consultation period for this ends on 6 July 2009. The CP also proposes measures on how FSA would supervise the 'single customer view' of deposits covered by the FSCS, if that goes forward and on how the FSCS would treat term deposit accounts when it pays compensation following a default. The consultation period for these items ends on 4 September 2009. (4/06/09) http://www.fsa.gov.uk/pubs/cp/cp09_16.pdf

PS09/8: Consolidated Policy Statement on our fee-raising arrangements and regulatory fees and levies 2009/10 - Including feedback on CP08/18, CP09/7 and 'made rules' Part A (Sections I - III) contains the Consolidated Policy Statement on FSA's fee-raising arrangements; and Part B (Sections IV - VI) presents the 2009/10 FSA fee rates and FOS levy following consultation in CP09/7, and provides feedback on the comments received and the remaining fees policy proposals from CP09/7 and CP09/18. FSA will invoice fee payers from June 2009 onwards for their 2009/10 periodic fees. (2/06/09) http://www.fsa.gov.uk/pubs/policy/ps09_08.pdf (NB: over 190 pages long)

EC: Review of Directive 94/19/EC on Deposit-Guarantee Schemes (DGS) The EC has published a consultation re the above. It notes that amendments to the DGS Directive were adopted earlier this year which raised the minimum coverage of DGS in the EU, reduced the deadline to decide if a bank has failed, reduced the payout delay, and abandoned the concept of co-insurance, but that a series of other issues were also identified that appeared appropriate for further review in the slightly more medium term. The DGS Directive therefore provides for a review clause and includes a comprehensive list of issues to be reviewed. These issues are dealt with in this consultation paper. Responses are required by 27 July 2009. (29/05/09) http://ec.europa.eu/internal_market/consultations/docs/2009/deposit_guarantee_schemes/consultation_dgs _2009_en.pdf

EC: Insurance guarantee schemes This is the text of a letter from EC to CEIOPS which asks it to provide an analysis of the feasibility of the design options of IGS, including the legal and regulatory framework and cross-border arrangements. It is noted that the EC intends to adopt a White Paper on insurance guarantee schemes at the end of the year. (29/05/09) http://ec.europa.eu/internal_market/insurance/docs/guarantee/white_paper_march2009/letter_from_DG_t o_CEIOPS_Chair_2009_5_5_en.pdf

BSCB: Subscribers not covered by FSCS This clarifies wording in the March 2008 editions of the Banking Code and the Business Banking Code re FSCS, concluding "although customers reading the Banking Codes who are not aware of the Guidance for subscribers could be misled by the statement in the Codes about membership of FSCS, the Board of Directors of the Banking Code Standards Board has agreed that, provided all deposit-taking subscribers to the Codes are covered by UK government deposit guarantees or EEA deposit guarantee arrangements, non-membership of FSCS will not be treated as a breach of the Code(s)". (22/05/09) Banking Code Standards Board

FSCS: Ernst and Young letter to customers of Kaupthing Singer and Friedlander and Heritable Bank FSCS has advised that customers of Kaupthing Singer and Friedlander and Heritable Bank will shortly receive a letter from the administrators of both banks, Ernst & Young LLP, asking them to submit a claim in order to qualify for the first dividend distribution which is expected to be paid in or around July 2009. Customers must submit their claims to the administrators by the date specified in the letter. Customers 32

who submit a claim in either administration will still be able to make a claim for compensation to FSCS (assuming they have not already done so), but FSCS will need to take into account any dividend paid by theaAdministrators to customers of the relevant bank from the date received when calculating the amount of compensation (including any element representing interest) payable to customers that are eligible under FSCS’s rules. It is emphasised that customers who have already been paid compensation by the FSCS will not be entitled to any dividend payments from the relevant administration as they will have had their claims paid in full and their rights will have been assigned in their entirety to FSCS. (20/05/09) Home - Consumer home page - Latest News - 2009 - May - Ernst and Young letter to customers of Kaupthing Singer and Friedlander and Heritable Bank

FMLC: Issue 133: Banking Reform Depositor Protection FMLC has published the text of a letter from Lord Woolf to HMT's Banking Reform Team in which it raises various points, including concerns that the Banking Act 2009 "potentially applies to insurance companies", concerns over the scope of the Banking Act 2009 (Restriction of Partial Property Transfers) Order 2009 and over bank administration and bank insolvency rules. (5/05/09) http://www.fmlc.org/papers/Issue133HMTltr.pdf

PS09/7: Financial Services Compensation Scheme: Review of limits - Feedback on CP08/15 and made rules for non-deposit limits FSA has announced that it is implementing its proposals in CP08/15 without amendment. These are: an increase in the limit for investments and home finance mediation to 100% of £50,000; and amendment of the limit for provision of non-compulsory life and general insurance and mediation of non-compulsory non-investment insurance to 90% of the whole claim, with no upper limit. The limit for provision and mediation of compulsory insurance will continue to be 100% of the claim, with no upper limit. FSA notes that it had asked whether respondents agreed with the changes that had been made in respect of deposits without consultation. A further increase to the deposit limit may be needed to reflect a subsequent change to the Deposit Guarantee Schemes Directive, but this is not yet certain. If such a change proves necessary, then FSA will consult on that in due course. The new limits will come into force on 1 January 2010, to allow firms to make the necessary changes to their disclosures to consumers to reflect the new limits. (24/04/09) http://www.fsa.gov.uk/pubs/policy/ps09_07.pdf

Department for Communities and Local Government: FSCS - treatment of service charges for residential property The guidance has been agreed with the co-operation of FSCS and sets DCLG's understanding of how service charges would be treated in the event of a collapse of a regulated financial institution. (20/04/09) http://www.communities.gov.uk/documents/housing/pdf/1204271.pdf

CP09/11***: FSCS: temporary high deposit balances and implementing changes to the Deposit Guarantee Schemes Directive FSA is consulting on its proposals involving temporary high deposit balances (such as those arising following a house sale or receipt of an inheritance). The paper follows CP08/15, published in October 2008, which sought views in general terms on various options. It gives feedback on the responses to CP08/15 and contains draft rules on temporary high balances. The CP also consults on proposals to implement a number of changes to the Deposit Guarantee Schemes Directive (DGSD) which was amended at the end of 2008. FSA notes that any rules on temporary high balances are ultimately dependent on responses to this consultation and on discussions at EU level. The DGSD was amended at the end of 2008. The amended directive provides that an EU-wide common deposit protection limit of €100,000 will come into force from the end of 2010, unless an EC review concludes that the increase is not appropriate and the Council and European Parliament agree. If a common fixed limit is adopted, then the UK will not be able to have higher protection for temporary high balances unless it is agreed at EU level that an exception should be permitted. The EC has been asked to carry out an assessment of this question by the end of 2009. The changes to the DGSD that FSA is consulting on were agreed at the end of 2008 and include: increasing the minimum deposit limit to €50,000, by 30 June 2009; a requirement to inform depositors if their deposits are not covered by the compensation scheme (because they do not meet the eligibility criteria), to be implemented by 30 June 2009; requirements for EEA Deposit Guarantee 33

Schemes to cooperate with each other, by 30 June 2009; a time limit of 20 working days from the date of a duly verified claim for payment of compensation to depositors, to be implemented by 31 December 2010 (FSA is already consulting on changes to permit payment of compensation within seven days, so will not need to implement this new requirement separately); and requirements for EEA Deposit Guarantee Schemes to carry out regular tests of their systems, from 31 December 2010. FSA says that it is not consulting at this time on the proposed increase in the deposit protection limit to €100,000 because it is not yet clear if and when this will happen. Consultation on the proposals in the CP ends on 30 April 2009 for the proposals in Chapter 3 implementing changes to the DGSD; and on 30 June 2009 for the proposals in Chapter 2 on temporary high balances. FSA will then make rules to bring the relevant DGSD changes into force by 30 June as required by the Directive. Whether it makes final rules to implement the proposals on temporary high balances will depend in part on the outcome of EU discussions. (31/03/09) http://www.fsa.gov.uk/pubs/cp/cp09_11.pdf (NB: over 50 pages long)

FSA: Compensation Sourcebook (Protected Deposit Transfers under the Special Resolution Regime) Instrument 2009 [unnumbered] This Instrument, which applies from 16.00 on 29 March 2009 to 30 September 2009, sets out new text in COMP concerning protected deposit transfers under the SRR. In the event of a transfer of protected deposits from one deposit-taking firm to another deposit-taking firm pursuant to the property transfer powers under the Banking Act 2009, there is a separate and additional £50,000 maximum payment limit for a claimant with respect to claims for protected deposits held under the name of the transferor provided certain conditions are satisfied. (30/03/09) http://www.fsa.gov.uk/pubs/other/orion.pdf

The Financial Services and Markets Act 2000 (Contribution to Costs of Special Resolution Regime) Regulations 2009/807 These Regulations are made under section 214B of the Financial Services and Markets Act 2000 and provide for HMT to notify FSCS (“the scheme”) if it requires the scheme to contribute to expenses incurred in connection with the exercise of a stabilisation tool in respect of a banking institution under Part 1 of the Banking Act 2009 (“the 2009 Act”). Regulation 3 sets out payments in connection with the exercise of a stabilisation power under Part 1 of the 2009 Act which HMT may require the scheme to make. Regulation 4 provides that where s214B (1) applies and payments are required, HMT will notify the scheme manager as to the payments it is to make and when such payments are to be made. HMT may revise the notification from time to time. Regulation 5 applies when the notification requires the scheme to make payments after all expenses and liabilities have been ascertained and verified. The scheme then will calculate what it would have had to pay out to eligible depositors if, at the time at which the stabilisation power was exercised, the bank had instead gone into default. If this amount is less than the scheme’s liability under the notification, then the scheme’s liability is reduced to this amount. The scheme’s liability is also reduced by the amount of recovery it would have expected to recover from the insolvent estate of the banking institution. Regulation 6 applies when the notification requires the scheme to make a payment before all expenses and liabilities have been ascertained and verified. If, after all the costs have been ascertained, the scheme has paid too much money then HMT will refund any excess paid. Regulation 7 requires HMT to appoint an independent valuer. This may be the same person appointed under certain orders made under the 2009 Act. If not, then Part 1 of the Schedule, which sets out provisions concerning the appointment of the valuer, applies. Regulation 8 sets out the functions of the independent valuer. The independent valuer may apply to court for an order requiring the provision of information. Part 2 of the Schedule sets out provisions concerning this information. Regulation 9 provides for the determination of the independent valuer to be reconsidered and appealed to court. Regulation 10 provides for applications to be made to court for the resolution of disputes arising under the Regulations, other than a dispute over the independent valuer’s determination. Regulation 11 provides that qualifying claimants under the scheme, who have had their deposits dealt with under the exercise of the stabilisation power, are deemed to have made claims under the scheme and cannot make a claim against the scheme for compensation. (Date in force: 29/3/09) (30/03/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20090807_en.pdf

BCBS/IADI: Core principles for effective deposit insurance systems This consultation sets out proposals for an international set of principles for effective deposit insurance systems. Responses are required by 15 May 2009. (13/03/09) http://www.bis.org/publ/bcbs151.pdf?noframes=1

FSCS: Plan and Budget 2009/10 FSCS' levy requirements are likely to come in at least three different phases: an interim 2008/09 levy of up to £40m towards the costs of the Pacific Continental Securities Ltd default, to be collected in April 2009; the annual 2009/10 levy for an estimated £186m for other costs (except interest on bank default loans) to be collected in Q1 2009/10; and a further 2008/09 special levy for an estimated £415m, being the interest accruing on the bank default loans in the period to 31 March 2009 and to be collected by 30 September 2009. FSCS notes that, in a single week in October 2008, it received over 19,000 enquiries compared with approximately 73,000 in the whole of the previous financial year. Whilst many of these enquiries were default specific, general enquiries continue at a high level. FSCS is to launch a campaign to help increase understanding of its work. (16/02/09) http://www.fscs.org.uk/Download.ashx?id=10201

EC: Commission launches call for evidence on review of Investor Compensation Schemes Directive The EC has launched a call for evidence on the review of the application of the Investor Compensation Schemes Directive. This call for evidence is also in line with parallel initiatives concerning the Deposit Guarantee Schemes Directive and insurance guarantee schemes. This call for evidence is focused on the following issues: the scope of the Directive in terms of services covered, also in the light of MiFID implementation; the amount of compensation; the funding of the compensation schemes; some technical aspects which may hamper the efficient and timely functioning of the schemes (notably, any existing restrictions on the carrying of unpaid reimbursement debts over a certain period of time and the need to set effective reasonable deadline for reimbursement) and issues related to the treatment of money market funds. The closing date for responses is 8 April 2009. (9/02/09) http://ec.europa.eu/internal_market/consultations/docs/2009/investor_compensation/cons-doc_en.pdf

FSA: FSCS levies for deposit-taker defaults: implications for firms - Update I This is the text of a letter from Thomas Huertas to the Association of Foreign Bankers, BBA, BSA, five credit union representative bodies and CML which gives an update on the position for their members as regards FSCS levies arising from the 2008 banking defaults. (5/02/09) http://www.fsa.gov.uk/pubs/other/deposit-taker.pdf

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).

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

HoC Public Accounts Committee: report on Northern Rock's nationalisation This report looks at the protection of taxpayers before Northern Rock's nationalisation in February 2009, HMT's capacity and readiness to deal with the Northern Rock crisis, and the oversight of Northern Rock after nationalisation. Among points made: “at the time it nationalised Northern Rock, the Treasury did not know enough about what it was taking on. … the Treasury did not commission its own due diligence on the quality of the company’s loan book, preferring instead to place reliance on the work undertaken by advisors to the Bank and the Financial Services Authority. That work had been done for different purposes and the Treasury undertook no formal assessment to ascertain whether it could or should place reliance on it. … It is wholly anomalous that the Comptroller and Auditor General may report on the work of the Treasury at his discretion, yet has to wait for an invitation before he can look at the work of the Financial Services Authority. With billions of pounds of taxpayers’ money now at stake in the banking sector, there is an overwhelming case for Comptroller and Auditor General to be given unfettered power to audit the work of the Financial Services Authority as a matter of urgency. The Treasury has given us a commitment to look again at this issue. We hope to see early progress towards rectifying this 37

anomaly”. (25/06/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmpubacc/394/394.pdf

HMC: Bradford & Bingley plc Compensation Scheme: appointment of independent valuer Following a competitive process, HMT has appointed Peter Clokey of PwC as independent valuer for the Bradford & Bingley plc Compensation Scheme. He will determine what compensation, if any, is due to former shareholders and others whose interests may have been affected by the transfer. (24/06/09) Bradford and Bingley plc Compensation Scheme: Appointment of independent valuer - HM Treasury

TSC: Banking crisis: The impact of the failure of the Icelandic banks: Responses from the Government and the Financial Services Agency [sic!] to the Committee's Fifth Report of Session 2008-09 TSC has published this report setting out HMT and FSA responses to the TSC report on the Icelandic bank sector failure. (22/06/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/656/656.pdf

BoE: Dunfermline Resolution: announcement of the preferred bidder for the social housing lending business BoE has selected Nationwide Building Society as the preferred bidder for the social housing loans and related deposits from housing associations (the ‘Business’) held by BoE's wholly-owned subsidiary, DBS Bridge Bank Limited. This follows a competitive auction process. The Business had previously been transferred from Dunfermline Building Society to DBS Bridge Bank Limited while a permanent home for the Business was sought. The decision to select Nationwide Building Society as the preferred bidder followed advice from BoE’s Financial Stability Committee and consultation with FSA and HMT in accordance with the Banking Act 2009. (18/06/09) Bank of England|Publications|News|2009|News Release - Dunfermline Resolution: Announcement of the Preferred Bidder for the Social Housing Lending Business, 17 June 2009

The Banking Act 2009 (Restriction of Partial Property Transfers) (Amendment) Order 2009 (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. Articles 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. Articles 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. (18/06/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111480724_en.pdf

The Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009 (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 the Bank of England) by virtue of the Dunfermline Building Society Property Transfer Instrument 2009 (“the Transfer Instrument”). The Transfer Instrument was made by the Bank of England 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 BoE 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 38

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 the 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. (18/06/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111480731_en.pdf

Bankers’ Pensions (Limits) Bill A Bill to make provision for the pensions of board members of banks that are wholly or partly in public ownership to be limited in certain circumstances; and for connected purposes. (16/06/09) http://www.publications.parliament.uk/pa/cm200809/cmbills/073/2009073.pdf

The Landsbanki Freezing (Revocation) Order 2009/1392 This Order is made under the Anti-terrorism, Crime and Security Act 2001 (c.24). It revokes the Landsbanki Freezing Order 2008 (S.I. 2008/2668) and the Landsbanki Freezing (Amendment) Order 2008 (S.I. 2008/2766). The Landsbanki Freezing Order 2008 imposed an asset freeze in relation to the Icelandic bank, Landsbanki Islands hf. The Landsbanki Freezing (Amendment) Order 2008 made minor amendments to the Freezing Order. By revoking those Orders, this Order lifts the asset freeze. (Date in force: 15/6/09) (11/06/09) The Landsbanki Freezing (Revocation) Order 2009 No. 1392

The Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009 (Draft) This Order amends the Dunfermline Building Society Property Transfer Instrument 2009 made by BoE on 30 March 2009. It included a definition used to exclude Dunfermline Building Society’s commercial property portfolio (of approximately £660m) from the transfer of part of Dunfermline’s business to Nationwide Building Society. The effect of the definition as drafted in the Transfer Instrument, however, was to transfer a significant proportion of this commercial property portfolio and a small number of social housing loans to Nationwide. The loans transferred were not included in the transaction agreed between HMT, BoE and Nationwide. The amendments made by this Order make the necessary corrections. (11/06/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111480335_en.pdf

FMLC: Issue 141 - Landsbanki Freezing Order 2008 FMLC has published a legal assessment of the impact on the financial markets of the Landsbanki Freezing Order 2008 so that any similar process might be handled better in the future to ensure that an asset freezing order achieves its effect without unnecessary disruption to the markets. It concludes that "any future orders should not be as broad as this Order. Future orders should focus on a narrower prohibition initially and the geographic scope of any such order should be made clear from the beginning. Potential issues should be considered in advance (even in an emergency situation) rather than relying on a multiple licence approach (especially given that it has been seen that this can lead to some of the licences being contradictory in places and unclear) which also requires several guidance notes to be issued to the markets. The key, especially in an emergency scenario, is that any future action taken should be clear and

considered and should aim to cause as little confusion and unnecessary disruption to the financial markets as is possible". (9/06/09) http://www.fmlc.org/papers/Issue141Report.pdf

BoE: Asset purchase facility - consultation on proposals for working capital facilities This paper sets proposals for possible extensions to the BoE's APF to cover a broader range of instruments that are used to finance working capital. Specifically, it covers the proposed operation of a Secured Commercial Paper Facility and an outline proposal for a Supply Chain Finance Facility. Reponses are required by 19 June 2009. (8/06/09) http://www.bankofengland.co.uk/markets/apf/consultation090608.pdf

Speech by Paul Tucker: The repertoire of official sector interventions in the financial system: last resort lending, market-making, and capital Paul Tucker discusses how BoE has developed its system for providing liquidity insurance to banks in the interests of preserving financial stability; and how that bears on the prudential regulation of banks’ liquidity; and the issues of "Market Maker of Last Resort", and "Capital of Last Resort". (29/05/09) http://www.bankofengland.co.uk/publications/speeches/2009/speech390.pdf

HoC Scottish Affairs Committee: Dunfermline Building Society This is the uncorrected oral evidence of a hearing held on 20 May which was attended by Jon Pain of FSA and representatives from HMT and BoE in which they are questioned over the responsibility for the failure of the building society and the supervision of the sector in general. One member of the Committee, Jim Devine, describes FSA as "the unacceptable face of capitalism ... Here we have an FSA that is light touch on regulation and we have seen a crash of the banking system right across Britain, and what is being said is that you were aware of those problems years before and nothing was done". (29/05/09) Uncorrected Evidence 548

OFT: Completed acquisition by Nationwide Building Society of parts of the Dunfermline Building Society OFT concluded that, on the evidence available to it, it considered that no competition concerns will arise on any of these geographic frames of reference. At a national level, the parties have a small combined market share of supply in relation to each of the product segments with negligible increments in all segments. In Scotland, the transaction does not raise competition concerns, given the small increments and the parties' combined market share. This merger will therefore not be referred to the Competition Commission under s22(1) Enterprise Act. (22/05/09) http://www.oft.gov.uk/shared_oft/mergers_ea02/2009/Nationwide-Dunfermline.pdf

The Banking Act 2009 (Commencement No. 2) Order 2009/1296 (C.69) Order brings into force on 1st June 2009 various sections of Part 7 of the Banking Act 2009 (“the Act”). Part 7 of the Act (ss228 to 256) makes miscellaneous provision, for example, in relation to HMT support for banks; FSA and BoE. The following sections of Part 7 were commenced on 21st February 2009(a): ss228 to 237 and ss244 to 253. Sections 238 to 243 are commenced by virtue of this Order. Section 238 amends the Bank of England Act 1998(b) (“the Bank of England Act”) and confers a new statutory objective on BoE to contribute to protecting and enhancing the stability of the financial systems of the UK. Sections 239 to 242 amend the Bank of England Act and make provision for various matters concerning the court of directors of BoE. Section 243 amends the Bank of England Act and makes provision for the appointment of the Governor and Deputy Governor of the Bank and appointments to the Monetary Policy Committee. (Made: 20/5/09) (21/05/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091296_en.pdf

HoL Select Committee on the Constitution: Banking Act 2009 - Supplementary report on retrospective legislation This notes: "while we welcomed the recognition on the face of the legislation that there is a public interest in avoiding retrospective legislation, we remained concerned that, in enacting a retrospective law- changing power that may be invoked on the basis of “desirability” rather than “necessity”, a dangerous precedent might have been thought to have been created. After the Banking Bill’s enactment as the 40

Banking Act 2009, we therefore engaged in correspondence with the Government about the retrospective power contained in section 75 of the Act. The chain of correspondence is published in this report. In the correspondence, the Committee note that there is no exact precedent for retrospective law-changing powers based on a minister’s perception of what is desirable rather than what is necessary. On 6 May 2009, the House of Lords debated the Amendments to the Law (Resolution of Dunfermline Building Society) Order 2009, which was made under the section 75 powers referred to above. The order was approved by the House. It remains our view that 'desirability' should not be a basis on which to allow ministers to change the law retrospectively. We note Lord Myners’ statement that section 75(3) of the Banking Act 2009 'does not set a precedent for the use of retrospective powers'. The fact of the matter is, however, that a precedent has been set. It is not, in our view, an acceptable precedent". (19/05/09) http://www.publications.parliament.uk/pa/ld200809/ldselect/ldconst/97/97.pdf

HMT: Developing effective resolution arrangements for investment banks This report lays out the Government’s initial thinking as to the reforms which may need to be considered in developing effective resolution arrangements for investment banks. It responds directly to the issues that were highlighted in the Lehman Brothers case; including the treatment of investment banking clients after default, the future of their assets, and the treatment of their open or unreconciled trading positions. It also examines what can be done to make the process of insolvency itself more effective, and limit the damage that may be done by a failing investment bank. HMT notes that it is working with a specialist Advisory Panel of investment banking, insolvency, legal and other experts, as well as FSA and BoE. The Government, in consultation with the Advisory Panel, is considering whether any changes to market practice, regulation or legislation would help any future failures in the investment banking sector to be dealt with more smoothly. This report presents a high-level overview of the issues under consideration, and will be followed by more detailed consultation as appropriate. Responses are required by 10 July 2009. (11/05/09) http://www.hm-treasury.gov.uk/d/consult_investmentbank110509.pdf (NB: 70 pages long)

TSC: Banking Crisis: dealing with the failure of the UK banks - Seventh Report of Session 2008-09 Points raised include: • FSCS is praised for its response to the failure of several UK banks and TSC suggests that financial institutions must make clear to their customers where they are • subsidiaries of other institutions where this is relevant in terms of deposit protection. Ideally, it would like to see each brand holding a separate banking licence. • Northern Rock’s lending policy - it welcomes the Government’s decision to allow Northern Rock to expand lending. It asks the Government to set out how this change of policy will also change the timescale over which the taxpayer loans to Northern Rock will be fully repaid and, in turn, the timescale over which a new ownership structure, whether by trade sale, privatisation or remutualisation, could be achieved. • The merger between Lloyds and HBOS - TSC concludes "if the merger has had injurious consequences for Lloyds TSB we consider that the responsibility for this lies primarily with the Lloyds Board". • Bank recapitalisation - TSC supports the decision to implement a recapitalisation programme, but is concerned about "the contradictions of the Government’s objectives for the banking sector especially with regard to the part-nationalised banks. There is a pressing need for the Government to clarify its strategic objectives and priorities with respect to the banking sector. • Toxic Assets and the Asset Protection Scheme - TSC welcomes the approach taken in the Asset Protection Scheme, but is concerned about the need for greater clarity over the possible impact on the public purse, and urges the Government to complete the due diligence on assets in the scheme as quickly as possible, to make public the proportion of assets, by value, in each category covered by the scheme, and to disclose as soon as possible the mechanism for determining and the projected timeline for the crystallisation of any losses. It asks whether more analysis should have been instituted by the regulators earlier to clarify the nature and value of assets on which banks were relying. It asks for clarity over whether the bank intends to introduce a bad bank

• Bank Lending - TSC suggests that there is no clear picture on how government efforts to encourage bank lending are working. • UKFI - TSC urges the Government to publish a strategy for UKFI addressing how it will use its control of the investee companies, and what role it envisages for UKFI in promoting change within the banking sector more generally, adding "we do not think it is in the national interest for UKFI to remain so enigmatic a body". and recommends that HMT provides details of an exit strategy for the taxpayer’s investment in the banking sector. • The future of the banking sector - TSC notes "We do not lightly dismiss the Governor of the Bank of England’s instinct that a separation of retail from investment banking functions is “very attractive”. We believe that this is a live issue which requires further debate, and one to which we will return. We acknowledge that the toxic shock that major financial institutions have been exposed to by securitisation is likely to result in changed business practices. We expect that one such change will see banks returning to the practice of keeping a greater portion of the loans they originate on their own balance sheets. But we also believe that a regulatory response may be required and recommend that the FSA coordinate efforts with its international counterparts to require that those undertaking securitisation retain a tranche of the commodities they trade. It raises concerns re OTC trading transparency. (1/05/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/416/416.pdf (NB: over 120 pages long) A link to BBA's comment on the paper follows BBA – British Bankers' Association - BBA says Treasury Committee must move beyond blaming

BoE: Asset Purchase Facility BoE has published the first quarterly report on the transactions undertaken through its Asset Purchase Facility. (28/04/09) http://www.bankofengland.co.uk/publications/news/2009/036.htm

Debt Management Office: 2009 Asset-backed Securities Guarantee Scheme DMO has published a Market Notice, Deed of Guarantee and rules/proforma application forms, all available via the following link. (24/04/09) UK Debt Management Office

TSC: Banking crisis: The impact of the failure of the Icelandic banks This TSC report considers the case for the provision of assistance by the UK government to local authorities, charities and UK citizens who deposited in the Isle of Man and Guernsey subsidiaries of the Icelandic banks. It does not accept that there is a need to provide assistance to the local authorities and that "on this occasion only", all charities should be compensated for losses incurred as a consequence of the failures of the Icelandic banks (it also recommends that FSCS re-examine the criteria for the classification of charities as retail or wholesale depositors in the light of this). It agreed that the UK Government cannot provide cover for deposits held by British citizens in jurisdictions outside the direct control of the UK, but recommends that UK authorities work with the Isle of Man and Guernsey authorities to resolve these issues. The report also notes that Tony Shearer, CEO of Singer & Friedlander, took his concerns around the takeover of the firm by Kaupthing to FSA and suggests that "whilst the Financial Services Authority appears to have investigated these concerns, this episode shows the paramount need for the Financial Services Authority to be open to those that may wish to contact it to register their disquiet over problems they encounter in financial markets. We also note with great concern the impotence of the FSA to tackle directly the concerns brought to its attention as a consequence of its lack of any jurisdiction". It also criticises the government for "making statements on the capacity and willingness of the Icelandic Government to provide assistance to non-Icelandic citizens, whether or not such statements were accurate, turned the UK Government from being a seemingly passive observer of events, to an active participant in the market. Given the volatility of the situation, and the vulnerability of Icelandic banks at the time, it appears that the Icelandic Authorities found the UK Government’s approach ultimately unhelpful" and calls on HMT to justify the appropriateness of using anti-terrorism legislation "in any similar circumstances in the future ... We are concerned that no appropriate legislation is available and call on the Treasury to address this matter". Among other recommendations and comments, the report notes that "we note with concern the suggestion that the paucity of information provided by the Financial Services Authority may have impeded the ability of the regulators in the Crown

dependencies to safeguard their own financial systems. This is a particular concern given the close working relationship that appears to have existed between the Financial Services Authority and the Financial Services Commission of the Isle of Man in relation to previous situations such as that surrounding the failure of Bradford & Bingley just days earlier. We recommend that the Financial Services Authority review its existing powers and strategy for dealing with other jurisdictions, and reports on its efforts in this respect". (6/04/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/402/402.pdf (NB: over 50 pages long)

UKFI: An introduction: who we are, what we do and the framework document which governs the relationship between UKFI and HM Treasury This document sets out its objectives and the framework document which sets out the key parameters under which it conducts its business. It also includes biogs of its board and senior execs. (3/03/09) http://www.ukfi.gov.uk/downloadfile.php?ArticleID=18

FSA/HMT: Asset Protection Scheme FSA has published two statements with regard to the above. The first sets out FSA's assessment of how the APS will affect the capital position of any participating firms. FSA says that it expects there will be an improvement in the Core Tier 1 ratio which will make it easier for the provision of new lending by participants. The second statement gives more details, including the nature of the APS, the impact on capital position and ratios, regulatory capital calculation, vertical retained slice, remaining pro-rata exposure and First Loss tranche. The last item is the text of Alistair Darling's statement to HoC, which also covers the arrangements with RBS. (26/02/09) FSA statement on the capital implications of the Government Asset Protection Scheme Detailed FSA statement on the capital implications of the Government Asset Protection Scheme Asset Protection Scheme - HM Treasury

HMT: Banking Act 2009: special resolution regime - Code of Practice This Code of Practice, issued in accordance with ss 5 and 6 of the Banking Act 2009, supports the legal framework of the SRR, and provides guidance as to how and in what circumstances the Tripartite Authorities will use the special resolution tools. In particular, it sets out guidance on the use of: • the three stabilisation options: transfer to a private sector purchaser, transfer to a bridge bank and transfer to temporary public sector ownership; • the bank insolvency procedure, which facilitates FSCS in providing prompt payout to depositors; and • the bank administration procedure, for use where there has been a partial transfer of business from a failing institution. HMT has issued this Code having consulted FSA, BoE and FSCS in accordance with s6 of the Banking Act and has laid it before Parliament. (24/02/09) http://www.hm-treasury.gov.uk/d/bankingact2009_codeofpractice.pdf (NB: over 40 pages long)

FSA: Responses to issues arising from Lehman administration AIMA has published the text of a letter from Bruce Robson, manager in FSA's Asset Management team, responding to its letter raising concerns by its members. Topics include: futures segregated accounts and the pooling of client money; client money related issues; FSA's powers relating to the return of segregated client money; FSA's powers relating to the protection of client money from excessive charges and UK bankruptcy law and FSA regulation. (12/02/09) http://www.aima.org/download.cfm/docid/C005D58A- C0B6-425A-AB90515BAB1EAE4D

HMT: Statement on the Government’s Asset Protection Scheme HMT has outlined how its Asset Protection Scheme, designed to protect financial institutions against exposure to exceptional future credit losses on certain portfolios of assets, will work: • In return for a fee, HMT will provide to each participating institution protection against future credit losses on one or more portfolios of defined assets to the extent that credit losses exceed a “first loss” amount to be borne by the institution

• HMT will, in the first instance, offer protection to UK incorporated authorised deposit-takers (including UK subsidiaries of foreign institutions) with more than £25 billion of eligible assets. Affiliated entities will also be considered. HMT will subsequently consider extending the Scheme more widely to other UK incorporated authorised deposit-takers (including UK subsidiaries of foreign institutions). Further participation in the Scheme will be at the HMT's discretion and will take into account advice given by BoE and FSA. • Each applicant will be required to satisfy HMT that it is adequately capitalised and funded or has a realistic plan for accessing adequate capital and funding; it has a sustainable business model and delivery plan; its funding profile, sources and mix are clear, broad-based and sustainable; and its senior management team is credible, with demonstrable ability to deliver its business model and delivery plan. • Subject to maintaining appropriate commercial confidentiality, HMT will publish and lay before Parliament the agreements which it enters into with participating institutions in relation to the operation of the Scheme. • It is intended that the following categories of assets will be eligible for the Scheme, subject to assessment for inclusion on a case-by-case basis: portfolios of commercial and residential property loans most affected by current economic conditions; structured credit assets, including certain asset- backed securities; certain other corporate and leveraged loans; and any closely related hedges, in each case, held by the participating institution or an affiliate as at 31 December 2008. • Assets included in the Scheme will continue to be managed by the institution and will remain on its balance sheet but will be required to be “ring-fenced” by the institution so that actions in relation to them, including enforcement and disposal, will be subject to appropriate HMT controls. The Scheme may also provide for the Treasury to take over ownership and/or management of the assets in certain defined circumstances. • Duration of the coverage will be determined following examination of the assets to be included in the Scheme and is expected to be not less than five years. • The cost of establishing and administering the Scheme will be borne by participating institutions. • The Scheme is subject to applicable regulatory and state aid approvals. Further details are available in the statement. It is noted that it is not currently intended that there will be any further announcement relating to the details of the Scheme until the last week of February. (19/01/09) Statement on the Government’s Asset protection scheme - HM Treasury

HMT: Statement on restructuring its investment in RBS to deliver further bank lending to industry and homeowners This notes that the Government,, in consultation with UK Financial Investments, has today agreed to convert HMT's preference share investment in RBS to ordinary shares. This action is intended to: make available additional core tier 1 capital to the bank to strengthen its resources, enable it to absorb expected losses and permit it to restructure its finances; and give the bank the opportunity to build its capital further so that it is able to maintain and increase its support for the real economy by facilitating £6bn more lending to industry and homeowners, over and above existing commitments. It is emphasised that the government is not injecting new money into RBS. As part of its agreement, the Government has agreed with RBS commitments including: the extension to large corporates of the existing agreement to maintain, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels or above; and increasing lending still further by £6bn in the next 12 months. (19/01/09) Treasury statement on restructuring its investment in RBS to deliver further bank lending to industry and homeowners - HM Treasury

6.1 Groups, colleges of supervisors and local entity regulation

Chronological Reports

CEBS/CEIOPS: The review of the Financial Conglomerates Directive The EC had issued a Call for Advice to the Joint Committee of Financial Conglomerates (JCFC) in April 2008 (the Third Call for Advice to the JCFC), asking it to undertake a stocktake of existing national implementation practices of the FCD in the context of the EC's review of this Directive. A Progress Call for Advice was issued in February 2009, asking the JCFC to identify policy options to address the issues identified in the stocktake and to specify which policy options the Committee would recommend to address them. This paper builds on the work already carried out by the JCFC in relation to the FCD, including the work of the Joint Task Force on Capital. It does not cover issues that have been considered by the JCFC in response to previous requests from the EC. The JCFC has identified four issues where the FCD may not achieve its objectives: definitions of different types of holding companies and their impact on the application of sectoral group supervision; the definition of “financial sector” and the application of the threshold conditions in Article 3 FCD; implications of different treatments of participations for the identification and scope of supplementary supervision of financial conglomerates and the treatment of "participations" in respect of risk concentrations (RC) and intra-group transactions (IGT) supervision and internal control mechanisms. Responses are required by 28 August 2009. (28/05/09) http://www.c- ebs.org/getdoc/e04d8a4f-b811-47cb-b3ff-b3c47a82a602/Consultation-Paper-(JCFC-09-10).aspx (NB: over 60 pages long)

CEBS: Good practices on the functioning of colleges of supervisors for cross-border banking groups This document reflects the current good practices that supervisors of EU large cross-border banking groups have established or are developing in shaping their cooperation within colleges of supervisors. These practices are summarised in each section and described through examples wherever possible. The practices described in the text are consistent with CRD as it is currently. (2/04/09) http://www.c- ebs.org/getdoc/2d057c7c-da56-4f7e-a575-ed58cbcba1fe/College-Good-Practices-Paper_2-April- 2009.aspx (NB: over 40 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).

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: Code of practice on taxation for banks Following the Chancellor’s statement on 16 March, the 2009 Budget announced that HMRC would publish a Code of Practice on tax for the banking sector to encourage banks to comply with both the letter and the spirit of the law. This document explains why the Code is needed; considers the scope of the Code and explores specific issues relating to the administration of the Code and looks at implementation and enforcement. The deadline for comments is 25 September 2009. In his foreword, Stephen Timms notes “over the coming months we will be speaking to banks to develop a shared understanding of where we expect them to draw the line, where we want them to raise and resolve issues with HMRC, to ascertain the appropriate level of accountability at a senior level and also what they can expect from HMRC in return. We invite comments from interested parties, but this conversation will continue beyond the conclusion of the formal consultation period”. (29/06/09) http://customs.hmrc.gov.uk/channelsPortalWebApp/downloadFile?contentID=HMCE_PROD1_029639

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 6) 2009/1462 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 BATS Trading Limited Multilateral Trading Facility (“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 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. Regulation 3 prescribes the facility as a recognised investment exchange and LCH.Clearnet Limited, SIX X-CLEAR AG and European Multilateral Clearing Facility NV as recognised clearing houses for the purpose of the exemption and regulation 4 prescribes the circumstances in which stamp duty and SDRT will not be charged. (Date in force: 5/7/09) (15/06/09) The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 6) 2009 No. 1462

The Real Estate Investment Trusts (Amendment of Schedule 16 to the Finance Act 2006) Regulations 2009/1482 Part 4 of the Finance Act 2006 sets out the structure of the REIT regime and the types of activity and business that qualify for REIT status. Part 1 of Schedule 16 to that Act excludes certain classes of business from qualifying. Regulation 2 replaces paragraph 3 of Schedule 16 to the Finance Act 2006, so that property letting is excluded from the regime where it would fall in accordance with generally accepted accounting practice to be described as owner-occupied. (Date in force: 6/7/09) (15/06/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091482_en.pdf

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 5) 2009/1344 These Regulations exempt from stamp duty and stamp duty reserve tax certain transfers of, or agreements to transfer traded securities made in the course of trading in those securities on the Liquidnet H2O Multilateral Trading Facility (“the Facility”). The transfers and agreements exempted are those involving SIX X-CLEAR AG (“X-CLEAR”) (and nominees of that clearing house), through whom transactions on the Facility are cleared, or clearing participants in SIX XCLEAR AG (and their nominees). (Date in force: 30/6/09) (2/06/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091344_en.pdf

EC: Discriminatory taxation of foreign pension funds, investment funds and financial institutions - Poland The EC has sent a reasoned opinion (second step of the infringement procedure provided for in Article 226 of the EC Treaty) to Poland with regard to its legislation which provides for higher taxation of interest and dividends paid to foreign pension funds and investment funds and higher taxation of interest paid to foreign financial institutions. If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the ECJ. (14/05/09) EUROPA - Press Releases - Direct taxes: The European Commission formally requests Poland to end discriminatory taxation of foreign pension funds, investment funds and financial institutions

HMRC: New definition of Offshore Funds Draft guidance has been published for consultation purposes and to assist in understanding the effect of the new tax definition of an offshore fund in Finance Bill 2009. Responses are required by 10 July 2009. (12/05/09) http://www.hmrc.gov.uk/collective/new-offshore-funds.pdf (NB: over 30 pages long)

HMRC: Dormant accounts scheme HMRC has published an FAQ for practitioners. (12/05/09) HM Revenue & Customs: Dormant Accounts Scheme - Frequently Asked Questions

The Registered Pension Schemes (Authorised Payments) Regulations 2009/1171 The Taxation of Pension Schemes (Transitional Provisions) (Amendment) Order 2009/1172 The regulations add categories of payments to the list of authorised payments that a registered pension scheme can make without attracting a charge to tax. These include commutations of certain small sums or pensions, payments made by pension schemes in error and payments which represent arrears of pension and lump sum made after the member has died. The order supplements the regulations and ensures that where certain small pension funds are commuted any previous authorised protected tax free lump sums will continue to be authorised and to be tax free. (Date in force: 1/6/09) (8/05/09) The Registered Pension Schemes (Authorised Payments) Regulations 2009 No. 1171 The Taxation of Pension Schemes (Transitional Provisions) (Amendment) Order 2009 No. 1172

The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 4) 2009/1115 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 “Block Board” (“the Facility”). The transfers and agreements exempted are those involving European Central Counterparty Limited (“EuroCCP”) (and nominees of that clearing house), through whom transactions on the Facility are cleared, or clearing participants in EuroCCP (and their nominees). Regulation 3 48

prescribes the Facility as a recognised investment exchange and EuroCCP as a recognised clearing house for the purpose of the exemption and regulation 4 prescribes the circumstances in which stamp duty and SDRT will not be charged. Regulation 5 makes consequential provision requiring traded securities which are agreed to be transferred in the prescribed circumstances to be dealt with in a separate designated account (Date in force: 22/5/09) (5/05/09) The Stamp Duty and Stamp Duty Reserve Tax (Investment Exchanges and Clearing Houses) Regulations (No. 4) 2009 No. 1115

HMT: Enhancing the competitiveness of UK funds This document complements Budget 2009 announcements by setting out further details of the tax and regulatory change that the Government has made over the last two years for AIFs. From 1 September 2009 funds will be able to: locate in the UK and invest tax efficiently in property, providing a level playing field with UK-REITs; locate in the UK and sell to sophisticated investors without being impeded by complex tax rules; locate in the UK and undertake a wide range of investment transactions with certainty of tax treatment; locate in the UK and market competitively to UK and international investors; and locate in the UK and make transfers of title to units/shares by way of electronic communication. It summarises the tax and regulatory changes that the Government has announced following close consultation with industry, describes how the Government intends to take forward the proposals for Tax Elected Funds and provides details on the legislative change intended to clarify whether certain undertakings by AIFs will be taxed as trading or investment. Iindustry views on draft regulations to deliver Budget 2009 announcements for improvements to the taxation of asset management are also invited. Responses are required by 11 June 2009. (30/04/09) http://www.hm- treasury.gov.uk/d/consult_enhancingukfunds_300409.pdf

HMT: UK welcomes progress by Isle of Man on Tax Information Exchange This press release welcomes the Isle of Man’s recognition by OECD as a jurisdiction that has substantially implemented the internationally agreed standard on exchange of information in tax matters and on its ongoing progress in signing Tax Information Exchange Agreements. (30/04/09) UK welcomes progress by Isle of Man on Tax Information Exchange - HM Treasury

Finance Bill 2009 A Bill to grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance. 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. HMT has published Explanatory Notes in four separate document and the lobby notes offer a useful synopsis of the contents of the Bill. (30/04/09) http://www.hmrc.gov.uk/finance_bill2009/bill_2009_vol1.pdf (NB: over 200 pages long) http://www.hmrc.gov.uk/finance_bill2009/bill_2009_vol2.pdf (NB: over 200 pages long) Finance Bill 2009 - HM Treasury (for Explanatory Notes) http://www.hm- treasury.gov.uk/d/financebill09_lobbynotes.pdf

EC: Promoting good governance in tax matters The EC has adopted a Communication identifying actions that EU Member States should take to promote "good governance" in the tax area (more transparency, exchange of information and fair tax competition). The Communication identifies how good governance could be improved within the EU and builds on the existing EU policy on good governance and the recent G20 conclusions concerning uncooperative tax jurisdictions. It calls on the Member States of the Union to adopt as soon as possible its recent proposals to: ensure effective administrative cooperation in the assessment of taxes which would, in particular, prohibit Member States in future from invoking bank secrecy laws as a justification for not assisting the tax authorities of other Member States; ensure administrative cooperation in the recovery of tax claims; improve the functioning of the Savings Tax Directive. It suggests that there is a need to extend the scope of the Directive to intermediate tax-exempted structures and to income equivalent to interest obtained through investments in some innovative financial products. (28/04/09) EUROPA - Press Releases - Taxation and Good governance: The European Commission proposes actions to improve transparency,

exchange of information and fair tax competition http://ec.europa.eu/taxation_customs/resources/documents/common/whats_new/COM(2009)201_en.pdf (Communication)

European Parliament: Remuneration and tax havens The European Parliament has announced that it has adopted a resolution on the outcome of the G20 summit welcoming its pledges on the issue of dealing with the reform of remuneration policies and urging the next G20 summit to agree on action to close down tax havens and regulatory loopholes with regard to tax avoidance. (24/04/09) G20 Summit: MEPs concerned about remuneration and tax havens

Budget 2009: Tax issues of relevance to the FS sector • A New Disclosure Opportunity will run until March 2010 to give holders of offshore accounts an opportunity to disclose, of their own accord, if they have unpaid tax or duties and to settle debts. • The Government intends to establish a statutory requirement for senior accounting officers of major corporates to certify personally that adequate controls to prepare accurate tax computations are in place. • HMRC will shortly issue a draft code of practice on taxation for the banking sector, along with a consultation document. • FSCS - legislation will be introduced in Finance Bill 2009 to ensure that a defaulting financial institution’s customers are in the same position as if the accrued interest were paid by it. • Legislation will be introduced in Finance Bill 2009 to clarify the law relating to the tax treatment of amounts introduced by shareholders into the long term insurance fund of a life insurance company. Legislation will be introduced in Finance Bill 2009 to counter schemes that are designed to exploit income tax loss relief rules using offshore life insurance policies. • Lloyd's: corporate members of the Lloyd’s insurance market will no longer pay corporation tax on dividends and other distributions received from UK companies (in line with GI companies). • Legislation will be introduced in Finance Bill 2009 to provide relief from unexpected stamp duty and SDRT charges that would otherwise arise where a stock lending or repo arrangement terminates, so that stock is not returned to the originator under the terms of the arrangement owing to the entry into insolvency of one of the parties to the arrangement • Transfers between mutuals: legislation in Finance Bill 2009 will introduce a power to make regulations in relation to the taxation consequences on the amalgamations of mutual societies and those arising on transfers of the whole or part of a business of a mutual society to another mutual society; to a company or to a subsidiary company of a mutual society. • Hedging proceeds from future share issues: The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (Statutory Instrument 2004/3256) will be amended. • Further details on clampdowns on various other tax avoidance schemes appear in para 5.99 (first link below) and via the HMRC website (see HM Revenue & Customs: Budget 2009 Notes ) (22/04/09) http://www.hm-treasury.gov.uk/d/Budget2009/bud09_chapter5_280.pdf http://www.hmrc.gov.uk/budget2009/bn62.pdf (tax accountability of senior accounting officers of major corporates) http://www.hmrc.gov.uk/budget2009/bn15.pdf (FSCS) http://www.hmrc.gov.uk/budget2009/bn57.pdf (life insurance companies and policies) http://www.hmrc.gov.uk/budget2009/bn16.pdf (Lloyd's) http://www.hmrc.gov.uk/budget2009/bn18.pdf (stock lending and repo) http://www.hmrc.gov.uk/budget2009/bn20.pdf (mutuals) http://www.hmrc.gov.uk/budget2009/bn40.pdf (hedging)

Budget 2009: Funds There will be changes to the offshore funds tax regime from 1 December which will remove tax barriers impacting the development of offshore funds and legislating for a new definition of an offshore fund, following extensive consultation; and changes in the tax treatment of investors in some contract-based offshore funds. Legislation will be introduced to give AIFs and UK-resident investors in equivalent 50

offshore funds certainty that defined transactions will not be treated as trading transactions for tax purposes. A new elective tax framework that will allow investment trust companies to invest in interest bearing assets in a tax efficient way will be introduced. With regard to REITs, legislation will be introduced in Finance Bill 2009 providing a power to make regulations that will prevent restructuring within groups from enabling companies to meet the REIT conditions and tests when, without the restructuring, they would not. (22/04/09) http://www.hm- treasury.gov.uk/d/Budget2009/bud09_chapter5_280.pdf http://www.hmrc.gov.uk/budget2009/bn24.pdf http://www.hmrc.gov.uk/budget2009/bn25.pdf http://www.hmrc.gov.uk/budget2009/bn26.pdf http://www.hmrc.gov.uk/budget2009/bn27.pdf http://www.hmrc.gov.uk/budget2009/bn41.pdf http://www.hmrc.gov.uk/budget2009/bn42.pdf

HMT: Progress report of the independent review of British offshore financial centres Michael Foot is conducting an independent review of the long-term opportunities and challenges facing the British Crown Dependencies and Overseas Territories as financial centres, which have been brought into focus by recent financial and economic events. The Review is working with Crown Dependencies and Overseas Territories with significant financial centres to identify opportunities and current and future risks (and mitigation strategies) to their long-term financial services sector, including: financial supervision and transparency; taxation, in relation to financial stability, sustainability and future competitiveness; financial crisis management and resolution arrangements; international cooperation. It is also considering: the degree of interdependence between the financial centres and the UK; the impact on the financial centres and on the UK if the prospects of some or all of them are adversely affected; whether the way in which the UK and the authorities in each financial centre currently interrelate might be changed to the benefit of both parties. The final report is expected in Q4 2009. (22/04/09) http://www.hm-treasury.gov.uk/d/indreview_foot_review_progess_apr09__pu772.pdf (NB: over 30 pages long)

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

CEBS: Implementation guidelines regarding hybrid capital instruments - CP 27 This CP responds 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 Article 63a (1) and in Article 57(a) and monitor their application”. In addition, the draft guidelines aim to complement the new CRD provisions, in particular Articles 63a and 66 (1a) where additional guidance appears necessary or appropriate. The draft guidelines presented in this consultation paper cover the topics of permanence, flexibility of payments, loss absorbency, limits and hybrid instruments issued through an SPV. Responses are required by 23 September 2009. (22/06/09) http://www.c-ebs.org/getdoc/90b2c355-ce93- 46de-abd7-bcdf7dc5636e/CEBS-2009-104-Final--(Consultation-paper-on-hybrid.aspx

CEBS: Consultation paper on CEBS’s draft implementation guidelines on the revised large exposures regime Following CEBS’s second advice delivered to the EC in April 2008, a revised large exposures regime is now included in an amendment to the CRD. CEBS has previously identified areas in which further guidance is needed in order to achieve convergent implementation and application of the amended provisions. The draft guidelines focus on three aspects of the revised large exposures regime: definition of "connected clients", and in particular the concept of "inter-connectedness"; calculation of exposure values for schemes with exposure to underlying assets and reporting requirements. Responses are required by 11 September 2009. CEBS intends to hold a public hearing at its London offices in September to allow interested parties to share their views with CEBS. (12/06/09) http://www.c-ebs.org/getdoc/3e2da7fd- c596-4f5e-b75b-7ec8a3d5261c/CEBS-2009-97-REV-(Consultation-paper-on-large-expo.aspx (NB: over 40 pages long)

CEBS: Second advice on options and national discretions CEBS presents its analysis on each of the national discretions and proposes in particular: to include additional criteria in the respective provisions in the CRD on the national discretions on the treatment of high-risk items and on the recognition of other physical collateral; to keep the national discretions on the recognition of other unfunded credit protection for dilution risk and on the recognition of receivables as collateral; and that further work should be conducted on the remaining discretions for which further technical advice was sought. (12/06/09) http://www.c-ebs.org/getdoc/7ead3770-e7eb-4175-9f8d- 86ace9a6ed88/Follow-up-advice-on-national-discretions.aspx (NB: over 30 pages long)

CEBS: Technical advice to the EC on options and national discretions CEBS has published its response to the EC's Call for Technical Advice (No. 10) on the reduction of options and national discretions in the CRD. It suggests that the advice will result in 80% reduction of the present discretions available for EU members in the CRD which is expected to have a positive effect on supervisory convergence in Europe and will diminish compliance costs for institutions. (11/06/09) http://www.c-ebs.org/getdoc/8a50ac40-2864-4ba4-aac8-10ac78d47012/2008-17-10-Call-for-Technical- Advice-(No-10).aspx

CEBS: Advice on information required to be exchanged under Article 42 CRD CEBS has published advice on the information that may be exchanged between the home and host state supervisors of branches under Article 42 of the Capital Requirements Directive. (4/06/09) http://www.c- ebs.org/getdoc/8784537f-7564-4f94-9151-fab152268689/CEBS-s-advice-on-article-42-of-CRD.aspx

BIS: Findings on the interaction of market and credit risk This paper summarises the findings of the interaction of market and credit risk group’s efforts, focusing on the main lessons for supervisors. (14/05/09) http://www.bis.org/publ/bcbs_wp16.pdf?noframes=1 (NB: over 30 pages long)

European Parliament: CRD It has been confirmed that the EP has adopted a legislative report amending the CRD and sets out some of the amendments. The adopted text is available via the second link. (7/05/09) New rules to avoid future financial crisis - Capital Requirements Directives http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+20090506+SIT- 02+DOC+WORD+V0//EN&language=EN

Commission Directive 2009/27/EC of 7 April 2009 amending certain Annexes to Directive 2006/49/EC of the European Parliament and of the Council as regards technical provisions concerning risk management (30/04/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:094:0097:0099:EN:PDF

ECB: Opinion of the ECB at the request of the Council of the European Union on a proposal for a Directive of the European Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management (23/04/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:093:0003:0015:EN:PDF

FSA: Operational Risk Standing Group FSA has published the minutes of a meeting held on 6 April 2009. Topics include: Loss Data Collections Exercise; Operational Risk Models paper. (17/04/09) http://www.fsa.gov.uk/pubs/international/orsg_minutes41.pdf

BIS: Supervisory guidance for assessing banks’ financial instrument fair value practices The purpose of this document is to provide guidance to banks and banking supervisors to help strengthen their assessment of banks’ valuation processes for financial instruments and promote improvements in banks’ risk management and control processes. (16/04/09) http://www.bis.org/publ/bcbs153.pdf?noframes=1

CEBS: Guidelines on operational risk mitigation techniques The main objective of this paper is to provide more complete guidance on the recognition of insurance within the AMA capital calculation. (15/04/09) http://www.c-ebs.org/getdoc/dd2f60da-a9dc-411f-b54e- 2383b434f50b/CP25.aspx

CEBS: Peer Review on CEBS’s Guidelines on the implementation, validation and assessment of Advanced Measurement (AMA) and Internal Rating Based (IRB) approaches Following the publication in April 2006 of CEBS’s Guidelines on the implementation, validation and assessment of Advanced Measurement (AMA) and Internal Ratings Based (IRB) approaches, CEBS decided at its December 2007 meeting to conduct a peer review of the implementation of the Guidelines, from both home and host perspectives. This report builds on facts relative to 38 cases of validation of advanced approaches (AMA and/or IRB approaches) under the CRD recorded as of end March 2008. As the cases under review were the very first ones, some of the issues highlighted in this report may not hold true for later cases, while it is expected that other points will help speed up the learning process of supervisory authorities. (14/04/09) http://www.c-ebs.org/getdoc/aacd9c70-2d6d-4451-9cb1- a923f4b5ecde/CEBS-2009-40-final-_Report-on-GL10-Peer-Review_.aspx

CEBS: Consultation on high level principles for risk management CEBS has developed a set of overarching high level principles on risk management. The high level principles are aimed mainly at large and complex institutions but can be adapted proportionately to any 53

institution. The high level principles should be used by institutions and supervisors as part of the Pillar 2 supervisory review framework. (8/04/09) http://www.c-ebs.org/getdoc/0861a22e-0eb8-4449-9b3a- f4b1959267c7/CP24_High-level-principles-for-risk-management.aspx

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: Liquidity identity card CEBS has published the above, which aims to provide supervisors of European cross-border banking groups with a single prudential language to enable meaningful exchange of information, in particular within colleges of supervisors. (22/06/09) http://www.c-ebs.org/getdoc/747246f8-2236-4f25-816f- 3985b7f24cee/Liquidity-Identity-Card.aspx (NB: over 30 pages long)

CP09/14**: Strengthening liquidity standards 3: Liquidity transitional measures This CP sets out FSA's proposals for transitional measures which are intended to aid the implementation of its new liquidity regime (on which it consulted through CP08/22 and CP09/13). It proposes a phased approach, differentiated for each class of firm within the scope of the new liquidity regime. The new liquidity regime will apply to banks, building societies, branches of EEA and non-EEA banks and BIPRU investment firms. BIPRU Limited License and Limited Activity investment firms will be subject only to 55

the proposed enhanced systems and controls requirements. FSA intends to publish a PS in Q3 2009, setting out the finalised liquidity regime and reporting rules together with the transitional arrangements. This will consider and incorporate, where appropriate, feedback received to CP08/22 and CP09/13. As noted in the 2009/10 Business Plan and DP09/02, FSA intends that the new rules and guidance on liquidity risk management, including transitional provisions, will take effect Q4 2009. The consultation closes on 31 July 2009. (5/06/09) http://www.fsa.gov.uk/pubs/cp/cp09_14.pdf

CP 09/13: Strengthening liquidity standards 2: Liquidity reporting The CP sets out FSA's proposals for a new liquidity reporting regime, which is part of the proposed overhaul of UK liquidity regulation, as set out in last December's CP08/22: Strengthening liquidity standards. The new regime will require firms falling within the scope of the new Individual Liquidity Adequacy Standards (ILAS) regime to submit quantitative reports. The frequency and granularity of these reports will vary according to whether a firm is a standard ILAS firm or a simplified ILAS firm. Responses are required by 15 July 2009. (15/04/09) http://www.fsa.gov.uk/pubs/cp/cp09_13.pdf (NB: over 170 pages long)

7.2 Capital

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

FSA: Definition of Tier 1 capital FSA has published the text of a letter it has sent to BBA setting out the definition of Tier 1 capital which banks should use for specific reporting and disclosure purposes. (5/05/09) http://www.fsa.gov.uk/pubs/other/bba_letter.pdf

CEBS: ICFR summit - Capital requirements and lending Arnoud Vossen, secretary general of CEBS, presented at the above conference. A copy of his slides follows. (2/04/09) http://www.c-ebs.org/getdoc/6d942fa9-3397-4c27-b4d5-b3705c92c39e/01-April-2009_ICFR-Inaugural- Summit_Arnoud-Vossen.aspx

BIS: Initiatives on capital announced by the Basel Committee Following its 10-11 March 2009 meeting, the Basel Committee on Banking Supervision announced that the level of capital in the banking system needs to be strengthened to raise its resilience to future episodes of economic and financial stress. This will be achieved by a combination of measures such as introducing standards to promote the build up of capital buffers that can be drawn down in periods of stress, strengthening the quality of bank capital, improving the risk coverage of the capital framework and introducing a non-risk based supplementary measure. Also, the regulatory minimum level of capital will 57

be reviewed in 2010, taking into account the above and other relevant factors to arrive at a total level and quality of capital that is higher than the current Basel II framework. Strengthening the global capital framework in this manner will enhance confidence and lay the foundation for a more resilient banking system. (13/03/09) Initiatives on capital announced by the Basel Committee

ECOFIN: Council conclusions on bank capital This reiterates that "the provision of capital to the banking sector is not intended to create new, higher statutory capital requirements for the banking sector. The capital requirements of banks should continue to be assessed on a case-by-case basis, in line with existing EU regulation, based on their individual risk- profile and rigorous stress-testing ... the Council supports calls to modify the international regulation of capital and accounting rules in future to ensure that excessive pro-cyclical consequences are mitigated." (23/01/09) http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/105385.pdf

FSA: Statement on regulatory approach to bank capital Further to FSA's November statement explaining its approach to individual bank capital frameworks as part of the plan to support the UK banking system, it has now published this item showing how it has developed the framework. It clarifies that it is operating on the basis that it expects each of the participating banks to have a minimum core tier 1 of 4%. At the time of the recapitalisation, FSA also used a tier 1 ratio of 8% to help it determine the appropriate level of buffer. It estimates 6-7% to be a comparable post stress tier 1 number to the core tier 1 number of 4%. As emphasised in the earlier statement, this approach is a supervisory framework and not a new set of rules. FSA also notes that it has been working with the banks to seek to ensure that the application of the current International Basel Accord, which is implemented through the CRD, does not create any unnecessary or unintended procyclical effects and is amending the variable scalar method of converting internal credit risk models from point in time to through the cycle. These changes will significantly reduce the requirement for additional capital resulting from the procyclical effect. (19/01/09) FSA Statement on regulatory approach to bank capital

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

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

EC: action to ensure that Member States implement EU accounting and auditing rules The EC has decided to refer Austria, Ireland Italy and Spain to ECJ over non-implementation into national law of the Statutory Audit Directive. The Commission has also decided to send formal requests to Belgium, Ireland, Greece, Luxembourg, Poland and Portugal as they have failed to fully implement into their national laws the latest Directive in the field of accounting within the prescribed deadline. These formal requests take the form of "reasoned opinions", 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 ECJ. (25/06/09) EUROPA - Press Releases - Accounting and auditing: Commission takes action to ensure that Member States implement EU rules

CEBS: Follow-up review of banks' transparency in their 2008 audited annual reports This report provides an overview of the outcome of the monitoring work that CEBS has carried out with respect to banks’ transparency. I assesses the 2008 year-end disclosures of a sample of EU (and to a lesser extent of non-EU) banks and reveals that the CEBS June 2008 good practices have been covered quite extensively in many cases. (24/06/09) http://www.c-ebs.org/getdoc/cf732ffd-e9fc-4e4d-bf3f- fc1bc8ecb559/CEBS-2009-133-Final-published-(Transparency-assess.aspx

EC: Commission consults on possible adoption of international standards for statutory audit of EU companies The EC has launched a public consultation to determine whether International Standards on Auditing (ISAs) should be adopted in the EU. According to an independent study also published, the benefits of adoption would outweigh the costs. Interested parties are invited to respond to the consultation by 15 September 2009. (22/06/09) EUROPA - Press Releases - Auditing: Commission consults on possible adoption of international standards for statutory audit of EU companies http://ec.europa.eu/internal_market/consultations/docs/2009/isa/consultation_ISAs_en.pdf http://ec.europa.eu/internal_market/auditing/docs/ias/study2009/report_en.pdf (report - NB: over 180 pages long) http://ec.europa.eu/internal_market/auditing/docs/ias/study2009/summary_en.pdf (exec summary)

CESR: Comment letters CESR has published comment letters to the EC's Directorate General for Internal Market and Services and to EFRAG regarding CESR's position towards the DG Internal Market's work on the consultation regarding control structures in audit firms and the IASB's work on recognition in contracts with customers respectively. (10/06/09) [CESR] - Document [CESR] - Document

IASB: Fair value measurement This consultation seeks views on an exposure draft of guidance on a new standard on fair value measurement. The proposed IFRS defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements, and would replace fair value measurement guidance contained in individual IFRSs. Responses are required by 28 September 2009. (28/05/09) 60

http://www.iasb.org/NR/rdonlyres/C4096A25-F830-401D-8E2E- 9286B194798E/0/EDFairValueMeasurement_website.pdf

ASB: Amendments to FRS 29 - Improving Disclosures about Financial Instruments ASB has issued the above. The amendments are based on those issued by IASB in March 2009. This package of amendments is part of the standard setting response to the credit crisis by improving the quality of information disclosed in financial statements about financial instruments. (22/05/9) http://www.frc.org.uk/images/uploaded/documents/Amend_FRS29 Web Optimized1.pdf (NB: over 30 pages long)

CEBS: Public hearing on transparency CEBS has announced a public hearing in London (Tower 42 in Old Broad Street EC2) on 28 May 2009 to discuss the findings of its follow-up work assessing banks’ transparency. CEBS will: present the findings of the analysis of the disclosures provided in banks’ 2008 audited annual reports and under Pillar 3 and invite the industry’s views on the preliminary conclusions and on any related measures. (30/04/09) CEBS - CEBS organises a public hearing on transparency

CEBS: Response to EFRAG re FASB amendments CESR has published its response to EFRAG's consultation regarding the IASB’s request for views on FASB amendments on both fair value measurement and impairment requirements for certain investments in debt and equity securities. (22/04/09) http://www.cesr- eu.org/data/document/09_373_Comment_letter_FASB_FSP_on_Inpairment.pdf

CESR: CESR’s response to the consultation regarding International Accounting Standards Committee Foundation Review of the Constitution Part 2 (14/04/09) [CESR] - Document

CESR: CESR’s response to EFRAGs consultation regarding IASB’s Discussion Paper “Preliminary views on Financial Statements Presentation (14/04/09) [CESR] - Document

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

BBA: Banks stress need for international cooperation on reform BBA has published its response to the Turner Review together with a copy of a covering letter to Hector Sants, saying "we do not believe the UK can plough ahead with change all on its own without thought to how changes here will work with plans afoot elsewhere. ... We also need to be clearer on how much this will all cost and how the changes can be phased in". (15/06/09) http://www.bba.org.uk/content/1/c6/01/61/23/Ltr to Lord Turner re A Regulatory Response to the Global Banking Crisis.pdf http://www.bba.org.uk/content/1/c6/01/61/22/BBA's Response to FSA Discussion Paper 092.pdf (NB: over 30 pages long)

FSA: Statement on its use of stress tests FSA has published this item on its webpage, which clarifies how stress tests have been used within the UK, provides information on the macro economic parameters currently being used, and describes how the UK approach fits within the EU-wide stress testing exercise on the aggregate banking system being coordinated by CEBS. It notes that, as FSA's use of stress tests has not been a one-off exercise, but instead embedded in its regular supervisory processes, it will not, as a matter of practice, be publishing details of the stress test results and that the precise parameters used have changed and will change over time. FSA says that it believes it is useful to provide information on the key macro economic parameters used in stress tests conducted over the last four months and currently being used today. These parameters were used, for instance, in the stress tests applied to those banks considering utilisation of the APS, and in the analysis of the Dunfermline Building Society which identified future potential threats to capital adequacy. The banks participating in the APS have in addition submitted to HMT full details of the specific assets proposed for inclusion in the scheme and further detailed analysis of the assets determined the design and pricing of the scheme. CEBS has committed to coordinating a Europe-wide stress testing exercise to inform assessments of the aggregate health of the banking system which is not intended to assess specific institutions’ need for recapitalisation, which to the extent necessary will continue to be done by national authorities using appropriate national approaches. FSA will be participating in this exercise and the EU wide scenarios will be agreed by the EC and CEBS. The exercise will be completed by September 2009. (28/05/09) FSA statement on its use of stress tests

BIS: Principles for sound stress testing practices and supervision This paper assesses stress testing practices during the financial crisis. Based on that assessment and in an effort to improve practices, it develops sound principles for banks and supervisors which cover the overall objectives, governance, design and implementation of stress testing programmes as well as issues related to stress testing of individual risks and products. (20/05/09) http://www.bis.org/publ/bcbs155.pdf?noframes=1

CEBS: Statement on stress testing exercise CEBS has published a short statement on its stress testing exercise, due for completion in September, noting that the "outcomes are confidential". (13/05/09) CEBS - CEBS's statement on stress testing exercise

BIS: Principles for sound stress testing practices and supervision This paper assesses stress testing practices during the credit crisis. Based on that assessment and in an effort to improve practices, it sets out principles for banks and supervisors. The principles cover the overall objectives, governance, design and implementation of stress testing programmes as well as issues related to stress testing of individual risks and products. The recommendations are aimed at deepening and strengthening banks’ stress testing practices and their assessment by supervisors. (6/01/09) http://www.bis.org/publ/bcbs147.pdf?noframes=1

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).

Chronological Reports

IOSCO: Unregulated financial markets and products The interim recommendations contained in this consultation report address issues of immediate concern with respect to: securitised products, including asset-backed securities, asset-backed commercial paper and structured credit products such as CDOs, synthetic CDOs, CLOs and CDS. Responses are required by 15 June 2009. (5/05/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD290.pdf (NB: 40 pages long)

LIBA/EBF/EABP/ESBG: Industry good practice guidelines on Pillar 3 disclosure requirements These guidelines are primarily aimed at banks and investment firms which have to disclose their involvement in securitisation activities according to Pillar 1 and include a glossary. (16/01/09) http://www.liba.org.uk/issues/2008/Dec 08/D2499A-Good practice guidelines on P3-4 Dec 2008.pdf

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)

Chronological Reports

BIS: Stocktaking on the use of credit ratings In its report to the G7 - Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience - FSF (FSF) requested the Joint Forum to conduct a stocktaking of the uses of external credit ratings by its member authorities in the banking, securities and insurance sectors. The request also suggested that authorities review whether their regulations and/or supervisory policies unintentionally give credit ratings an official seal of approval that discourages investors from performing their own due diligence. This resulting report is intended to serve as a stocktaking of member authorities’ use of credit ratings. This stocktaking is based entirely on the responses received from member authorities in response to the questionnaire circulated and, with the exception of the descriptions of international frameworks prepared by member authorities, does not address the use of credit ratings in any other jurisdictions. (15/06/09) http://www.bis.org/publ/joint22.pdf?noframes=1 (NB: over 120 pages long)

CESR: Report on compliance of EU based Credit Rating Agencies with the 2008 IOSCO Code of Conduct This final report focuses on whether a CRA’s code of conduct is compliant with, or deviates from, the IOSCO Code. CESR’s overall conclusion with respect to the codes of conduct of the larger, global CRAs is that they are broadly compliant with the IOSCO Code. It also notes that they have updated their codes of conduct to take into account most, but not all, of the revisions made to the IOSCO Code in May 2008, in particular with respect to structured finance products. However, there are also a number of provisions detailed within this report on which these CRAs deviate from the IOSCO Code and therefore CESR believes room for improvement exists. (26/05/09) http://www.cesr.eu/data/document/09_417.pdf

EC: EESC and stakeholders in call for tough measures against Credit Rating Agencies This press release notes that the European Economic and Social Committee (EESC) fully supports the EC's plan to regulate and register Credit Rating Agencies. It encourages the EC to use the new registration process to open up the ratings business to new CRAs, notably by supporting any initiatives to create an independent European agency. Furthermore, it urged EU regulators not to place undue reliance on ratings and asked the ECto deal with the issue of CRA disclaimers. The EESC asks Member States' competent authorities, as part of their organisational supervision, to watch closely the linkage between the rating business and the expectations of shareholders. Particular attention should also be paid to the structure of executive performance bonuses. (20/05/09) EUROPA - Press Releases - EESC and stakeholders in call for tough measures against Credit Rating Agencies 65

EC: Proposed credit rating agencies regulation The EC has welcomed the respective approvals from the European Parliament and from the Council on the proposed Regulation on credit rating agencies. The Regulation will have a major impact on the activity of credit rating agencies, which issue opinions on creditworthiness of companies, governments and sophisticated financial structures. Credit rating agencies will be expected to comply with strict standards of integrity, quality and transparency and will be subject to ongoing supervision of public authorities. Users of credit ratings in the EU will be in a better position to decide if the opinions of a specific credit rating agency are trustworthy and to what extent those opinions should impact their investment choices. (23/04/09) EUROPA - Press Releases - Approval of new Regulation will raise standards for the issuance of credit ratings used in the Community EUROPA - Press Releases - Credit Rating Agencies : Frequently asked questions

IOSCO: Review of implementation of the IOSCO code of conduct fundamentals for credit rating agencies The purpose of this report is to determine the extent to which credit rating agencies have incorporated the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies into their own codes of conduct. It concludes that, unlike the 2007 Implementation Report, in preparing this report, a larger proportion of the CRAs reviewed were at least aware of the IOSCO CRA Code and have taken steps to incorporate its provisions into their codes of conduct than when the 2007 Report was written. While the CRA Task Force believes it unfortunate that more CRAs have not adopted the 2008 revisions to the IOSCO CRA Code, the revisions have been in place for less than a year. More positively, most of the larger CRAs that have been actively involved in rating structured finance products have modified their codes of conduct to take into account the new IOSCO provisions. In most cases, they have adopted the IOSCO provisions in their entirety, or with minimal changes that are disclosed and explained. (13/03/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD286.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

CESR: Waivers from pre-trade transparency obligations under MiFID CESR has updated this document - new items appear in red. (30/06/09) (NB: the document was updated again on 10/08/09. Only the current version is available). [CESR] - Document

PS09/10: Extension of the short selling disclosure obligation Feedback to CP09/15 For the reasons set out in CP09/15 and after taking into account all the comments received (including majority support for the extension), FSA is extending the Disclosure Obligation without time limit. These changes will become active at 00:00:01 hours on 30 June 2009. FSA expects to issue a FS summarising the responses received to DP09/1 in Q3 2009 including feedback on alternative methods of increasing transparency. It will also continue to engage in the international dialogue on short selling. (26/06/09) http://www.fsa.gov.uk/pubs/policy/ps09_10.pdf

IOSCO: Regulation of short selling The report argues that: short selling should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets; subject to a reporting regime that provides timely information to the market or to market authorities; subject to an effective compliance and enforcement system and that short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development. (22/06/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD292.pdf

CESR: Q&A on MiFID: common positions agreed by CESR Members An update was published on 15/06/09. [NB: the link will only go to the latest version] [CESR] - Document

CESR: Impact of MiFID on equity secondary markets functioning This report focuses on the functioning of MiFID’s provisions and those of its Implementing Regulation with regards to market transparency and integrity, regulated markets, MTF and systematic internalisers. The publication of CESR’s report follows a call for evidence issued in November 2008, which sought stakeholders’ views on the workings of MiFID and its impact. CESR’s assessment showed that the introduction of MiFID significantly changed the secondary markets landscape across Europe, most importantly through the introduction of new MTF platforms. The findings also indicate concerns by some market participants that fee reductions by trading platforms have not been passed on entirely by trading participants to investors. CESR is to conduct further work to better understand and assess issues surrounding the calibration of the deferred publication regime, the cost of accessing post-trade data and the consolidation of data. It is noted that CESR has already started preparing a similar report on MiFID’s impact on non-equity markets which is expected to be finalised during the Q1 2010. (10/6/09) [CESR] - Document (NB: over 30 pages long) 67

FSA: MarketWatch 32 This issue is devoted to the topic of implementing MiFID post-trade reporting requirements. FSA notes that it has identified some difficulties and possible inconsistencies in the implementation of MiFID post- trade transparency requirements, particularly over OTC trades, and, following discussions with market participants, reached a shared understanding of the appropriate approach to publishing OTC trades. Section 6 clarifies several issues relating to the deferred publication of trades. (5/06/09) http://www.fsa.gov.uk/pubs/newsletters/mw_newsletter32.pdf

CESR: Waivers from pre-trade transparency obligations under MiFID CESR has updated this document - new items appear in red. (03/06/09) (NB: the document was updated again on 10/08/09. Only the current version is available). [CESR] - Document

CP09/15***: Extension of the short selling disclosure obligation FSA is proposing to extend the current disclosure regime for significant net short positions in the stocks of UK financial sector companies, due to expire on 30 June 2009. However, it expects that, in the longer term, the requirements will be replaced by a broader short selling regime for all UK stocks. As is the case at present, disclosures will only need to be made if a net short position exceeds 0.25% of a company’s issued shared capital or increases by 0.1% bands above that (e.g. net short position reaches 0.35%. 0.45% and so on). The consultation period on the proposals will close on 12 June to enable any new measures to be put in place before the current regime expires. (1/06/09) http://www.fsa.gov.uk/pubs/cp/cp09_15.pdf

CEPS: Short selling - a known unknown This looks at three questions posed by short selling - whether short selling is legitimate and, if so, is it beneficial for financial markets; the difference between naked and covered short selling and whether short selling is consistently defined across jurisdictions. (1/06/09) http://shop.ceps.eu/downfree.php?item_id=1849

CESR: Waivers from pre-trade transparency obligations under MiFID CESR has updated this document - new items appear in red. (29/05/09) (NB: the document was updated again on 10/08/09. Only the current version is available). [CESR] - Document

CESR: Waivers from pre-trade transparency obligations under MiFID The information contained in this document is made public for use as examples of systems or functionalities whose compliance with the requirements for exemptions from MiFID pre-trade transparency requirements has been considered by CESR. They are intended to provide information on the application of the relevant provisions of MiFID in specific cases and to assist market participants when creating new functionalities. The information in the table will be updated on a continuous basis as and when CESR forms a view on whether a proposal made to a CESR Member satisfies the criteria of a particular waiver. The table does not include all waivers granted by competent authorities, but only the ones that have been considered at CESR level after the establishment of this process in February 2009. It is further noted that this information is published without prejudice to any new considerations that CESR might want to make following new information and/or new developments having an impact on its content. (20/05/09) http://www.cesr.eu/data/document/09_324.pdf

CESR: MiFID complex and non-complex financial instruments for the purposes of the Directive's appropriateness requirements This paper sets out for consultation CESR's further analysis of types of MiFID financial instruments and its proposed views on how specific types of MiFID products are likely to fit within the complex/non- complex categories for the purposes of the appropriateness requirements. It also considers the scope of MiFID as it currently stands, in terms of the range of financial instruments covered by the Directive. It does not consider any possible future extension of the scope of application of MiFID standards (for example, as a result of any proposals from the EC). Responses are required by 17 July 2009. (14/05/09) http://www.cesr.eu/data/document/09_295.pdf (NB: 40 pages long)

FSA: Disclosure of CFD Q&A Further to PS 09/3 which set out final Handbook text for the disclosure of CFDs, FSA has published this Q&A document covering some key issues which may assist market participants’ understanding of the new regime. It is noted that the Q&As do not constitute FSA guidance. (8/05/09) http://www.fsa.gov.uk/pubs/ukla/disclosure.pdf

EC: MiFID Q&A The MiFID Q&A has been entirely revamped and is now available via the following link. Rather than being published in one PDF, it is possible to use various search mechanisms to find the item required. There is also a list of the most recent questions answered. (28/04/09) Questions on Single Market Legislation » Internal Market » European Commission

EC: Commission launches call for evidence on review of Market Abuse Directive The EC has launched a call for evidence on its review of the application of MAD, including some preliminary findings and proposals to improve and simplify it. Issues include: the scope of the markets and financial instruments covered by MAD; the ability of listed issuers to delay disclosure of inside information; disclosure of inside information by issuers of commodity derivatives; the ability of competent authorities to gain access to telephone records and other data; the obligation to draw up insiders' lists and to report the transactions of managers of issuers; questions related to short selling, a topic that is not expressly addressed currently, are also included in the call for evidence. Responses are required by 10 June 2009. (20/04/09) http://ec.europa.eu/internal_market/consultations/docs/2009/market_abuse/call_for_evidence.pdf

EC: Consultation on the harmonisation of securities law The consultation constitutes a questionnaire which aims to obtain information from Member States, market participants and other stakeholders, particularly investors, on the necessity to improve the EU- wide legal framework for securities holding and disposition and on how future EU legislation in this field could address the issue. Any future legislation in this field will complement and will be without prejudice to the existing EU legal framework concerning, for instance, MiFID. This consultation covers the entire scope of the future legislative initiative, and questions concentrate on the most important technical aspects. Responses are required by 11 June 2009. (17/04/09) http://ec.europa.eu/internal_market/consultations/docs/2009/securities-law/hsl_consultation_en.pdf

FSA: Post implementation review of the new use of dealing commission regime FSA has set out the results of the post implementation review of its work on the use of dealing commission and has published Oxera's report (second and third links below), detailing the analysis and conclusions of a performance measurement framework it developed to evaluate whether the new regime had achieved its aims. FSA concludes that, overall, the performance indicators found that the expected changes were occurring and that the market was moving towards delivering the intended outcomes. In particular, the report found that the new regime has clearly delivered benefits to the market. Commission rates have fallen and the new regime has limited the use of dealing commission to the purchase of ‘execution and research’, encouraged greater separation in the purchase of execution and research and improved the provision of information. On the retail side, the evidence indicates that the benefits accruing on the wholesale side are being delivered to retail consumers since retail funds are treated in the same way as wholesale funds. FSA notes that it has yet to deliver all the outcomes desired, in particular those deriving from the use of disclosure, but believes that its aims here can be achieved through its usual supervisory actions. It will continue to monitor developments in this and related areas. (7/04/09) Post implementation review of the new use of dealing commission regime http://www.fsa.gov.uk/pubs/other/oxera_dealing_commission.pdf (NB: over 80 pages long) http://www.fsa.gov.uk/pubs/other/Oxera_dealing_appendices.pdf (NB: over 70 pages long)

IOSCO: Regulation of short selling This consultation document recommends that effective regulation of short selling should be based on the following principles: that short selling activities should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of 69

financial markets; short selling should be subject to a reporting regime that provides timely information to the market or to market authorities; short selling should be subject to an effective compliance and enforcement system; and short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development. Responses are required by 4 May 2009. (24/03/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD289.pdf (NB: 30 pages long)

IOSCO: Commodity Futures Market/ FSA: CFTC and FSA welcome IOSCO proposals to boost regulation of commodity futures markets IOSCO has published its final report on the supervision of the commodities futures markets and FSA has published a press release which notes that CFTC and FSA have welcomed IOSCO's recommendation for improved supervision of the commodity futures markets and better global cooperation towards this end. The consultation paper’s key recommendations call for: improving the availability and quality of information on commodities traded in related physical and OTC derivatives markets; in evaluating regulators’ oversight programs against the standards set forth in the Tokyo Communiqué; reviewing regulators’ powers to ensure they are able to access the information necessary for effective market surveillance; promoting improvements or eliminating impediments to regulators’ legal and regulatory frameworks that may inhibit their ability to detect and enforce manipulation cases; establishing periodic meetings among futures market regulators to share concerns on trends and developments in commodity markets as well as the sharing of market surveillance and enforcement techniques. (5/03/09) http://www.fsa.gov.uk/pages/Library/Communication/Statements/2009/futures.shtml https://www.iosco.org/library/pubdocs/pdf/IOSCOPD285.pdf

CESR: Report on the mapping of supervisory powers, supervisory practices, administrative and criminal sanctioning regimes of Member States in relation to MiFID The report gives a factual overview of the implementation of MiFID by mapping the supervisory powers, practices and sanctioning regimes of CESR Members. The review covers powers, practices and sanctioning regimes but not the actual use of sanctioning powers and the enforcement of measures and sanctions. A similar exercise is now being undertaken regarding the sanctioning powers under the Transparency Directive. (16/02/09) [CESR] - Document (press release, including synopsis of findings and summary tables) [CESR] - Document (NB: over 240 pages long)

FSA: MiFID supervisory priorities - results of wholesale thematic review FSA undertook a review of MiFID implementation across 43 wholesale firms between June and November 2008 across sectors. FSA concludes that it was encouraged by the findings of the thematic visits which indicated that most firms’ MiFID implementation work had been well managed and that firms were compliant as at the visit date. However, FSA remains concerned with the current standard of execution policies reviewed at the visits and intends to undertake a further desk based review of policies during 2009 to assess progress in this area. Ongoing monitoring of compliance with the new MiFID based COBS and SYSC requirements will form part of FSA's normal supervisory activity. FSA says that it will rely on the results of CESR's 2009 policy work on retail aspects of MiFID rather than undertake an additional survey of regulated firms. (20/01/09) http://www.fsa.gov.uk/pubs/international/mifid_sup_priorities.pdf

ICMA: European financial services industry - standard of good practice on bond market transparency for retail investors ICMA has developed a voluntary European industry standard of good practice for bond market transparency for retail investors to provide easier access to price transparency for retail investors by improving the quantity and accessibility of price and liquidity information available to retail investors about liquid and highly rated bonds. This paper describes the objectives of the standard and its technical specifications. The annex sets out ICMA’s proposals for enabling those market participants who report to ICMA to comply with the standard. (20/01/09) http://www.icmagroup.org/ICMAGroup/files/b4/b4ea041e-5675-430e-986c-450927f67c55.pdf

CESR/ERGEG: Proposals on how to promote transparency and market integrity in electricity and gas trading The European Regulators’ Group for Electricity and Gas and CESR have published the third part of their advice to the EC on how to foster fair electricity and gas trading. The proposals (on record-keeping, transparency and exchange of information) seek to promote transparency and market integrity in energy trading (12/01/09) [CESR] - Document [CESR] - Document [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

OECD: Corporate governance and the financial crisis: key findings and main messages This report has been developed on the basis of a fact finding study issued in February 2009. Its purpose is to further advance the Steering Group’s action plan on corporate governance and the financial crisis. The Steering Group’s analysis of corporate governance weaknesses in remuneration, risk management, board practices and the exercise of shareholder rights concludes that, at this stage, there is no immediate call for a revision of the OECD Principles. (18/06/09) http://www.oecd.org/dataoecd/3/10/43056196.pdf

ICSA: Boardroom behaviours This paper, the results of an analysis of boardroom behaviours by ICSA, has been prepared for Sir David Walker and has also been submitted to FRC. It concludes that "the absence of guidance on current boardroom behaviours represents a structural weakness in the current system" and looks forward to working with interested parties to develop best practice in this area. (8/06/09) http://www.icsa.org.uk/assets/files/pdfs/consultations/09.04 ICSA Policy Report 6.pdf

CEIOPS: Issues paper on system of governance CEIOPS has published a feedback statement in respect of the above. In particular respondents highlighted the actuarial function and outsourcing as the areas of the paper most in need of further consideration. (19/05/09) http://www.ceiops.eu/media/files/consultations/issues-paper-P5-system-of- governance/CEIOPS-IGSRR-12-09-Feedback-Statement-System-of-Governance-Issues-Paper.pdf

• Remuneration generally, including bonuses: the report highlights a lack of transparency regarding the exact cost of bonus payments at part-nationalised banks, including deferred bonus payments, and calls on the Government and UKFI to rectify this. It also proposes a number of reforms to remuneration more widely in the banking sector. These include enhanced disclosure requirements on firms about their remuneration structures and about remuneration below board-level, reforms to remuneration committees to make them more open and transparent, and a Code of Ethics for remuneration consultants. • Shareholders: the report notes the failure of institutional investors effectively to scrutinise and monitor the decision of boards and executive management in the banking sector, concluding that this may reflect the low priority some institutional investors have accorded to governance issues, and that, in some cases, they may have even encouraged the risk-taking that proved the downfall of some banks. • Auditors: the report argues that the audit process failed to highlight developing problems in the banking sector, leading TSC to question how useful audit as it is currently designed is. The issue of auditor independence is considered and it is suggested that audit firms should be prohibited from conducting non-audit work for the same company and that FSA should also consult on ways in which financial reporting can be improved to provide information on bank activities in a more accessible way. TSC has announced an intention to "turn the spotlight onto the FSA in coming months, looking at the future regulatory landscape and making sure the right lessons have been learned. We will also be doing further inquiries looking at how to rebuild consumer trust in the financial sector as well as the international aspects of the banking crisis." (15/05/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/519/519.pdf (NB: over 100 pages long) UK Parliament - Treasury Committee: Press Notice (full press release) BBA response : BBA – British Bankers' Association - Treasury Committee report a useful contribution, says BBA

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”.

Chronological Reports

HMT: Speech by Lord Myners to AIC HMT has published the text of the above, in which Lord Myners discusses the investment companies sector and corporate governance issues, urging "investor engagement". He also discussed the Walker Review on bank governance, saying that "I am keen that Sir David should consider, amongst other things, whether there is a case for Non-Executive Directors to have dedicated support and resources to help them carry out their responsibilities and commission reports independent of management ... I also hope Sir David will look at how much time non-executive directors should be expected to spend performing their role and the right approach to compensating the value provided by independent directors" and he also confirmed that the TOR for the review has been to "identify where its recommendations are applicable to other financial institutions". (24/04/09) Association of Investment Companies - HM Treasury

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

SIFMA: Guidelines for compensation SIFMA has prepared these in coordination with other industry groups and compensation and governance professionals. They reflect a focused commitment of the industry to structure compensation arrangements to discourage inappropriate risk-taking and emphasise the role of firms' oversight authority; suggest that "it is vital that financial services firms are not restricted from attracting, motivating and retaining the necessary talent to make them successful" and encourage transparency, while respecting confidentiality. (12/06/09) http://www.sifma.org/legislative/savings/pdf/SIFMA-Comp-Guidelines-06- 09.pdf

TSC: Banking Crisis: reforming corporate governance and pay in the City - Ninth Report of Session 2008-09 This report examines remuneration in the City of London, including non-executive directors, institutional shareholders, auditors and credit rating agencies, who failed to act as a check on, and balance to, senior managers and the executive boards of banks. It concludes that the banking crisis has exposed serious flaws and shortcomings in remuneration practices in the banking sector and, in particular, within investment banking. Points include: • concerns that the Turner Review downplays the role that remuneration played in causing the banking crisis ("we are also concerned that the FSA seems not be taking tackling this issue seriously enough.”). • Bankers' apologies: "apologies the Committee heard from former RBS and HBOS executives had a polished and practised air. These witnesses also betrayed a degree of self-pity, portraying themselves as the unlucky victims of external circumstances". • RBS: the report concludes that Lord Myners’ assertion that his precept to the RBS Board - that there should be no reward for failure - did not represent an adequate oversight of the remuneration of outgoing senior bank staff and attacks the RBS Board for being "incompetent in the management of the bank, steering it towards catastrophe, and was also possibly dominated by Sir Fred;" • Non-execs: the report also discusses "serious flaws and shortcomings" in the system of non-executive oversight of bank execs and calls for a broadening of the talent pool from which the banks draw upon. • Remuneration generally, including bonuses: the report highlights a lack of transparency regarding the exact cost of bonus payments at part-nationalised banks, including deferred bonus payments, and calls on the Government and UKFI to rectify this. It also proposes a number of reforms to remuneration more widely in the banking sector. These include enhanced disclosure requirements on firms about their remuneration structures and about remuneration below board-level, reforms to remuneration committees to make them more open and transparent, and a Code of Ethics for remuneration consultants. • Shareholders: the report notes the failure of institutional investors effectively to scrutinise and monitor the decision of boards and executive management in the banking sector, concluding that this may reflect the low priority some institutional investors have accorded to governance issues, and that, in some cases, they may have even encouraged the risk-taking that proved the downfall of some banks. • Auditors: the report argues that the audit process failed to highlight developing problems in the banking sector, leading TSC to question how useful audit as it is currently designed is. The issue of auditor independence is considered and it is suggested that audit firms should be prohibited from conducting non-audit work for the same company and that FSA should also consult on ways in which financial reporting can be improved to provide information on bank activities in a more accessible way. TSC has announced an intention to "turn the spotlight onto the FSA in coming months, looking at the future regulatory landscape and making sure the right lessons have been learned. We will also be doing further inquiries looking at how to rebuild consumer trust in the financial sector as well as the international aspects of the banking crisis." (15/05/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/519/519.pdf (NB: over 100 pages long) UK Parliament - Treasury Committee: Press Notice (full press release) BBA response : BBA – British Bankers' Association - Treasury Committee report a useful contribution, says BBA

EC: Commission Recommendation of 30 April 2009 complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies This has now been published in the Official Journal. (15/05/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:120:0028:0031:EN:PDF

EC: Commission sets out principles on remuneration of risk-taking staff in financial institutions/Directors’ remuneration Further to the 29 April news update, the EC has now published the texts of the Recommendations regarding the above, together with an impact assessment/summary of impact assessment in the case of the latter - links below. (6/05/09) http://ec.europa.eu/internal_market/company/docs/directors- remun/financialsector_290409_en.pdf http://ec.europa.eu/internal_market/company/docs/directors- remun/directorspay_290409_en.pdf http://ec.europa.eu/internal_market/company/docs/directors- remun/impact_assessment_en.pdf (Impact Assessment - over 50 pages long) http://ec.europa.eu/internal_market/company/docs/directors-remun/summary_ia_en.pdf (exec summary of Impact Assessment)

EC: Remuneration policies The document is a working document of the Commission services for consultation inviting comments (from 29 April - 6 May only) on remuneration policy proposals. It is emphasised that the document "does not purport to represent or pre-judge the formal proposals of the Commission". (30/04/09) http://ec.europa.eu/internal_market/bank/docs/regcapital/consultation-renumeration_en.pdf

EC: Commission sets out principles on remuneration of risk-taking staff in financial institutions The EC has adopted a Recommendation on remuneration in the financial services sector which recommends that Member States should ensure that financial institutions have remuneration policies for risk-taking staff that are consistent with and promote sound and effective risk-management. The Recommendation sets out guidelines on the structure of pay, on the process of design and implementation of remuneration policies and on the role of supervisory authorities in the review of remuneration policies of financial institutions. The Recommendation invites Member States to adopt measures in four areas: • Structure of pay: remuneration policies for risk-taking staff should be consistent with and promote sound and effective risk management. For this purpose, financial institutions should strike an appropriate balance between the level of the core pay and the level of the bonus. The payment of the major part of the bonus should be deferred in order to take into account risks linked to the underlying performance through the business cycle. Performance measurement criteria should privilege longer- term performance of financial institutions and adjust the underlying performance for risk, cost of capital and liquidity. Financial institutions should also be able to claim back already paid bonuses, where data has been proven to be manifestly misstated (claw-back). • Governance: remuneration policy should be transparent internally, should be clear and properly documented and contain measures to avoid conflicts of interest. The board should have responsibility for oversight of the operation of the remuneration policy for the financial institution as a whole with an adequate involvement of internal control functions and human resources departments or experts. Board members and other staff involved in the design and operation of remuneration policies should be independent. • Disclosure: remuneration policy should be adequately disclosed to stakeholders. The disclosure should be made in a clear and easily understandable way and contain core elements of the remuneration policy, its design and operation. • Supervision: supervisors should ensure, using the supervisory tools at their disposal, that financial institutions apply the principles on sound remuneration policies to the largest possible extent and have remuneration policies consistent with effective risk management. In order to address the question of proportionality, supervisors should take account of the nature and scale of the financial institution and the complexity of its activities in order to assess its compliance with the principles on sound remuneration policies. It is noted that the Recommendation will be followed up by legislative proposals to bring remuneration schemes within the scope of prudential oversight. In June, the EC will present proposals to revise the CRD to ensure that regulatory capital adequately covers the risks inherent in banks' trading book, securitisation positions and remuneration policies. (29/04/09) EUROPA - Press Releases - Financial services sector pay: Commission sets out principles on remuneration of risk-taking staff in financial institutions EUROPA - Press Releases - Recommendation on remuneration in financial services sector: Frequently Asked Questions

EC: Directors’ remuneration The EC has adopted a Recommendation on the regime for the remuneration of directors of listed companies, complementing previous Recommendations 2004/913/EC and 2005/162/EC. It focuses on certain aspects of the structure of directors' remuneration and the process of determining directors´ remuneration, including shareholder supervision. The Commission has also adopted a Recommendation on remuneration policy in the financial services sector. With regard to the structure of directors' remuneration, the Recommendation invites Member States to: set a limit (2 years maximum of fixed component of directors' pay) on severance pay (golden parachutes) and to ban severance pay in case of failure; require a balance between fixed and variable pay and link variable pay to predetermined and measurable performance criteria to strengthen the link between performance and pay; promote the long term sustainability of companies through a balance between long and short term performance criteria of directors' remuneration, deferment of variable pay, a minimum vesting period for stock options and shares (at least three years); retention of part of shares until the end of employment; allow companies to reclaim variable pay paid on the basis of data, which proved to be manifestly misstated ("clawback"). On the process of determining Directors' remuneration, the Recommendation invites Member States to: extend certain disclosure requirements contained in the existing Recommendation to improve shareholder oversight of remuneration policies; ensure that shareholders, in particular institutional investors, attend general meetings where appropriate and make considered use of their votes regarding directors´ remuneration; provide that non-executives should not receive share options as part of their remuneration to avoid conflict of interests; strengthen the role and operation of the remuneration committee through new principles on (i) the composition of remuneration committees; (ii) the obligation for the members of the remuneration committee to be present at the general meeting where the remuneration policy is discussed in order to provide explanations to shareholders; (iii) avoiding conflicts of remuneration consultants. (29/04/09) EUROPA - Press Releases - Directors’ pay: Commission sets out further guidance on structure and determination of directors' remuneration EUROPA - Press Releases - Recommendation on remuneration in financial services sector: Frequently Asked Questions

Speech by Charlie McCreevy: Press conference re financial package (in respect of the proposals on packaged products, alternative investments and remuneration (29/04/09) EUROPA - Press Releases - Charlie McCREEVY, European Commissioner for Internal Market and Services, Press Conference on Financial Package, Press Conference on Financial Package , Brussels, 29 April 2009

CEBS: High-level principles for remuneration policies CEBS has published a finalised set of principles for remuneration policies following a one-month public consultation period and a public hearing (the feedback document appears below in the second link). The principles address key aspects of well functioning remuneration policies and thus support the sound operation of banking institutions. It focuses on key aspects of remuneration policies, and in particular: alignment of company and individual objectives; transparency towards internal and external stakeholders; governance with respect to oversight and decision-making; performance measurement; and forms of remuneration. Implementation of these guidelines by the institutions is expected to take place by the end of Q3 2009. CEBS will further consider implementation aspects of these guidelines in a Pillar 2 context in the coming months. The principles will be integrated into the section on Internal Governance of the CEBS Guidelines on the Application of the Supervisory Review Process under Pillar 2 (GL03), originally published on 25 January 2006). (20/04/09) http://www.c-ebs.org/getdoc/34beb2e0-bdff-4b8e-979a- 5115a482a7ba/High-level-principles-for-remuneration-policies.aspx http://www.c- ebs.org/getdoc/bd42ce08-6a8a-45a5-b9b5-bd1659f3736d/CP23-Feedback-document.aspx

IIF: Report on compensation in financial services, industry progress and the agenda for change This report aims to answer three fundamental questions: • What are the structural weaknesses (and the strengths on which to build) in current industry compensation models? • What changes are needed to ensure that future compensation structures support the agenda of shareholder value creation and sound risk-reward management?

• To what extent has the industry already started to implement these changes and what are the challenges in moving from today’s status to full implementation? It highlights industry-wide challenges, identifies existing leading practices, reviews in-flight changes made by firms in light of the current crisis up to March 2009, and then proposes next steps. The report’s intention is to provide a fact base which will help the industry to overcome the fears that first movers on compensation reform will lose talent. (1/04/09) http://www.iif.com/download.php?id=YgXfGGw8KEA= (NB: over 40 pages long)

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

CESR/ESCB: Recommendations for securities settlement systems and recommendations for central counterparties in the EU/Feedback document to the consultations on the “draft ESCB-CESR recommendations for securities clearing and settlement systems and central counterparties in the EU” and the “draft recommendations for central counterparties as amended for OTC derivatives” by the European System of Central Banks and the Committee of European Securities Regulators/ CESR/ESCB have published the above. (23/06/09) [CESR] - Document [CESR] - Document

EC: CRD/Communication on derivatives On 24 June 2009, the EC expects to put forward proposals to amend the CRD. The amendments will also cover remuneration policies. The EC will also present a Communication and a staff working paper on derivatives, which will analyse how the risks from these complex financial instruments can be mitigated. A stakeholder consultation will follow later. (12/06/09) EUROPA - Press Releases - Top News from the European Commission 15 June to 12 July 2009

Directive 2009/44/EC of the European Parliament and of the Council of 6 May 2009 amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims This has been published in the Official Journal. (10/06/09) http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:146:0037:0043:EN:PDF

FMLC: Issue 136 - Intermediated securities FMLC has published a copy of a letter it has sent to the EC with regard to the CP entitled "Legislation on Legal Certainty of Securities Holding and Dispositions". It states that FMLC's main area of concern is the "conflicts-of-laws" issue as it remains uncertain which law determines legal rights related to securities held through financial intermediaries. FMLC also draws attention to "the continuing question as to whether any future legislation on the legal effect of book entries should be restricted to account providers that are regulated by a competent authority and, indeed, are compliant with the relevant regulatory

regime", saying it is "strongly opposed to proposals for any such restriction". (9/06/09) http://www.fmlc.org/papers/Issue136ECconsult.pdf

FMLC: Issue 97 - European contract law FMLC has published a copy of a letter it has sent to the Ministry of Justice on the Common Frame of Reference, described as "one of a series of initiatives by the EC to increase the overall coherence of European contract law". FMLC argues that "the ultimate purposes of the CFR remain unclear. One proposal, to which the FMLC is strongly opposed, is for the CFR to take the form of a mandatory European Civil Code. In the FMLC’s view, this would threaten many of the legal fundamentals on which the financial markets rely, including contractual certainty and predictability of legal outcomes". (9/06/09) http://www.fmlc.org/papers/Issue97MoJCFR.pdf

SIFMA: OTC derivatives risk management The Asset Management Group of SIFMA has outlined a framework for OTC derivatives risk management and market structure in a letter to the Federal Bank of New York and reiterated its commitment to reducing systemic risk in the OTC derivatives market. (4/06/09) http://www.sifma.org/regulatory/pdf/May29-Fed-Letter.pdf

City of London: Current issues affecting the OTC derivatives market and its importance to London This paper, highlighted in today's FT, has been prepared as a contribution to the debate currently underway over the direction that the future regulation of the OTC markets should take. (27/04/09) http://www.cityoflondon.gov.uk/NR/rdonlyres/252E99A2-7329-4C3A-B923- A3E7060A0AC2/0/OTCDerivativesReportv2.pdf

CEBS: Custodian banks’ settlement internalisation and CCP-like activities CEBS has published a report on the materiality of custodian banks’ engagement in settlement internalisation and Central Counterparty-like activities. This forms part of its follow-up work in response to the ECOFIN’s request on 3 June 2008 for a review of ‘the coverage of risks borne by custodians (…) so as to ensure a level playing field while avoiding inconsistencies in the treatment of custodians and double regulation’. CEBS subsequently published a call for evidence on 2 February 2009. The responses, summarised in the report, led CEBS to conclude that there is little evidence to suggest that action at a European level is needed to address the issue of settlement internalisation. However, in the medium term CEBS will investigate further risk management aspects relevant to banks that take on the role of general clearing member. CEBS has also published a summary of the 24 March hearing on custodian banks. (17/04/09) http://www.c-ebs.org/getdoc/cdc06b31-83ac-4fac-9969-a6eb265b659d/Report-on-the- outcome-of-the-call-for-evidence-on-.aspx http://www.c-ebs.org/getdoc/7da80d7c-0a90-48d7-ad01- 1cfd6daf5a92/Summary-of-public-hearing-on-custodian-banks-on-24.aspx

The Financial Markets and Insolvency Regulations 2009/853 These Regulations change the insolvency regime that applies to any exchange which is a “recognised investment exchange” (“RIE”) and any central counterparty clearing house which is a “recognised clearing house” (“RCH”) within the meaning of the Financial Services and Markets Act 2000 (c. 8) (see Part 18 of that Act). They do so by amending Part 7 of the Companies Act 1989 (c. 40) (“Part 7”); the Financial Markets and Insolvency Regulations 1991 (S.I. 1991/880) (the “1991 Regulations”) and the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001 (S.I. 2001/995) (the “2001 Regulations”). These Regulations amend Part 7, the 1991 Regulations and the 2001 Regulations so that they provide further protection for the actions of RIEs and RCHs in the event of default by any of their members on the obligations they have entered into in the course of buying or selling financial instruments. The amendments comprise: (a) a broadening of the definition of “market contracts” to which Part 7 applies; (b) inclusion of default fund contributions within the protections of Part 7; (c) provisions amending Part 7 so that it takes account of administration on a basis equivalent to bankruptcy and winding up; (d) provision to ensure default rules refer to and take into account cross margining agreements; and (e) provisions enabling the extension of the default rules of RIEs and RCHs so that a surplus held on a house account of a member may be used to make up a deficit on the client account of the same members. Regulation 2 amends Part 7 as follows. 81

Paragraph (2) makes a consequential amendment to s154. Paragraph (3) amends s155 (market contracts). The effect of these amendments is that market contracts no longer have to relate only to transactions in investments. They will also include contracts with members for the provision of central counterparty clearing services, and contracts which make provision to allow for interoperability arrangements (including parallel clearing and margin set-off agreements) between RIEs and RCHs. Paragraphs (4) to (7), (10) and (12) amend various sections of Part 7 so that they take account of administration on an equivalent basis to bankruptcy and winding up. Paragraphs (8) and (9), (13) and (14) amend various sections of Part 7 so that where certain provisions of the Insolvency Act 1986 are disapplied in relation to margin, they are also disapplied in relation to default fund contribution (as defined by the amendment in paragraph (15)). This provides for equivalent protection in the application by a RIE or RCH of property held as default fund contribution as for property held as margin. Regulation 3 amends the 1991 Regulations as follows. Paragraph (4) amends paragraph (1) of regulation 10 (extent to which charge granted in favour of recognised investment exchange to be treated as market charge) so that it also applies to a charge granted over property provided as default fund contribution to a RIE and, in the case of a recognised UK investment exchange, it secures the obligation to pay to the exchange any sum due to it from a member in respect of unsettled market contracts. Paragraph (5) amends regulation 11 (extent to which charge granted in favour of recognised clearing house to be treated as market charge) in the same way in relation to RCHs. Paragraph (6) amends regulation 16 (circumstances in which member or designated non-member dealing as principal to be treated as acting in different capacities) omitting paragraphs (3) and (4) to remove the definition of relevant investment (to which the reference in sub- paragraph (a) is also removed) to broaden the scope of contracts falling within the regulation. The reference to client rules is updated to refer to the clients’ money rules made by FSA, and a consequential amendment is made to cover interoperability arrangements between RIEs and RCHs. Regulation 4 amends the 2001 Regulations as follows. Paragraph (3) amends the Schedule to the 2001 Regulations. Sub-paragraphs (a) to (f) amend the requirements relating to default rules in respect of market contracts with RIEs in Part 2 of the Schedule. These amendments change the requirements for the default rules relating to set off and aggregation so that, where applicable and in the prescribed order, they must also take account of a defaulter’s house account surpluses, margin set off agreements and default fund contribution. There is also provision that where an RIE has specified arrangements with another RIE or RCH it default rules must provide rules dealing with default of such other exchanges and clearing houses. The RIE and RCH must also be able and willing to share information with the Secretary of State (who is responsible for insolvency), any relevant insolvency practitioner and other specified authorities and bodies in relation to the default of another RIE or RCH. Sub-paragraphs (g) to (l) make equivalent amendments to the requirements relating to default rules in respect of market contracts with RCHs in Part 4 of the Schedule. (Date in force: 15/6/09) (8/04/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20090853_en.pdf

CESR/ESCB: Draft recommendations for central counterparties, revised for CCPs clearing OTC derivatives On 2 December 2008, the ECOFIN Council mandated the ESCB and CESR to adapt the existing draft recommendations for CCPs to explicitly address the risks of OTC derivatives. In response to this request, the ESCB and CESR analysed a wide range of aspects relevant for the clearing of OTC derivatives in general and credit derivatives in particular. The working group has identified a few areas where additional clarifications of the relevant draft recommendations could be helpful and has revised the draft recommendations accordingly. The amendments have been introduced in the original recommendations for CCPs, as published for consultation on 23 October 2008, and are highlighted as tracked changes. The consultation paper which has been published today does not contain any revisions that the ESCB and CESR consider necessary in order to address the comments submitted in the first consultation, but rather only focuses on OTC derivatives. The deadline for responses is 17 April 2009. (1/04/09) http://www.cesr.eu/data/document/09_302.pdf

EC: Central counterparty clearing for CDS in the EU The EC press release notes that ISDA and EBF have committed to the use of CCP for CDS in the EU. Signatories have confirmed their engagement to use EU-based central clearing for eligible EU contracts by the end of July 2009. Signatories will work closely with infrastructure providers, regulators and the 82

European authorities in resolving outstanding technical, regulatory, legal and practical issues. (19/02/09) EUROPA - Press Releases - Commissioner Charlie McCreevy welcomes Industry Commitment to EU Central Counterparty for CDS Major Firms Commit to EU Central Counterparty for CDS

CESR: Consultation on CESR/ESCB draft recommendations for securities settlement systems, and draft recommendations for central counterparties Responses are now available to download individually via the following link. (5/02/09) CESR [The Committee of European Securities Regulators]

9.2 Payment systems and non-consumer banking

Chronological Reports

BoE: Payment Systems Oversight Report 2008 This report outlines developments in the key UK payment systems over the past year and to explain the focus of the Bank’s oversight work. It also provides a summary of the most important cross-system issues affecting the UK payment systems and outlines priorities for future work. (14/04/09) https://www.bankofengland.co.uk/publications/psor/psor2008.pdf (NB: 40 pages long)

BoE: Non-Investment Product Code BoE has published a new version of the Code, which has been drawn up by market practitioners in the UK representing principals and brokers in the foreign exchange, money and bullion markets. It applies to trading in the wholesale markets in Non-Investment Products (NIPs), specifically the sterling, foreign exchange and bullion wholesale deposit markets, and the spot and forward foreign exchange and bullion markets. (6/04/09) http://www.bankofengland.co.uk/markets/forex/fxjsc/nipscode.pdf (NB: over 30 pages long)

PS09/4: Implementation of the Payment Services Directive - changes to the FSA Handbook Feedback on CP08/14 and final rules / The FSA’s role under the Payment Services Regulations 2009 The PS reports on the responses received and sets out, in final form, the Handbook rules and guidance, which will apply from 1 November 2009 in addition to the Payment Services Regulations. In general, respondents supported FSA's approach, but concerns of principle and practicalities were raised over some of the issues, in particular, the proposal to extend FOS’s jurisdiction to cover complaints about one-leg transactions. FSA notes that it has decided to adopt the policies as set out in CP08/14, with some minor redrafting to clarify certain matters. It has also taken up the suggestion from a respondent that it should follow the same procedural safeguards in determining whether to publicly censure a firm as it would to impose a financial penalty. In addition, FSA has published a guide to its approach to the PSD, which aims to help newly regulated firms navigate through the Payment Services Directive and relevant FSA rules and guidance and also sets out the applicable requirements for credit institutions and e-money issuers, who must also comply with parts of the PSRs. There are also chapters on OFT's role in dealing with competition issues relating to access to payment systems and FOS's dispute resolution service. (30/03/09) Implementation of the Payment Services Directive - changes to the FSA Handbook Feedback on CP08/14 and final rules

The Payment Services Regulations 2009/209 These Regulations 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). Parts 2 to 4 of the Regulations establish an authorisation regime for certain providers of payment services (broadly, those which are neither credit institutions nor e-money institutions, such as money remitters and mobile phone operators). Part 2 of the Regulations requires FSA to establish a register of payment service providers and sets out the procedures and conditions for registration; it also sets out the circumstances in which registration may be varied or cancelled. Those payment service providers required to be registered under the Regulations must be registered either as authorised payment institutions (regulations 5 to 11) or as small payment institutions regulations 12 to 15), depending on the value of payment transactions that they execute and whether they are seeking to establish a branch or provide services in another Member State. Part 3 of the Regulations sets out the requirements to be met by authorised payment institutions and provides the mechanism for them to establish a branch or provide services in another Member States. These requirements include meeting capital requirements (regulation 18 and Schedule 3) and safeguarding users’ funds (regulation 19). The institution must keep records and provide information to FSA about accounts and outsourcing (regulations 20 to 22). Regulations 23 to 26 deal with the provision of services in another Member State, including through a branch. Part 4 of the Regulations sets out certain requirements to be met by authorised payment institutions and small payment institutions. It sets out the activities in which such institutions are entitled to engage and imposes conditions in respect of the 84

granting of credit, the use of payment accounts and the provision of services through an agent (regulations 27 to 30). Regulation 31 provides for the responsibilities of an institution that relies on a third party for the provision of a payment service (for example, through an agent or outsourcing). Institutions have a duty to notify FSA of any change in their circumstances relevant to the conditions of their registration (regulation 32). Part 5 of the Regulations sets out the requirements to be met by all payment service providers(credit institutions, e-money institutions, authorised payment institutions and small payment institutions) in relation to the provision of information to payment service users. There are separate provisions for single payment service contracts (regulations 36 to 39) and framework contracts (regulations 40 to 46). There are also common provisions including a prohibition on charging for certain information (regulations 47 to 50). Part 6 of the Regulations makes provision for the rights and obligations relating to the provision of payment services. It makes provision for matters including consent to payment transactions (regulation 55), unauthorised or incorrectly executed payment transactions, liability for unauthorised payment transactions (regulations 59 to 62), refunds, execution of payment transactions, execution time and the liability of payment service providers (regulations 63 to 79). Part 7 of the Regulations makes provision in respect of FSA. In particular, it confers on FSA functions in relation to the supervision and enforcement of certain provisions of the Regulations (regulations 80 to 91). Regulation 95 and Schedule 5 apply certain provisions of primary and secondary legislation (with modifications) in respect of FSA’s functions under the Regulations. Part 8 of the Regulations makes provision in relation to access to payment systems. Regulation 96 sets out the scope of the application of the Part and regulation 97 prohibits restrictive rules on access to payment systems. Regulations 98 to 109 confer functions on OFT in relation to the supervision and enforcement of the prohibition in regulation 97. Part 9 of the Regulations provides for criminal offences. Regulation 110 makes it an offence for a person to provide payment services in the UK unless it is an authorised or small payment institution or one of the other permitted categories of payment service provider. There are offences relating to false claims to be a payment service provider, misleading FSA or OFT and the provision of information about currency conversion and charges (regulations 111 to 114). Regulations 121 to 125 make transitional provision including provision for financial institutions and other categories of persons to continue to provide payment services for a limited period of time, without seeking authorisation or registration (although the rights and obligations under Parts 5 and 6 will apply). Regulation 126 and Schedule 6 provide for amendments to primary legislation, including an amendment to Part 16 of, and Schedule 17 to, the Financial Services and Markets Act 2000 to enable FOS to apply to payment service providers. (Made: 9/2/09). The HMT press release notes that FSA will shortly be issuing guidance to help businesses understand their compliance duties. (10/02/09) http://www.hm- treasury.gov.uk/d/si_payment_services_regulations100209.pdf http://www.hm- treasury.gov.uk/d/si_payment_services_regulations100209.pdf

European Payments Council: Making SEPA a reality The document is intending to be "a stepping stone to understanding all aspects of the SEPA process". (23/01/09) http://www.europeanpaymentscouncil.eu/documents/EPC066-06- version_2.0_Making_Sepa_a_Reality_WebVersion.pdf (NB: over 50 pages long)

HMT: Revision of the E-Money Directive and EU regulation on cross-border payments in euro This document consults on the Government approach towards EU level negotiations on revision of the EMD, and the implementation of a revised Regulation 2560 (which addresses the charges levied on cross- border payment transactions) into UK law. Both proposals seek to align these pieces of legislation with the agreement on the PSD reached in 2007. In the event that an agreement is reached at EU level in 2009, the Government would propose (in alignment with the PSD regime) that FSA is assigned responsibility as competent authority for the revised Regulation, with FOS to act as the out of court redress mechanism. The Government proposes not to use the opt-in for sterling payments. Responses are invited by 14 April 2009. (20/01/09) http://www.hm-treasury.gov.uk/d/consult_emd_200109.pdf (NB: 60 pages long0

11.1 Insurers/reinsurers/life offices

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)

See main detailed materials report for post-June deelopments

Chronological Reports

CEIOPS: Insurance Linked Securities Report This report gives an overview of the ILS market, its development and the investor structure, noting that difficulties arising from the monoline insurance market, the bankruptcy of Lehman Brothers and the fall in market activity. It suggests that Solvency II is likely to give more recognition to ILS as effective tools of risk mitigation, but that supervisory authorities need to be satisfied by the insurance undertakings that the intended risk mitigation from the use of ILS is indeed present. From a regulatory perspective a minimum retention of risk by the originator is desirable and would be in line with the proposed CRD requirements on securitisation for the banking sector. (25/06/09) http://www.ceiops.eu/media/files/publications/reports/CEIOPS-ILS-Report-Spring-2009.pdf

FSA Insurance Standing Group FSA has published the minutes of a meeting held on 1 June 2009. Topics include: update on Level 2 negotiations; internal models update; Solvency II communications and QIS 5. (19/06/09) http://www.fsa.gov.uk/pubs/international/isg_minutes37.pdf

HMT: Sir John Chadwick sets out his proposed approach on Equitable Life/Equitable Life ex- gratia payment scheme - my proposals as to the approach to be adopted and the issues to be addressed HMT has published a press release with regard to Sir John Chadwick's approach on Equitable Life, together with a document issued by Sir John. The document sets out: his understanding of the Parliamentary Ombudsman’s Findings; the approach he intends to adopt over the course of his work - specifically to enable him to reach a view about the relative losses suffered by different classes of policyholder; and the specific issues he thinks need to be addressed to enable him to provide advice to the Government in relation to the Equitable Life ex-gratia payment scheme. Comments on the document are invited and should be sent by 17 July 2009. An interim report is expected to be sent to the Government later this summer which will contain a definitive statement of the approach for determining relative losses and a definitive list of the specific issues to be addressed. In addition, it is noted that Sir John has formally appointed Towers Perrin as actuarial advisers and has established a website. (17/06/09) Sir John Chadwick sets out his proposed approach on Equitable Life - HM Treasury http://www.hm- treasury.gov.uk/d/equitablelife_ex-gratia_payment_scheme_chadwick_propoals.pdf

Speech by Adair Turner: Address to ABI Conference (9 June 2009) Topics include: comparison, from a regulatory viewpoint between the banking and insurance industries; challenges facing the insurance sector (including savings and protection policies); Solvency II and annuities; corporate governance. He discusses regulation beyond the insurance sector in some detail, noting "the recent problems may have been primarily in the banking industry and that is where the most significant changes are needed, but in an era of heightened public expectations that the FSA will identify and prevent major problems from recurring, we need to reinforce our capability across all high impact firms ... we are very aware of the need to ensure that the FSA is cost effective. This year we have increased our costs significantly as we have invested in more intensive supervision, more aggressive enforcement, and continued to improve our basic operating systems; but these are one off step change increases, and keeping costs together under control in future years will be a major priority. But there can be no return to light touch regulation and supervision, to supervision on the cheap. That era is over". (10/06/09) Address to the ABI 2009 Conference

CEIOPS: Solvency II Following the consultation on the first set of advice on Level 2 measures for Solvency II, CEIOPS has informed stakeholders on the implementing measures on which it will consult in a second and third set. (4/06/09) http://www.ceiops.eu/media/files/consultations/consultationpapers/2009-06-02-CEIOPS-List- of-Advice-on-SII-second-and-third-set.xls

ABI: Restoring market confidence In this report, ABI discusses the future of regulation, says that any changes should tackle the problems that arose in the banking sector and not apply a ‘one size fits all’ set of remedies to the rest of the financial services sector. It argues that regulation must not inhibit the ability of firms to offer competitive products for consumers, or add unnecessary costs to businesses. Among the other recommendations are the creation of a BoE based macro-prudential committee and increased transparency of market practices (short selling/hedge funds) and the targeting of exec remuneration. (3/06/09) http://www.abi.org.uk/content/contentfilemanager.aspx?contentid=18688

FSA: Over 50s life cover FSA has published a webpage noting the results of a review of the above. Generally, it found that promotions were of a good standard, but is writing to firms which it felt did not meet FSA requirements. The item includes examples of good and bad practice. (2/06/09) Over 50's life cover

Speech by Neelie Kroes: Review of Insurance Block Exemption Regulation (2 June 2009) Text of the keynote speech given at the Insurance Block Exemption Regulation Conference in Brussels, follows. (2/06/09) EUROPA - Press Releases - Neelie Kroes, European Commissioner for Competition. Review of Insurance Block Exemption Regulation, Keynote speech at the Insurance Block Exemption Regulation Conference in Brussels, Brussels, 2nd June 2009

ABI: People need pensions ABI has published the above-mentioned short document aimed at consumers which aims to answer some key questions about pensions and annuities in the context of the current economic climate. (26/05/09) Association of British Insurers - People need pensions - ABI launches new consumer guide 87

Competition Appeal Tribunal: Barclays Bank plc CAT has published an order establishing a confidentiality ring in relation to the appeal brought by Barclays Bank plc under s179 Enterprise Act 2002, seeking review of certain findings of the CC in its final report on the PPI market investigation (see Barclays Bank plc v Competition Commission). The order establishes arrangements for un-redacted versions of pleadings and other documents (containing confidential information) filed with the CAT or served in this case to be provided to a limited number of named external counsel, solicitors and economists acting for the parties and the interveners, as well as employees of Competition Commission working on the proceedings and named FSA staff. (22/05/09) http://www.catribunal.org.uk/files/Order_1109_Barclays_14.05.09.pdf

FSCP: FSA takes backward step in treating with profits policyholders fairly FSCP has now commented on FSA's CP09/9 (published in February!), arguing that "the new proposals mean that policyholders will still have to continue to pay costs for past mis-selling and only mis-selling which occurs in future will become the responsibility of shareholders. The Panel understands the challenges presented to the industry by the original proposals and it is important for the FSA to look at all the options to overcome them. But having uncovered unfairness, the FSA should resolve it.” (19/05/09) Financial Services Consumer Panel | Press Release | Financial Services Consumer Panel calls for better compensation

HMT: Equitable Life and the Ombudsman’s report HMT has published an FAQ in respect of the above. (20/05/09) http://www.hm- treasury.gov.uk/d/equitablelife_faq200509.pdf

ABI: 'Options' initiative improves annuity transfer times ABI highlights that its ‘Options’ initiative has delivered significant improvements in its first three months of operation, cutting the time taken for annuity transfers between providers to an average of just eight calendar days. That’s an improvement of over three weeks on previous performance. A full performance report appears in the following link. (11/05/09) Association of British Insurers - 'Options' initiative improves annuity transfer times

Parliamentary and Health Ombudsman: Injustice unremedied - the Government’s response on Equitable Life Ann Abraham, the Parliamentary Ombudsman, has laid before both Houses of Parliament a further report concerning Equitable Life relating to the Government’s response to her July 2008 report, "Equitable Life: a decade of regulatory failure". She says "The Government’s response to my report was deeply disappointing. It provided insufficient support for the rejection of my findings of maladministration and injustice. It also begged a rather larger question as to what the purpose of regulation was supposed to be. I am also concerned by aspects of the Government’s decision to ask Sir John Chadwick to advise them on an alternative ex gratia scheme. There is no detailed timetable for this work; the link between maladministration, injustice and the remedy to be provided has been broken; and there is no definition of the concept of 'disproportionate impact' which is to govern eligibility for a payment". (6/05/09) http://www.ombudsman.org.uk/pdfs/Equitable_Life_2009.pdf

FS09/1: Insurance Risk Management: The Path to Solvency II Feedback on DP08/4 FSA summarises the comments received to the questions posed in the DP08/4 and gives its responses to them. FSA emphasises that it is essential for the UK insurance industry to fully engage now in preparing for the new Solvency II regime - "if firms are yet to do so, senior management should consider now the implications for their business and start planning immediately to ensure compliance with the new rules". The FS also includes an update to the messages in DP08/4 in light of the Solvency II Directive as adopted. FSA plans to communicate further with stakeholders as the implementation process continues to progress. In Chapter 7 of the paper, FSA provides details of these plans with respect to forthcoming thematic reviews. At a European level, it has also included the CEIOPS consultation schedule for 2009. (6/05/09) http://www.fsa.gov.uk/pubs/discussion/fs09_01.pdf (NB: over 40 pages long)

FSA: ICOBS - new research findings This page on FSA's website sets out the findings of some consumer research. FSA had carried out research in the run-up to ICOBS which showed that purchasers of protection products rely more heavily on oral rather than written disclosures. This suggested that the complexity of these products requires additional and focused oral information enabling consumers to make informed decisions. Its 2006 mystery shopping study of critical illness cover sales also highlighted various problems and underlined the need for better quality oral disclosure. The latest research looks at whether the new standards introduced under ICOBS in 2008 have improved consumer understanding. The study looks in particular at whether improved oral disclosure allows better consumer understanding of critical illness cover. FSA found serious areas of misunderstanding among consumers about their policy and that only 26% read the documentation fully. The 2008 research also found that consumers by-and-large considered that they had received sufficient information about the product at the point of sale. However, there was a high level of satisfaction among consumers with the critical illness cover product they had recently purchased. FSA will be carrying out stage two of this research this year, testing whether consumers are gaining a better understanding of the key features of a policy, including significant exclusions and the status of the service before buying. It will also undertake an assessment of how far firms have implemented the new requirements introduced in ICOBS for sales of protection products, including the oral disclosure requirement. (6/05/09) Smaller firms online - Your Firm type

FSA: "Consultants" meeting FSA has published the minutes of a meeting held on 27 April 2009 at which Solvency II is discussed. (5/05/09) http://www.fsa.gov.uk/pubs/international/consultants.pdf

European Parliament: Solvency II Further to yesterday's news update, the EP has published the provisional text of the above. (24/04/09) http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+20090422+SIT- 03+DOC+WORD+V0//EN&language=EN

FSA: Insurance Standing Group FSA has published the minutes of a meeting held on 6 April 2009. Topics include: Solvency II; CEIOPS consultation process; own credit standard; Pillar 2 consultations. (23/04/09) http://www.fsa.gov.uk/pubs/international/isg_minutes36.pdf

EC/European Parliament: Solvency II The EC has welcomed the European Parliament’s approval of Solvency II (second link). (23/04/09) EUROPA - Press Releases - 'Solvency II': European Parliament approval of proposed Directive brings modern insurance regulation nearer Solvency II: better financial supervision of the insurance industry

ABI: Statement of principles on trade credit insurance ABI has published the above, which sets out how trade credit insurers operate and what their clients can expect from them, together with advice to businesses on trade credit insurance. (21/04/09) Association of British Insurers - ABI publishes trade credit insurance Statement of Principles

FSA: Wider implications of complaints about the misselling of PPI This is the text of a letter dated 8 April 2009 from Hector Sants to the FOS chairman setting out FSA's action to date on the above issue and noting that FSA plans to consult on handbook guidance on firms' handling of PPI complaints. (17/04/09) http://www.widerimplications.info/assets/pdf/Sants-Kelly- PPI.pdf

FSA: Update on Solvency 2 - CEIOPS Consultation Papers (16/04/09) http://www.fsa.gov.uk/pubs/international/sol2_update.pdf

Law Commission and Scottish Law Commission: Reforming Insurance Contract Law: Issues Paper 5: Micro-Businesses: Should micro-businesses be treated like consumers for the purposes of pre- contractual information and unfair terms? This consultation seeks views on the law relating to insurance, with a view to making it clearer, fairer and more relevant. The consultation asks specific questions about protection against unfair terms in insurance contracts for micro-businesses; proposes to treat micro-businesses as consumers for the purposes of pre- contractual information; and discusses how micro-businesses should be defined. Responses are required by 17 July 2009. (16/04/09) http://www.lawcom.gov.uk/docs/issues5_micro-businesses.pdf (NB: over 50 pages long)

FSA: Solvency II Planned FSA Communications This paper is intended to provide an update on, and to outline, the external communications to firms that FSA will undertake following the European Parliamentary vote on the Solvency II Directive which, it says, is anticipated to take place on the 20 or 21 April 2009. (6/04/09) http://www.fsa.gov.uk/pubs/international/sol2_comms.pdf

EC: CEIOPS - contribution to the impact assessment of the Level 2 implementing measures for Solvency II The Call for Advice requests CEIOPS to contribute to the Impact Assessment of the potential future Level 2 implementing measures for Solvency II by: a) identifying in collaboration with Commission Services the main policy issues and options; b) analysing and comparing those policy options; and c) collaborating with other parties involved in the Impact Assessment, in particular in the context of the external study to be commissioned by the EC. (3/04/09) http://ec.europa.eu/internal_market/insurance/docs/solvency/calladvice_en.pdf

ABI: FSA - Insurers improving customer information This press release states that FSA has "revealed that over two-thirds of financial services Key Features Documents (KFDs) it has reviewed have significant improvements in quality ... FSA first reviewed the standard of KFDs in September 2007 and found only 15% were effective". (2/04/09) Association of British Insurers - FSA: Insurers improving customer information

FSA: General Insurance Newsletter 16 Topics include: developments in the PPI market; update on the regulation of connected travel insurance; conclusions from the review of insurance comparison websites; update on unfair contract terms; transparency, disclosure and conflicts of interest - confirmed industry guidance; clarification on the treatment of credit write-backs; new modification by consent (INSPRU 2.1.22R); updates on changes to the reporting of prudential information; CP on stress and scenario testing; new limits for professional indemnity insurance; impact of foreign exchange rates; restriction of business to insurance (INSPRU 1.5); Solvency II update and Euro-Sterling value. (1/04/09) http://www.fsa.gov.uk/pubs/newsletters/gi_newsletter16.pdf

FSA: Life Insurance Newsletter 14 Topics include: adviser charging - the choices facing insurers; pensions and TCF - OMOs, quality of advice and unfair contract terms; new modification by consent (INSPRU 2.1.22R); prudential requirements - reporting of assets in annual returns; CP on stress and scenario testing; new limits for PPI; valuation of bonds; impact of foreign exchange rates; COBS 21 requirements - unregulated CIS; Solvency II update; Euro-Sterling value and new insurance firms. (1/04/09) http://www.fsa.gov.uk/pubs/newsletters/li_newsletter14.pdf

Czech Presidency of the EU: Solvency II This press release states that the Czech Presidency has finalised negotiations on Solvency II and that the final compromise solution has been approved, on a preliminary basis, by the European Parliament and supported by the COREPER. With regard to the group support regime, both institutions have agreed not to include it in the Directive and come back to it in a few years. The issue of the treatment of equity risk, includes the “duration approach", which is to be used only after being transposed into Member State 90

legislation and for clearly defined life insurance products. A formal approval by the COREPER is expected next Wednesday, the vote in the European Parliament plenary is expected later this month. (27/03/09) EU2009.cz - Czech Presidency finalises negotiations on Solvency II Directive

CEIOPS: First set of advice on Solvency II Level 2 Implementing Measures CEIOPS is releasing for consultation its first set of advice on Level 2 implementing measures. It will finalise the papers for submission to the EC, taking into account the comments received, the lessons learned from the crisis, and the adopted Directive text. CEIOPS will make all comments available on its website, except where respondents specifically request that their comments remain confidential. Two further sets of advice on Level 2 measures are foreseen to be released at the beginning of July 2009 and in autumn 2009. • CEIOPS-CP-26-09 Draft L2 Advice on TP - Methods and statistical techniques for calculating the best estimate - This consultation paper aims at providing advice with regard to actuarial and statistical methodologies for the calculation of the best estimate as requested in Article 85 (a) of the Level 1 text. Consultation period: 1 April - 1 June • CEIOPS-CP-27-09 Draft L2 Advice on TP - Segmentation - This consultation paper aims at providing advice with regard to the lines of business on the basis of which insurance and reinsurance obligations are to be segmented in order to calculate technical provisions as requested in Article 85(e) of the Level 1 text. The advice covers the minimum level of segmentation - ie. lines of business - that undertakings need to consider when calculating their technical provisions. Consultation period: 1 April - 3 May • CEIOPS-CP-28-09 Draft L2 Advice on SCR Standard Formula -Counterparty default risk - This consultation paper aims at providing advice with regard to the treatment of counterparty default risk in the standard formula for the Solvency Capital Requirement as requested in Article 109 of the Level 1 text. The objective of this paper is to give draft advice on the scope of the module and the calculation of the capital requirement for counterparty default risk. Consultation period: 1 April - 1 June • CEIOPS CP-29-09 Draft L2 Advice on Own Funds - Criteria for supervisory approval of ancillary own funds - This consultation paper aims at providing advice with regard to supervisory approval of ancillary own funds as requested in Article 92 of Level 1 text. The objective of the paper is to provide a framework that specifies the criteria for granting supervisory approval. Consultation period: 1 April - 1 June • CEIOPS-CP-30-09 Draft L2 Advice on TP -Treatment of Future Premiums This consultation paper aims at providing advice with regard to the treatment of future premiums in the assessment of technical provisions as requested in Article 85 of the Level 1 text. The advice covers the recognition of an insurance or reinsurance obligation as well as on the boundaries of these obligations. Consultation period: 1 April - 1 June • CEIOPS-CP-31-09 Draft L2 Advice on SCR Standard Formula - Allowance of financial mitigation technique - This consultation paper aims at providing advice with regard to financial mitigation techniques as requested in Article 109(1), letter f), of the Level 1 text. This advice develops the qualitative treatment of financial mitigation techniques. Consultation period: 1 April - 1 June • CEIOPS-CP-32-09 Draft L2 Advice on TP - Assumptions about Future management actions - This consultation paper aims at providing advice with regard to the use of management actions in the assessment of the technical provisions as requested in Article 85a of the Level 1 text. The objective of the paper is to propose a framework which identifies the circumstances in which it is appropriate for undertakings to take account of future management actions in the calculation of their technical provisions. Consultation period: 1 April - 1 June • CEIOPS-CP-33-09 Draft L2 Advice on System of Governance - This Consultation Paper aims at providing advice for Level 2 measures with regard to the System of Governance as requested in Article 49 of the Level 1 text. It also includes material that could be considered for the future when developing Level 3 guidance. The text covers the most important issues to be regulated to ensure appropriate governance standards within insurance and reinsurance undertakings. Consultation period: 1 April - 8 June

• CEIOPS-CP-34-09 Draft L2 Advice on Transparency and Accountability - This Consultation Paper aims at providing advice for Level 2 measures with regard to Transparency and Accountability, as requested in Article 30 of the Level 1 text, which provides that “the supervisory authorities shall conduct their tasks in a transparent and accountable manner with due respect for the protection of confidential information”. It also presents some ideas as to how the accessibility of information could be improved through Level 3 guidance. Consultation period: 1 April - 8 June • CEIOPS-CP-35-09 Draft L2 Advice on Valuation of Assets and “Other Liabilities” - This Consultation Paper aims at providing advice for Level 2 implementing measures with regard to the valuation of assets and liabilities other than technical provisions in accordance with Article 74 of the Level 1 text. Consultation period: 1 April - 8 June • CEIOPS-CP-36-09 Draft L2 Advice on Special Purpose Vehicles - This Consultation Paper aims at providing advice for Level 2 measures with regard to Special Purpose Vehicles (SPVs), as required in Article 209 of the Level 1 text. The advice addresses the authorisation, regulatory requirements and scope of supervisory review that relate to the establishment of SPVs under Solvency II. It also includes material that could be considered for Level 3 guidance. Consultation period: 1 April - 8 June • CEIOPS-CP-37-09 Draft L2 Advice on the procedure to be followed for the approval of an internal model - This Consultation Paper aims at providing advice for Level 2 implementing measures with regard to the procedure to be followed for the approval of an internal model” in accordance with Article 112(1) of the Level 1 text. Specificities related to the approval of group internal models as set out in Article 229 of the Level 1 text will be provided as an addendum to this Consultation Paper later in 2009. Consultation period: 1 April - 1 June. All are available via the following link. (27/03/09) Ceiops - Consultation Papers

CEIOPS: Lessons learned from the crisis (Solvency II and beyond) CEIOPS launched a "lessons to be learned" project in autumn 2008. Its working groups have looked at the current crisis, analysed different aspects relating to the insurance sector, and identified potential areas for improvement to ensure that Solvency II can operate both in normal and stressed times. Its main findings and possible conclusions for Levels 2 and 3 are reflected in this report. It concludes that the main lesson of the current events is that Solvency II must be adopted. (27/03/09) http://www.ceiops.eu/media/files/publications/reports/CEIOPS-SEC-107-08-Lessons-learned-from-the- crisis-SII-and-beyond.pdf

CEIOPS: Guidelines on preparation for and management of a financial crisis in the context of supplementary supervision as defined by the Insurance Groups Directive (98/78/EC) and the memorandum of understanding on cooperation between the financial supervisory authorities, central banks and finance ministries of the European Union on cross-border financial stability Following the publication of the Survey on Coordination Committees in January 2009 and building on the lessons learned from the crisis, CEIOPS Members have approved this document which stands as a complement to the existing Guidelines for and are aimed at further developing the cooperation and coordination between supervisory authorities, as set out by the 2008 MoU. (27/03/09) http://www.ceiops.eu/media/files/publications/standardsandmore/guidelines/CEIOPS-Guidelines-on- preparation-for-and-management-of-financial-crisis-27.03.2009.pdf

CEIOPS: Solvency II letter The text of a letter sent by Gérard de la Martinière, chairman of CEIOPS Consultative Panel, to Peter Skinner MEP has been published. He says "CEIOPS Consultative Panel has come to the conclusion that the swift adoption of the Solvency II Directive, at the latest in May 2009, would ensure that the momentum for designing risk oriented capital requirements and enhancing risk management for the insurance and reinsurance sector would not be lost. Only by putting in place the Level 1 legislation as early as possible, concrete and timely developments for fostering the soundness of the EU market can be undertaken". (12/03/09) http://www.ceiops.eu/media/files/consultations/consultativepanel/cp- 26022009/P-Skinner-CEIOPS-Consultative-Panel-letter-Solvency-II-timeline.pdf

IAIS: Issues paper on group-wide solvency assessment and supervision The paper looks at: intra-group transactions and gearing of capital; fungibility of capital and transferability of assets; complexity of group structures, including non regulated entities; diversity of legal and regulatory frameworks and regulatory arbitrage; and measurement of risk dependencies and aggregation of risks. (10/03/09) http://www.iaisweb.org/__temp/Issues_paper_on_group- _wide_solvency_assessment_and_supervision.pdf

FSA: Insurance Standing Group/Update: Solvency II Papers and CEIOPS Consultation Paper Agenda FSA has published a draft of the minutes of its 16 February 2009 meeting. Topics include: on the current status of the Level 1 negotiations on Solvency II; discussion on Level 2 objectives; CEIOPS stock-taking report on use of internal models in insurance; ISG Expert Groups update. It is noted that letters will be sent out to firms in late April outlining further guidance around Solvency II and that the FS to DP08/4 is expected in early May. Separately, it has published a short paper outlining forthcoming papers relating to Solvency II at the request of members of the ISG. (3/03/09) http://www.fsa.gov.uk/pubs/international/solvency_papers.pdf

HMT: Deregulating retail freight forwarding and storage insurance: summary of consultation responses and final Impact Assessment This is a summary of responses to the consultation seeking views and evidence on the Government's intention to remove certain retail insurance activities of freight forwarders and storage firms from the scope of FSA regulation. Respondents to the consultation supported the proposal. Subject to Parliamentary approval, it is intended that the revised arrangements will apply with effect from 6 April 2009. (16/02/09) http://www.hm-treasury.gov.uk/d/consult_forwardingfreightinsurance120209.pdf (NB: over 30 pages long)

Speech by Sarah Wilson: Treating customers fairly - issues at board level (5 February 2009) Text of the above, given at ABI's conference for non-exec directors of insurance companies, follows. Topics include: risk management/oversight; governance; reward and incentives; remuneration post-RDR. (5/02/09) Treating customers fairly - issues at Board level

CEIOPS: Stock-taking report on the use of internal models in insurance This stocktaking report is the result of an exercise initiated in late 2007 by the CEIOPS’ Internal Model Expert Group at the request of the EC. The objectives of this stocktaking exercise were three-fold: improve supervisors’ understanding of current industry practices on internal models and foster discussions about the application of models both for risk management and regulatory purposes; raise industry awareness on the need to start engaging with supervisory authorities from the early stages of planning, development and implementation of their own internal models and to provide CEIOPS with the necessary information to support the preparation of its proposals for the Level 2 implementing measures for the Solvency II Framework Directive Proposal (in respect of Internal Models). (28/01/09) http://www.ceiops.eu/media/files/publications/reports/Stock-taking-report-on-the-use-of-Internal-Models- in-Insurance.pdf (NB: over 100 pages long)

ABI: Success for ABI protection insurance non-disclosure initiative An ABI press release claims that ABI guidance on insurance claims has helped halve long-term protection complaints to FOS since it was introduced in January 2008. It notes that, as from today, the guidance has been formally upgraded to a Code of Conduct, in order to avoid any doubt that it was not mandatory for ABI members. (19/01/09) Association of British Insurers - Success for ABI protection insurance non-disclosure initiative

CEIOPS: Summary of a survey on equalisation provisions The purpose of the survey was to study how equalisation provisions have been used, what the characteristics of these provisions are and how big their impact is. On the latter point, data has been collected on the amounts of equalisation provisions as well as on premiums and technical provisions. Furthermore, countries were asked to explain how equalisation provisions are treated in QIS4 and to make a prediction of their role in the future Solvency II framework. The survey shows that equalisation provisions are widely used among countries and they reach substantial amounts. However, the application of the different equalising systems and consequently their valuation rules and sizes vary considerably from one country to another. QIS4 showed that different views exist on the future classification of equalisation provisions in own funds following their exclusion from the technical provisions. The role of the equalisation provisions in the future is still an open question in most countries. (16/01/09) http://www.ceiops.eu/media/files/publications/reports/CEIOPS-DOC-32-08-Summary-of-a-survey-on- equalisation-provisions.pdf

HMT: Equitable Life HMT has published a press release and the text of Yvette Cooper's statement re the above. She notes that "it would have serious repercussions for the taxpayer, for the relationship between governments and financial markets, and for the nature of regulation, were the taxpayer to provide a remedy for all losses every time the regulator fails to prevent a financial institution getting into trouble" and says that the Government now intends to set up a scheme to make ex-gratia payments to those who have been disproportionately affected. It has today asked Equitable Life to make available their detailed policy holder information and has also asked former Lord Justice of the Court of Appeal, the Rt Hon Sir John Chadwick, to look at the information and to advise on the following points: • the extent of relative losses suffered by Equitable Life policyholders; • the proportion of those losses which should properly be attributed to: (a) the maladministration accepted by the Government; and (b) the actions of Equitable Life and others; • which classes of policyholder have suffered the greatest impact as a result of maladministration accepted by the Government; and • the factors arising from this work which the Government might take into account when reaching a final view on determining whether disproportionate impact has been suffered. (15/01/09) Statement to the House of Commons on Equitable life by the Rt Hon Yvette Cooper - HM Treasury Government Responds to Equitable Life Report - HM Treasury

11.2 Insurance brokers and intermediaries

See the BIPAR principles for transparency in insurance.

Chronological Reports

PASC: Justice denied? Government Response to the Committee’s Sixth Report of Session 2008-09 In this document, the Government sets out its response to the individual conclusions and recommendations of the Public Administration Select Committee’s report on the Government’s response to the Parliamentary Ombudsman’s report on her investigation into the prudential regulation of Equitable Life. It notes that "the lessons of what happened at Equitable Life have already informed substantial regulatory reform, as well as wider reviews of corporate governance. The events surrounding regulation of the banking system present different issues but the Government recognises the need to strengthen financial markets for the future, and welcomes the recommendations put forward in the Turner Review of Financial Regulation, published on 18 March 2009. The Government will publish a document on the future of financial markets before summer 2009". (28/05/09) http://www.publications.parliament.uk/pa/cm200809/cmselect/cmpubadm/569/569.pdf

AIMA: Alternative Investment Fund Managers Directive In this press release, AIMA announces plans to "mobilise the world’s hedge fund industry" on the Directive, with its CEO stating "we will seek to have excluded those provisions which are the most damaging and to prevent those who wish to make the directive even more punitive from prevailing. To achieve this, AIMA will be announcing a series of initiatives to mobilise the industry. We will not oppose everything in the directive; some of the provisions, such as manager authorisation and registration, are already supported by us and measures which increase transparency to assist the authorities in the understanding of systemic risk issues are to be welcomed". (27/05/09)

AIRMIC: Guidance - transparency, disclosure and conflicts of interest in the commercial insurance market AIRMIC has published its own guidelines for commercial insurance buyers in their dealings with brokers. They highlight potential conflicts of interest and how they can be identified by risk managers. This replaces AIRMIC’s original “questions for brokers” produced in 2004 in response to the Spitzer investigations. (22/05/09) Press Release Detail

FSA: Post implementation review of ICOBS - Oral disclosure rule in sales of critical illness cover - baseline survey The research explored in this report prepared for FSA is described as being the first stage in testing whether improved oral disclosure, arising from the implementation of ICOBS standards, allows better consumer understanding of critical illness cover. The areas of misunderstanding identified in this research point out some areas for firms to focus on. BMRB Social, which prepared this report, notes that it will be carrying out a limited assessment of how firms are implementing the new standards. (15/04/09) http://www.fsa.gov.uk/pubs/consumer-research/crpr77.pdf (NB: over 100 pages long)

FSA/BIBA/LIIBA/IIB/ABI: Industry guidance FSA has formally confirmed ‘Industry Guidance’ status on the market solution in respect of conflicts of interest, disclosure and transparency in the commercial insurance sector for intermediaries. (2/04/09) http://www.biba.org.uk/MediaCenterContentDetails.aspx?ContentID=1240 http://www.biba.org.uk/PDFfiles/industryguidanceletter.pdf IndustryGuidance

FSA: Clarification of ICOBS requirements following publication of the Final Report of CC's market investigation into the supply of PPI FSA has published this note on its website which emphasises that ICOBS requirements and standards for PPI sales remain in place and provides a clarification of ICOBS requirements. It notes that, going forward, FSA will continue to look closely at the full range of regulatory tools and actions available it to ensure that firms selling PPI meet its requirements to enable customers to make informed purchasing decisions. This may include consulting on new rules if necessary. (29/01/09) Clarification of ICOBS Requirements Following Publication of the Final Report of the Competition Commission's Market Investigation into the Supply of PPI

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 is consulting 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 97

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 are 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

BVCA: Press release endorsing EVCA’s response to the proposed alternative investment directive BVCA welcomes comments by Jacques de Larosiere, Sir James Sassoon and Dan Waters and endorses EVCA's response to the proposed alternative (29/06/09) BVCA : BVCA endorses EVCA's response to the prosed AIFM Directive

CESR: CESR’s technical advice at level 2 on risk measurement for the purposes of the calculation of UCITS’ global exposure CESR notes that, on 13 February 2009, the EC submitted a provisional request to CESR for technical advice on the content of the implementing measures concerning the future UCITS recast Directive. The CP focuses on CESR’s advice to be rendered on the issue of risk measurement of UCITS. The paper is limited to the use of risk models such as VaR in the context of the calculation of global exposure as UCITS may use this or other models in its overall risk management process. The paper should be seen as an interim step aimed at providing stakeholders with an early opportunity to give feedback on CESR’s approach. Responses are required by 15 July 2009. Following this consultation, CESR plans to publish another CP in July setting out its proposed advice. (15/06/09) [CESR] - Document

IMA: The credit crunch - a stress test for UK authorised funds This report considers how the credit crunch has impacted UK authorised funds. Overall, the review finds that the authorised funds regime has proved generally robust, However, in the fifteen months to March 2009 seven funds (out of a total of 2,350) suspended. IMA suggests that although this is a small percentage of the market - and most were targeted at sophisticated investors with high minimum subscription levels - "this is not cause for complacency". The review therefore makes recommendations to improve further investor protection safeguards and to deter future suspensions. (5/06/09) http://www.investmentuk.org/news/research/2009/topic/markets/thecreditcrunchastresstestforukauthorise dfunds0509.pdf (NB: over 40 pages long)

EC: Post Madoff Commissioner McCreevy announced that he will launch a consultation before the end of June to deal with inconsistencies in the application of the UCITS directive which were shown up by the Madoff scandal. One of the consequences of the Madoff scandal in the EU is that it affected retail investors who had invested in certain UCITS funds the assets of which had been entrusted to a Madoff entity as a sub- custodian. Some EU investors in UCITS funds are better protected than others. He noted that it would not be appropriate to have a less stringent approach for retail investors than for professional investors. (29/05/09) EUROPA - Rapid - Midday Express

IMA: The buy-side dealing commission matrix IMA has published a matrix which provides a snapshot as at March 2009 of practices across the industry showing what services are paid for out of client commissions charged on trade executions and which functions within firms pay for and use those services. The matrix reflects existing practices amongst investment management firms who participated in a survey conducted through the Information Providers User Group (iPUG) and is designed to assist firms in their decision making. It is intended that the matrix

be updated on a regular basis as more firms contribute and as practice changes. (12/05/09) http://www.investmentuk.org/press/2009/20090512-01.pdf

AIMA: Guide to sound practices for funds of hedge funds managers AIMA has published what is described as the world’s first global guide to sound practices for funds of hedge funds managers. It focuses on areas including risk management, due diligence, disclosure to investors, valuation, management of conflicts of interest and other operational issues. (7/05/09) AIMA - AIMA Publishes First Global Sound Practices Guide for Funds of Hedge Funds Managers

EC: Announcements re retail packaged products and alternative investment funds The Communication/Proposal and impact assessment papers together with summaries have now been published. (1/05/09) http://ec.europa.eu/internal_market/finservices- retail/docs/investment_products/29042009_communication_en.pdf - Communication re packaged products http://ec.europa.eu/internal_market/finservices- retail/docs/investment_products/29042009_impact_assessment_en.pdf – impact assessment re packaged products (NB: over 60 pages long) http://ec.europa.eu/internal_market/finservices- retail/docs/investment_products/29042009_executive_summary_en.pdf - exec summary re packaged products http://ec.europa.eu/internal_market/investment/docs/alternative_investments/fund_managers_proposal_en .pdf - Proposal re alternative investments (NB: over 50 pages long) http://ec.europa.eu/internal_market/investment/docs/alternative_investments/fund_managers_impact_asse ssment.pdf (NB: over 100 pages long) http://ec.europa.eu/internal_market/investment/docs/alternative_investments/fund_managers_executive_s ummary_en.pdf - exec summary re alternative investments

Walker Guidelines Monitoring Group - Update Report (April 2009) It is noted that this update report is not intended to be a full review of compliance and instead is limited to: a review of conformity with the Walker Guidelines in respect of disclosures required by private equity firms, the availability of: audited reports and accounts mid-year updates giving a brief account of major developments and the Group’s recommendations for any changes to the Guidelines to be implemented by BVCA. It is noted that there has been "almost complete conformity in respect of the disclosure requirements that were reviewed in the preparation of this update report". The next full annual review of conformity with the Guidelines will be published at the end of 2009. (1/05/09) http://walker- gmg.co.uk/sites/10051/files/gmg_update_report_-_april_2009.pdf

EC: Commission proposes EU framework for managers of alternative investment funds The EC has proposed a Directive on Alternative Investment Fund Managers (AIFM) which aims to create a comprehensive and effective regulatory and supervisory framework for AIFM in the European Union. The proposed Directive will require all AIFM within scope to be authorised and to be subject to harmonised regulatory standards on an ongoing basis. It will also enhance the transparency of the activities of AIFM and the funds they manage towards investors and public authorities. This will enable Member States to improve the macro-prudential oversight of the sector and to take coordinated action as necessary to ensure the proper functioning of financial markets. The proposal will help to overcome gaps and inconsistencies in existing regulatory frameworks at national level and will provide a secure basis for the development of the internal market. It will: • Adopt an 'all encompassing' approach to ensure that no significant AIFM escapes effective regulation and oversight, while recognising the legitimate differences in existing business models and providing exemptions for smaller managers for whom the requirements would be disproportionate. Therefore, the Directive will only apply to those AIFM managing a portfolio of more than 100 million euros. A higher threshold of 500 million applies to AIFM not using leverage (and having a five years lock-in period for their investors) as they are not regarded as posing systemic risks.

• Regulate all major sources of risks in the alternative investment value chain by ensuring that AIFM are authorised and subject to ongoing regulation and that key service providers, including depositaries and administrators, are subject to robust regulatory standards. • Enhance the transparency of AIFM and the funds they manage towards supervisors, investors and other key stakeholders. • Ensure that all regulated entities are subject to appropriate governance standards and have robust systems in place for the management of risks, liquidity and conflicts of interest. • Permit AIFM to market funds to professional investors throughout the EU subject to compliance with demanding regulatory standards. • Grant access to the European market to third country funds after a transitional period of three years. (29/04/09) EUROPA - Press Releases - Financial services: Commission proposes EU framework for managers of alternative investment funds EUROPA - Press Releases - Directive on Alternative Investment Fund Managers (AIFMs) : Frequently Asked Questions

FSA/IMA: Paperless renunciation/transfer of units/shares in authorised investment funds FSA has confirmed IMA’s industry guidance intended to facilitate paper-free electronic transfer of ownership units held in an authorised investment fund. The guidance explains what fund managers should do to satisfy themselves that instructions given by electronic means are genuine. (9/04/09) http://www.fsa.gov.uk/pubs/guidance/IMA_guidance.pdf

CESR: Responses received to its call for evidence on possible implementing measures of the future UCITS directive These are available to download via the following link. (9/04/09) CESR [The Committee of European Securities Regulators]

EC: Commission sets out steps to clarify the responsibilities of UCITS depositaries This press release notes that the depositaries of four UCITS funds entrusted fund assets, worth €1.6bn to Madoff entities and those assets have not yet been recovered. Further to a letter sent to Charlie McCreevy from the French finance minister highlighting the diverging approaches that member states have taken on the role and liability of UCITS funds' depositaries, it is now stated that, together with CESR, the EC will review the manner in which member states have implemented the relevant provisions of the UCITS Directive, and evaluate how responsibilities and liabilities of depositaries are defined having regard to national civil law. This review will be driven by the objective of identifying any practices or provisions which dilute the basic responsibilities and liabilities of the Directive. It will seek to clarify the responsibilities of UCITS depositaries for safe-keeping, and the modalities by which depositaries can exercise those responsibilities (including use of sub-custodians). (26/01/09) EUROPA - Press Releases - Commission sets out steps to clarify the responsibilities of UCITS depositaries EUROPA - Press Releases - Responsibilities of UCITS depositaries : Frequently Asked Questions

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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

FSA: Mortgage Lender Briefing This is the first edition of this newsletter, to be published "periodically when we have project work or other items we need to bring to your attention". Topics include: mortgage arrears project findings; issues in the low interest-rate environment; FSA mortgage market review; and sale and rent back regulation. It is noted that a DP on changes to mortgage regulation is to be published in September. (30/06/09) http://www.fsa.gov.uk/pubs/newsletters/MLB1.pdf

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BCSB: Bulletin 31 Topics include: the Consumer Credit Directive; provision of information about cheque clearing; management of unauthorised transactions and an update on current monitoring work. It is noted that, following the introduction of BCOBS in November 2009, BCSB will relinquish responsibility for conduct of business regulation for deposit, savings and payments products. However, proposals have now been agreed for BCSB to provide continued monitoring and enforcement of lending and credit card standards, including those governing the treatment of customers in financial difficulties. It will thus be renamed the Lending Standards Board (LSB) on 1 November. The Lending Standards to be monitored will cover all unsecured lending products that fall within the scope of the existing Banking Code. Additionally, all lending to small business, currently covered by the Business Banking Code, will also be in scope. (30/06/09) http://www.bankingcode.org.uk/pdfdocs/Bulletin 31.pdf

OFT: Review of the use of Charging Orders by its Licensees OFT has conducted a review of the use of charging orders as a method of enforcing judgment debts, where the debts originally arose under regulated consumer credit agreements. The interim results of this indicate that there may be potential problems with the way in which some creditors use charging orders as part of their debt enforcement activities. OFT will be working with licensees to ensure that consumers are not the subject of what it would consider unfair business practices in relation to the use of charging orders and orders for sale. (24/06/09) The Office of Fair Trading: Charging orders

FSA: The FSA’s role under the Payment Services Regulations 2009 FSA has published the second version of the above - "with clarifications to some areas" together with a table of changes indicating where the changes have been made. (The previous version is still available online). (19/06/09) http://www.fsa.gov.uk/pubs/other/PSD_approach.pdf (NB: over 150 pages long) http://www.fsa.gov.uk/pubs/other/psd_amends.pdf

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BBA: Consumer Credit Directive BBA has published the text of its response to BERR's consultation. (18/06/09) http://www.bba.org.uk/content/1/c6/01/61/29/Letter to Tord Johnsen.pdf (NB: over 30 pages long)

FSCP: FSA needs to get consumer protection right FSCP has published its response to the Turner Review and urges FSA and Government to improve regulation for consumers in the light of the financial crisis, in addition to focusing on the regulation of the wholesale markets - "The Panel has today submitted a paper of concrete changes which could help consumers. One radical step would be to give the FSA power to regulate all aspects of business of the firms it already regulates, so consumer credit would move from the OFT to FSA for authorised firms. We believe the FSA is better placed to put an end to firms lending irresponsibly and encouraging excessive debt - it is what most consumers assume happens now and it will stop firms hiding behind any division of regulatory duties between the OFT and FSA.” (17/06/09) Financial Services Consumer Panel | Press Release | Financial Services Consumer Panel calls for better compensation http://www.fscp.org.uk/pdf/turner_review.pdf

TSC: Mortgage arrears and access to mortgage finance/Banking crisis - regulation and supervision TSC is to undertake a short inquiry into mortgage arrears and access to mortgage finance and has published a call for evidence - among other matters, it calls for evidence on: the treatment by, and the approaches taken, by mortgage lenders towards homeowners in arrears and/or at risk of repossession, including issues relating to the treatment of homeowners by financial institutions specialising in mortgage lending to sub-prime borrowers; adherence to, and the effectiveness of, FSA rules and guidance for mortgage lenders on repossession policy and treatment of consumers in arrears as well as FSA's regulatory approach in this area; adherence to, and the effectiveness of, codes of conduct, protocols and statements of good practice issued by industry bodies in this area and issues of concern around the operation of sale and lease-back schemes. The deadline for written evidence is 12 noon on Wednesday 1 July 2009. (17/06/09) UK Parliament - TC0809PN47

HMT: The Scottish and Northern Ireland Banknotes Regulations 2009: a consultation on secondary legislation Part 6 of the Banking Act 2009 will enable the Government and BoE to make provision to enhance protection for holders of Scottish and Northern Ireland banknotes, and to update, modernise and strengthen the regime for commercial note issue. The Government is now consulting on secondary legislation to be made with responses to be sent by 9 September 2009. Subject to consultation responses, the Government will lay the Scottish and Northern Ireland Banknotes Regulations 2009 before Parliament in October 2009 and it is envisaged that these will then come into force in late 2009. (17/06/09) http://www.hm-treasury.gov.uk/d/consult_banknotesreg_150609.pdf (NB: over 50 pages long)

EC: The report of the Expert Group on credit histories EC notes that the Expert Group was mandated to identify solutions which maximise consumers' credit data circulation whilst ensuring a high level of consumer protection. It has now published its report and is consulting on it. The report explains that credit data sharing between creditors is considered an essential element of the financial infrastructure. While national credit reporting systems effectively assist creditors in assessing credit requests, obstacles to the access to and exploitation of foreign credit data is one of the barriers to the development of cross-border lending activities. The report recognises however the low appetite for important changes. Thus, experts have rejected global and complex solutions, such as setting up a pan-European credit register or aligning all Member States to a single credit data model. According to the Group, data access model choices should be market driven and any solution, before being implemented, need to be careful evaluated in terms of their costs and benefits for both consumers and creditors. The report will be open to consultation until 31 August 2009. (15/06/09) http://ec.europa.eu/internal_market/consultations/docs/2009/credit_histories/egch_report_en.pdf (report - NB: 60 pages long) http://ec.europa.eu/internal_market/consultations/docs/2009/credit_histories/consultation_en.pdf Consultation)

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EC: Responsible borrowing and lending in the EU In its Communication to the Spring European Council Driving European Recovery of 4 March 2009, the EC undertook to come forward with measures at EU level on responsible lending and borrowing, including a reliable framework on credit intermediation, in the context of delivering responsible and reliable markets for the future and restoring consumer confidence. This consultation seeks to help the EC to analyse certain outstanding issues with regard to responsible lending and borrowing, including information, conduct of business and the role of intermediaries. Responses are required by 31 August 2009. (15/06/09) http://ec.europa.eu/internal_market/consultations/docs/2009/responsible_lending/consultation_en.pdf

Saving Gateway Accounts Bill [As Amended on Report] A Bill to make provision about Saving Gateway accounts; and for connected purposes. (12/06/09) http://www.publications.parliament.uk/pa/ld200809/ldbills/052/2009052.pdf

HMT: A UK Dormant Accounts Scheme - summary of responses to consultation on secondary legislation This document summarises responses to the February 2009 consultation. It is noted that: the Government will lay secondary legislation in Parliament to allow the legislation to take effect, subject to Parliamentary approval; the Government is drawing up spending directions setting out its plans for the relative allocation of dormant account funds in England to issue to the BIG Lottery Fund, in time for the scheme's launch; FSA intends to publish its final rules and regulations shortly, subject to secondary legislation taking effect; FSA is currently available to engage with candidate reclaim funds on a preapplication basis in order to expedite the process of setting up a UK dormant accounts scheme once the legislative process is concluded; BBA and BSA are committed to leading on selecting or setting up a reclaim fund; and the Government intends that a UK dormant accounts scheme should be operational as soon as possible, following Parliamentary approval for secondary legislation and the establishment of a reclaim fund. (11/06/09) http://www.hm-treasury.gov.uk/d/consult_dormantaccountsresponse100609.pdf

EC: Consultation on possible end-date(s) for SEPA migration The EC has launched a consultation on whether and how deadlines should be set for the migration of existing payment products to SEPA products. It presents all the options available regarding the definition of such an end-date and its potential practicalities, such as whether it should it cover only standards, or schemes as well; only the interbank space, or the bank-to-customer space as well; whether it should it entail full migration or allow the exclusion of certain products and, if end-dates are needed, how they should be set. Responses are required by 3 August 2009. (8/06/09) http://ec.europa.eu/internal_market/consultations/docs/2009/sepa/consultation_en.pdf

HMT: Following up the second Saving Gateway pilot participants This report was prepared for HMT by Ipos MORI. It notes that the second Saving Gateway pilot was introduced in 2005 and ran for 18 months. It was offered to people with individual incomes below £25,000 and household incomes below £50,000, or those on benefits. This research revisited participants two years after the second Saving Gateway pilot ended to explore long-term changes in saving attitudes and behaviours, as well as gauging participants’ feedback to inform the national roll-out of the Saving Gateway scheme, announced in the 2008 Budget. The research design also incorporated questions to gauge the effects of the downturn on participants’ saving behaviour. It reports that that three in ten participants were not saving regularly prior to the scheme and were regular savers at the time of the follow-up research and that, 61% of Saving Gateway participants were saving regularly two years after their accounts matured, and 60% agreed that the scheme had helped them to save more regularly each month. (8/06/09) http://www.hm-treasury.gov.uk/d/saving_gateway_report_jun09.pdf (NB: over 100 pages long)

The Transfer of Functions of the Consumer Credit Appeals Tribunal Order 2009 (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 104

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) (3/06/09) http://www.opsi.gov.uk/si/si2009/draft/pdf/ukdsi_9780111479858_en.pdf

BSCB: Themed reviews - provision of information about the clearing cycle/Management of unauthorised transactions The BCSB has recently completed reviews of compliance with the requirements of the Banking Code covering information about the clearing cycle and of compliance with the requirements of the Banking Code covering the management of unauthorised transactions. (2/06/09) http://www.bankingcode.org.uk/wpdocs/Cheque clearing times information - website notice Final May 2009.doc http://www.bankingcode.org.uk/wpdocs/Unauthorised card transactions - Final 27th May 2009.doc

FSA: A joint FSA and BCSB review into savings advertising FSA has published this page on its website which notes the results of a review by which FSA and BCSB reviewed 116 unique promotions for cash savings accounts (cash ISAs, regular savings accounts, fixed and instant access accounts) excluding current accounts, structured deposits or other structured products appearing in the national media from December 2008 to March 2009. It is noted that firms generally met the standard expected when presenting tiered rates and promotions reviewed prominently displayed the minimum and maximum balances required for headline rates, where the balances were substantial. Important failings identified were as follows: promotions that were unclear about the level of the advertised bonus or reward; certain important information, including information on withdrawal restriction, was in the small print and promotions for regular savings accounts that did not include a worked example of AER. BCSB has already raised specific concerns with several firms and some adverts have already been amended to ensure compliance. FSA and BCSB continue to monitor adverts and will take appropriate supervisory action to address the cases of non-compliance with individual firms. (27/05/09) A joint FSA and BCSB review into savings advertising

OFT: OFT warns debt management businesses over cold calling OFT has told six debt management businesses and four cold-calling companies to stop using unsolicited and misleading calls to advertise their services or face formal enforcement action. The action has been taken after the OFT and ICO received complaints from consumers that they had been cold-called either without prior consent or despite registering with the Telephone Preference Service. OFT also found that most of the information given to consumers was potentially misleading or inaccurate, or missed out vital facts about the purpose of the call and the identity of the caller, for example: some calls misled consumers into believing that they were one of the 'few chosen individuals' contacted as part of a government scheme to help wipe out consumer debt; some recipients were transferred to a commercial debt management business on the pretext of talking to a not-for-profit debt adviser, and once referred to a different business, consumers were often not told that there was a fee payable for both the initial advice and the debt solutions offered. The unnamed businesses warned may also have broken the law by pestering individuals who had not given their consent to be called and/or who had registered to the TPS. (26/05/09) The Office of Fair Trading: OFT warns debt management businesses over cold calling

The National Savings (Unclaimed Moneys) Regulations 2009/1263 These Regulations require the National Debt Commissioners to repay to the Director of Savings or to the National Loans Fund unclaimed moneys held by them in respect of certain National Savings and Investments (“NS&I”) products. The Regulations also require the Director of Savings to credit each amount deemed to be unclaimed to an investment account in the National Savings Bank. Finally, the Regulations amend other NS&I product Regulations so as to introduce a new procedure for dealing with unclaimed moneys in NS&I products in the future. (Date in force: Regulations 1,2 and 3 - 15/6/09, all other regulations 1/9/09) (20/05/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091263_en.pdf

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EC: Payment Services Directive Q&A The EC has updated its Q&A document. (20/05/09) http://ec.europa.eu/internal_market/payments/docs/framework/transposition/faq-2009_05_20_en.pdf (NB: over 180 pages long)

AMI: The future of mortgage regulation AMI has published a consultation paper for its members which states that the association wishes "to engage with our members, in a debate around the current and future regulatory structure of the mortgage market, in order to provide a unified and cohesive view to FSA". Members are also invited to complete an online questionnaire, designed to facilitate the exchanging of views between AMI and the intermediary market. (19/05/09) AMI

OFT: Consumer Credit (Advertisements) Regulations 2004 - FAQ OFT has updated this document. (19/05/09) http://www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/oft746.pdf (NB: over 90 pages long)

BIS/BERR: Study of the effects of the UK economy of the revised Consumer Credit Directive This report considers the benefits of the Consumer Credit Directive for consumers in the UK, arguing that although "heavy touch" implementation could bring about additional benefits to consumers it may also impose significant extra costs on UK providers which "could push some of the high risk consumers toward more expensive or illegal loans". (18/05/09) http://www.berr.gov.uk/files/file51406.pdf (NB: over 50 pages long)

FSA: Mortgage Sector Conference The full set of slides for the conference, which took place on 12 May 2009, is now available via the first link. The text of Peter Vicary-Smith's speech has also been published (second link). He is CEO of Which? and discusses "real people’s experiences when it comes to mortgages", covering inappropriate advice, irresponsible lending and PPI. He argues that "we need the FSA to move away from a culture of secrecy to providing the right incentives for firms to treat their customers fairly". (15/05/09) http://www.fsa.gov.uk/pages/Doing/Events/pdf/mortgage_sector.pdf (NB: over 70 slides) http://www.fsa.gov.uk/pages/Doing/Events/pdf/vicary-smith-speech.pdf

Speech by Gareth Thomas MP: The future challenge for consumer lending (14 May 2009) Text of a speech given at the Credit Today Summit follows. He notes "the Consumer White Paper which the Government will publish before the summer. The White Paper itself will look wider than credit and debt, setting out a strategic approach to the post financial-crisis consumer world. The credit and debt aspects of the White Paper will have a dual focus ... we will set a long-term direction for regulation of the sector, learning the lessons of recent events in order to deliver responsible consumer credit markets, continuing access to affordable credit, enhanced consumer protection and financial stability". (15/05/09) The future challenge for consumer lending - BIS

OFT: Requirements imposed on debt collection company OFT is warning the debt collection and tracing sector that using neighbours to pass on messages to trace subjects is an unacceptable practice and should be ceased immediately. It is concerned that some businesses are breaching the spirit of the OFT debt collection guidance by using this trace method, which has the potential to reveal to neighbours that individuals are being pursued for payment of debts and is calling on businesses in the sector to take positive steps to address these concerns. OFT has imposed requirements on one 'trace and collect' company, Link Financial Limited, to confirm that it will no longer engage in this practice. OFT says that it will take full enforcement action if businesses continue to use these tactics. (15/05/09) The Office of Fair Trading: OFT warns debt sector about tracing tactics

EC: Study on credit intermediaries in the internal market (14/05/09) http://ec.europa.eu/internal_market/finservices-retail/docs/credit/credit_intermediaries_report_en.pdf (NB: over 300 pages long)

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Speech by Adair Turner: The mortgage market: issues for debate Text of the above, given at today's FSA Mortgage Conference follows. He suggested that careful thought had to be given to the relative merits of alternative policy instruments, and in particular the choice between product specific regulation, sales regulation and firm level regulation - "should the FSA end up recommending limits to LTV [maximum loan-to-value] LTI [loan-to-income], the headline issue on which the debate about the future of the mortgage market sometimes focuses? I do not at present know and I make no apology for that lack of certainty. What I have tried to do today is to indicate that the issue is a complex one, which requires careful consideration and further empirical analysis, running up to the FSA September Discussion Paper, and indeed subsequently, in a wide ranging debate". (12/05/09) The mortgage market: Issues for debate http://www.fsa.gov.uk/pubs/speeches/at_12may09.pdf (slides)

Speech by Dan Waters: Mortgage distribution - What are the right outcomes for consumers and how do we achieve them? Text of the above, given at today's FSA Mortgage Conference follows. Topics include: significance of brokers as a sales channel, especially for higher-risk products; significance of the non-advised sales channel; regulatory compliance by brokers and lenders (described as "lacking"); mortgage fraud and keeping track of brokers; product complexity; distribution labels and overly complicated distribution landscape; broker remuneration. He remarks: "Is there a case for regulation to limit future opportunities for misbuying and misselling through tighter requirements on higher-risk products, rather than relying on the arguably failed approach of disclosing the risks associated with the products and then expecting consumers to make an informed choice based principally upon that disclosure?" (12/05/09) Mortgage distribution - What are the right outcomes for consumers and how do we achieve them?

Speech by Jon Pain: The way ahead Text of the above, given at today's FSA Mortgage Conference follows. Topics include: a broad outline of what is likely to be in the DP, including disclosure in the mortgage sale and advice process; self certification mortgages; lending thresholds; distribution; funding; arrears and repossession handling. (12/05/09) The way forward

Wolfsberg Group: AML guidance on credit/charge card issuing and merchant acquiring activities The Wolfsberg Group has published global anti-money laundering guidance, statements and principles on a number of related topics including private banking, correspondent banking, the suppression of terrorist financing, transaction monitoring, pooled vehicles and the risk based approach. (6/05/09) http://www.wolfsberg-principles.com/pdf/WG_Credit_Cards_AML_Guidance_April-28-2009.pdf

OFT: Work under the Consumer Credit Act in the second charge lending sector OFT has published an update with regard to the above. It notes that the enquiry is focused around the entire lending process from the initial lending decision up to the handling of arrears and defaults and possession actions. On the latter issue, it is aware that, since October 2008, lenders have had to comply with the Pre-action Protocol for Repossession Claims and OFT will look to see how lenders have amended their practices to ensure compliance. OFT has now written to a number of lenders seeking further information to assess the level of consumer detriment in relation to the above and says it will provide an update on its work in this area by the end of August 2009. (29/04/09) The Office of Fair Trading: Second charge lending

FSA: PSD application forms FSA has now published forms that firms must complete in order to: register as a small payment institution (small PI); become an authorised payment institution (authorised PI); or register agents. Complete applications must be received by 1 August 2009 so they can be processed in time. FSA notes that the forms should be treated as draft until 01 May 2009, although it does not expect to make any changes to them before this date. (27/04/09) Payment Services Directive

CP09/6: Regulating retail banking conduct of business - Feedback on CP08/19 and final rules FSA notes that, in general, respondents supported the proposals, but requested clarification or further information on certain aspects. FSA has decided to implement the new framework proposed and thus a 107

new Banking and Payment Services (BPS) conduct regime, covering all retail banking services within our remit, will take effect from 1 November 2009. This will comprise BCOBS and the PSRs. Further information on the BPS conduct regime and the relationship between BCOBS and the PSRs is provided in Annex 2 to this PS. The final text of the Handbook rules and guidance made is in Appendix 1 to this PS. To reflect the policy intention more clearly and as a result of responses received, FSA has made the following main changes: clarified in BCOBS 1 how BCOBS interacts with the PSRs; redrafted BCOBS 4 to require appropriate information and statements to be ‘provided or made available’; inserted guidance at the beginning of BCOBS 4 to clarify when appropriate information should be ‘provided or made available’; added guidance relating to disclosure of how interest is calculated, changes to charges, the availability of basic bank accounts and the cheque clearing process; added a rule, similar to that in the PSRs, on charges for statements; added guidance, under FSA's post-sale service rule, on the processing of payment instructions and guidance that refers to the BBA Statement of Principles; and inserted a reference to the EU Switching Principles and the BBA/BSA/TISA cash ISA transfer guidelines. FSA has also identified several areas where additional rules or guidance may be desirable but where further cost benefit analysis and consultation is required. It plans to consult in July on additions to BCOBS, including: provisions relating to liability for losses for unauthorised transactions outside the scope of the PSRs; provisions on the advance notification, where practicable, of changes to interest rates that are to a customer’s disadvantage (including bonus interest rates coming to an end); a rule to mirror COBS 2.1.2R on exclusion of liability; and transitional provisions. Any transitional provisions would be effective from 1 November 2009. FSA is also undertaking further work on whether it should introduce any new requirements in relation to the provision of advice on deposits, including structured deposits. BBA and BSA are currently developing industry guidance that would provide suggestions on the ways in which firms could meet the requirements under BCOBS and will consult other stakeholders on this. This guidance is also expected to contain material on consumer credit, which will continue to be monitored by the BCSB or a successor organisation. FSA further notes that it received a strong message from respondents about the value of the Banking Code as consumer-facing information and plans to develop information for consumers that clearly outlines their rights under BCOBS and the PSRs and what they can expect from their retail banking provider - it plans to publish findings shortly. (24/04/09) http://www.fsa.gov.uk/pubs/policy/ps09_06.pdf

EC: E-money and cross-border payments The EC notes that the European Parliament adopted two legislative proposals revising the current rules governing cross-border payments and the conditions for issuing electronic money in the EU. Both legal texts will now be forwarded to the EU Council for final adoption. (24/04/09) EUROPA - Press Releases - European Commission welcomes the European Parliament’s adoption of two proposals in the area of payments (on e-money and cross-border payments)

Budget 2009: Mortgages This section of the report gives details on the Mortgage Rescue Scheme and Homeowner Mortgage Support Scheme. (22/04/09) http://www.hm-treasury.gov.uk/d/Budget2009/bud09_chapter5_280.pdf

Department for Communities and Local Government: New homeowners mortgage support begins The government has announced the launch of Homeowners Mortgage Support. From today, the following major high street lenders will offer their customers HMS: Lloyds Bank Group (which includes Halifax and Bank of Scotland), Northern Rock, the Royal Bank of Scotland (which includes NatWest and Ulster Bank), Bradford and Bingley, Cumberland Building Society, and the National Australia Bank Group (which includes Clydesdale and Yorkshire Bank). A number of other banks, building societies and specialist lenders have also confirmed today that they will offer their customers HMS as soon as possible. These are Bank of Ireland (which includes Bristol & West), GMAC, GE Money, Kensington Mortgages, the Post Office and Standard Life Bank., Barclays (including First Plus), HSBC, Nationwide and Santander (including Abbey and Alliance & Leicester) have all confirmed today they will offer comparable arrangements to HMS to their customers, while opting not to take up the Government guarantee. (21/04/09) New homeowners mortgage support begins - Corporate - Communities and Local Government

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EC: Commission sets up Payment Systems Market Expert Group The EC has set up a Payment Systems Market Expert Group (PSMEG) to assist in the preparation of its policy in the field of payments. Its mission will be to assist the EC in the preparation of legislative acts or policy initiatives on payment systems, including fraud prevention issues related to the payment industry and users; to provide insight on the practical implementation of these policies; to exchange views on the latest best practices; and to ensure monitoring of potential issues of concern to the market. The group will meet in Brussels and will be chaired by the Internal Market and Services DG of the EC. Further details and TOR follow. (20/04/09) http://ec.europa.eu/internal_market/payments/docs/psmeg/c_2008_8047_en.pdf http://ec.europa.eu/internal_market/payments/docs/psmeg/tor_en.pdf

FSA: PSD Stakeholder Liaison Group: 10 February 2009 - summary note FSA has now published the above, which included discussion of: definition of "payment account"; on what basis FSA can supervise small payment institutions; in-house transfers; fees and the Electronic Money Directive. (16/04/09) http://www.fsa.gov.uk/pubs/other/psd_10feb09.pdf

BIS/BERR: Consultation on proposals for implementing the Consumer Credit Directive This consultation document seeks comments on BERR’s proposals for the transposition of the Consumer Credit Directive into UK law, including the likely costs and benefits. The closing date for responses is 10 June 2009. (14/04/09) http://www.berr.gov.uk/files/file50962.pdf (NB: over 90 pages long)

OFT: OFT to focus investigation into unarranged overdraft charges on three banks OFT has announced that it is to streamline its investigation into unarranged overdraft charges by focusing on the charging terms of Lloyds TSB, HSBC and Clydesdale. OFT has written to all the banks under investigation to outline this decision. OFT emphasises that it should not be assumed that it is more or less likely to find the terms of these banks' unfair than those of the other banks. The investigation into the other banks' terms is merely on hold and OFT has stressed that no banks' terms have been given a clean bill of health. OFT expects to reach final conclusions on fairness later this year. (3/04/09) The Office of Fair Trading: OFT to focus investigation into unarranged overdraft charges on three banks

BCSB Bulletin 30 Topics include: the Banking Act; the Turner Review; overdraft charges test case; themed reviews of credit assessment and information on cheque clearing times; use of bankers right of set-off; monitoring plans update and review of advertising of savings accounts. (3/04/09) http://www.bankingcode.org.uk/pdfdocs/Bulletin_30_March_2009.pdf

FSA: Mortgage market review and FSA mortgage conference FSA notes that it is currently working on its review of regulation for the mortgage market. The review will look at whether the proposals made by the retail distribution review for the investment market should apply to the mortgage market. FSA’s plan is to publish a paper in September 2009 setting out the future shape of regulation and how FSA's approach should evolve to reflect this. The item also notes the May mortgage conference. (31/05/09) Smaller firms - One minute guides

OFT: Irresponsible lending OFT notes that, in the Pre-Budget Report,, the Government announced the need for clear guidance as to what is expected of second charge lenders, with a view to ensuring that they exercise forbearance with borrowers in difficulty. In response, OFT launched a consultation on draft guidance for second charge lenders for which deadline for responding is 8 May 2009. OFT had originally targeted the end of March 2009 to launch its consultation on draft irresponsible lending guidance. However, to avoid overlap with the consultation on guidance for second charge lenders - and in order to be able to take account of the responses to that consultation in finalising our draft irresponsible lending guidance - it took the decision to postpone the launch of the consultation on the draft irresponsible lending guidance until on or around the beginning of June 2009. OFT says that a number of stakeholders subsequently asked it to consider further delaying the consultation on the draft irresponsible lending guidance in order that it does not overlap with - and in order that full account can be taken of - consultations that BERR intends to run on 109

the Consumer Credit Directive policy and draft regulations. BERR aims to launch its formal consultation on CCD policy around Easter time followed by a formal Government response within 12 weeks of that consultation being concluded. Consequently, it is now OFT's intention to launch the consultation on irresponsible lending in July 2009, with final guidance in December 2009/January 2010. (25/03/09)

BIS/BERR: Prime Minister unveils real help for consumers (including: White Papers on regulatory reform and consumer rights) This press release notes tomorrow's Turner Review and announces that a White Paper on financial services regulatory reform will be published "around the time of the Budget". The forthcoming Walker Review will make recommendations with regard to corporate governance improvements, which will particularly look at risk management and remuneration. There is also the promise of a review of the split of responsibilities between FSA and OFT with regard to the regulation of second-charge mortgages. In addition, it announces "a package of real help and protection for consumers struggling to make ends meet because of the global downturn" by Gordon Brown, including: credit cards - the Government will stop lenders from raising credit card borrowing limits where customer have not requested the increase, and it will end the practice of firms sending unsolicited credit card cheques - legislation will be passed "at the earliest opportunity"; debt enforcement - new measures will be introduced to provide clarity for debtors and certainty for creditors in advance of full independent regulation of the bailiff industry; National Fraud Strategy - later this week the Government will set out the action it will take to tackle fraud and protect consumers from mass marketed frauds such as investment scams and mortgage advice - £2.5m will be made available for advice agencies to support the delivery of the new Homeowners Mortgage Support scheme. A White Paper "on action to help consumers", containing proposals to simplify and modernise consumer rights, will be published in the summer. (17/03/09) http://nds.coi.gov.uk/Content/Detail.aspx?NewsAreaId=2&ReleaseID=395627&SubjectId=15&Departme ntMode=true

HMT: A UK dormant accounts scheme - a consultation on secondary legislation The Government intends to lay two statutory instruments before Parliament - the first extending the scope of FSA authorisation to include reclaim funds and the second placing a requirement on building societies participating in the scheme for smaller institutions, publicly to disclose information in line with the requirements placed on smaller banks by the Dormant Bank and Building Society Accounts Act 2008. This consultation will be open for 12 weeks. Subject to consultation responses, the Government will proceed to lay draft statutory instruments before Parliament according to the appropriate procedure for the instruments. FSA will publish a separate CP setting out in detail its proposals for a cost-effective regime for the regulation of reclaim funds. FSA proposes to consult for eight weeks. Following consultation, and subject to the passage of the Government’s statutory legislation, FSA will bring forward final rules. (16/02/09) http://www.hm-treasury.gov.uk/d/consult_dormant_accounts_scheme170209.pdf (NB: over 30 pages long)

OFT: Second charge lending - OFT guidance for brokers and lenders OFT has published a consultation on draft guidance for businesses engaged in second charge lending which follows a government review of arrears and repossession policies and practices in the second charge sector. The review did find examples of good practice within the market but, as with other lending markets, there is scope for spreading good practice more widely. The draft guidance covers a range of issues such as customer care, advertising and selling techniques, contractual terms and conditions, and practices around managing arrears or defaults. It sets out the standards of behaviour that OFT expects from those businesses engaged in second charge lending. The guidance is designed to complement existing OFT guidance for lenders. Responses to the consultation on this guidance (closing date: 8 May 2009) will also be taken into account as part of the wider irresponsible lending project being undertaken by OFT. Guidance on irresponsible lending is to be published in autumn 2009. (13/02/09) http://www.oft.gov.uk/shared_oft/consultations/oft1057con.pdf

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BSCB: Themed review of credit assessment The BCSB has completed a review of compliance with the requirements of the Banking Code covering credit assessment. (4/02/09) http://www.bankingcode.org.uk/wpdocs/Themed review of credit assessment January 2009.doc

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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

The Individual Savings Account (Amendment) Regulations 2009/1550 These Regulations amend the Individual Savings Account Regulations 1998 (S.I. 1998/1870: “the principal Regulations”). The main effect of these Regulations is to increase the ISA subscription limits for individuals who will be aged 50 or over not later than 5th April 2010, to £10,200 (annual overall limit) of which up to £5,100 can be invested in a cash ISA, with effect from 6/10/09. Those limits will apply to all ISA investors (except those between the ages of 16 and 18 who may only invest in cash ISAs) from 6/4/10. (Date in force: 6/10/09) (30/06/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091550_en.pdf

CP09/18***: Distribution of retail investments: Delivering the RDR FSA is consulting on rules to ensure that: independent advice is truly independent and reflects investors’ needs; people can clearly identify and understand the service they are being offered; commission-bias is removed from the system – and recommendations made by advisers are not influenced by product providers; investors know up-front how much advice is going to cost and how they will pay for it; and all investment advisers will be qualified to a new, higher level, regarded as equivalent to the first year of a degree. The consultation closes on 30 October 2009. (25/06/09) http://www.fsa.gov.uk/pubs/cp/cp09_18.pdf

EC: Council conclusions on packaged retail investment products The Council has published conclusions on packaged retail investment products (conclusions) which were adopted at the ECOFIN meeting held on 9 June 2009. (9/06/09) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/108385.pdf

FSA: The regulation of retail investment products/Taking forward the FSA’s approach to studies of proportionality FSA has published the above mentioned report - subtitled "An Initial Assessment of the Impact of Recent Changes" - as part of its commitment to ensure the proportionality of financial regulation in the UK. The objective of the research was to make an initial assessment of the change in the incremental costs and benefits of FSA’s regime caused by retail regulatory initiatives over the period mid 2006 to mid 2008. The research was carried out by LECG and followed earlier research on compliance costs, in particular the Cost of Regulation Study by Deloitte in 2006, commissioned by FSA/FSPP. The scope of this study is the activity of making advised sales of packaged retail investment products. In addition, FSA has published a short paper which discusses the role that compliance cost surveys play in FSA’s analysis of proportionality, the latter being its approach to determining whether the costs of regulations that have been introduced are justified by their benefits. FSA welcomes comments on how it might develop further studies on the proportionality of regulation. (27/05/09) http://www.fsa.gov.uk/pubs/other/lecg.pdf (NB: over 160 pages long) http://www.fsa.gov.uk/pubs/other/proportionality.pdf

BIS: Due diligence and transparency regarding cover payment messages related to cross-border wire transfers The processing of cross-border wire transfers1 frequently involves several financial institutions. In addition to the originator’s bank and the beneficiary’s bank, additional banks are often involved. This paper examines the circumstances where one or more of these cover intermediary banks is located in a jurisdiction other than the jurisdictions where the bank of the originator and the bank of the beneficiary

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are located. It describes the supervisory expectations, pursuant to the current initiatives supported by the Basel Committee to enhance transparency in payment messages, about information that must be included in payment messages related to cover payments, the various mechanisms that must be used to ensure that complete and accurate information has been included in such messages, the different roles of parties involved in these mechanisms and the use that should be made of the information for AML/CFT purposes. (13/05/09) http://www.bis.org/publ/bcbs154.pdf?noframes=1

FSA: Supplementary Annex to "Good and poor practices in Key Features Documents" FSA has published the above - the original document had been published in September 2007. It provides an update on the progress firms have made in improving the effectiveness of their KFDs and Simplified Prospectuses (SPs); describes some common themes which are still holding back progress by some firms and gives further examples of good and poor practice. FSA is to carry out follow-up work in instances where firms are still not producing KFDs and SPs up to standard. Overall progress will be assessed again in 2010. (30/04/09) http://www.fsa.gov.uk/pubs/other/kfd_annex.pdf

EC: Commission proposes better investor protection measures for packaged retail investment products The EC is publishing a Communication on Packaged Retail Investment Products, which concluded that product information requirements and rules on product sales need to be improved and made more coherent. It also outlines proposals for a new, horizontal legislative approach, drawing on the best of existing requirements and applying these to all relevant products. It is emphasised that it does not contain detailed legislative proposals at this stage but sets out the high-level principles of a horizontal approach to product disclosures and selling practices and commits the EC to bring forward legislative proposals to deliver these results - the EC is to begin work on the detailed legislative proposals required for this new approach, and will provide an orientation on the work by the end of 2009. (29/04/09) EUROPA - Press Releases - Financial services: Commission proposes better investor protection measures for packaged retail investment products EUROPA - Press Releases - Communication on packaged retail investment products (PRIPs) : Frequently Asked Questions

FSA: Did life and pensions “disclosure” work as expected? This report investigates whether consumers of life and pensions investment products passively received the new, product-specific information that from 1 January 1995 regulators required to be supplied or whether they acted upon it by shopping around.. Regression analysis showed that, after disclosure, expenses incurred on acquiring non-pensions business increased in the tied sales channel relative to the IFA sales channel. This was not the case for pensions business, which, the report, says may be due to firms’ reactions to pensions misselling. Explanations for the results, other than increased shopping 113

around, were sought but not found. It concludes that after disclosure some consumers did indeed shop around more, at least in the period covered by the data. Given the state of competition in the relevant market, this suggests that the disclosure regime which, substantially, continues to be operated by FSA, produced benefits. (1/04/09) http://www.fsa.gov.uk/pubs/occpapers/op32.pdf (NB: over 100 pages long)

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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

FOS: Response to FSA discussion paper (DP08/5) on “consumer responsibility” This is the FOS response to FSA's above-mentioned paper. (22/06/09) Financial Ombudsman Service response to FSA discussion paper (DP08/5) on “consumer responsibility”

EC: Unfair terms in consumer contracts Further to the press release regarding Pannon GSM Zrt. v. Erzsébet Sustikné Gy ırfi [see 4/06/09 below] which highlighted that "national courts are required to examine, of their own motion, the unfairness of a term contained in a contract concluded between a consumer and a seller or supplier", the reference has now been published - link below. (15/06/09) http://curia.europa.eu/jurisp/cgi- bin/gettext.pl?where=&lang=en&num=79919087C19080243&doc=T&ouvert=T&seance=DDP_COMM

FOS: Accessibility and transparency agenda: update on projects and initiatives This sets out in tabular form, details of FOS' agenda as at 31 May 2009. (11/06/09) http://www.financial-ombudsman.org.uk/publications/policy-statements/accessibility-transparency- updateMay09.pdf

Law Societies: Developments from the European Court of Justice (May 2009) Section 4 covers recent opinions on consumer contract issues. (5/06/09) http://www.lawsociety.org.uk/secure/file/179930/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/ecjupdate_may09.pdf

EC: Unfair terms in consumer contracts EC has published a press release describing the case of Pannon GSM Zrt. v. Erzsébet Sustikné Gy ırfi and highlighting that "national courts are required to examine, of their own motion, the unfairness of a term contained in a contract concluded between a consumer and a seller or supplier". (4/06/09) EUROPA - Press Releases - NATIONAL COURTS ARE REQUIRED TO EXAMINE, OF THEIR OWN MOTION, THE UNFAIRNESS OF A TERM CONTAINED IN A CONTRACT CONCLUDED BETWEEN A CONSUMER AND A SELLER OR SUPPLIER

FOS: Annual Review - 2008/09 The review shows that during the year, FOS: handled 789,877 consumer enquiries and a record 127,471 new complaints; resolved 113,949 disputes - a 14% annual increase - with our involvement resulting in compensation for consumers in 57% of cases; saw the number of complaints about mortgages, credit cards and consumer credit rise by 34%, and insurance disputes increase by 84% - while complaints about mortgage endowments fell by more than half. FOS further notes that there was a three-fold increase in complaints re PPI (following a five-fold increase in the previous year); complaints about motor, household and travel insurance rose - but complaints about health insurance levelled off; complaints about investment bonds more than doubled and there was a 40% increase in cases referred on behalf of consumers by commercial claims-management companies. (27/05/09) http://www.financial- ombudsman.org.uk/publications/ar09/ar09.pdf (NB: over 100 pages long)

ABI: European Consumer Rights Directive In a press release, ABI highlights evidence given to the HoL European Committee on the Directive today Particular concerns are raised in respect of automatic renewal of insurance policies and enrolment into 115

workplace pension schemes. (21/05/09) Association of British Insurers - New European regulation must not harm pensions automatic enrolment

Speech by Tony Boorman: Complaints handling, accessibility and transparency (12 May 2009) Text of the above, given at an ABI seminar, follows. He notes: "extended processes operated by some businesses do not deter claims-management companies. On the contrary, they provide the very environment of mistrust on which such companies thrive. It is the claims-management company, after all, that wants consumers to fear the minefields of trickery and complexity that you may have erected to deter the unprotected. ... By increasing transparency ... I hope we will enable all interested parties to observe the real work the ombudsman service does to resolve disputes. In pushing aside the rumour, myths and half truths that seem to abound whenever our work is debated, this cannot be anything but helpful. And in so far as it shines a brighter light on those situations in the insurance sector where things are not working well, it can only help others in avoiding the same failings - and so minimise unnecessary referrals to the ombudsman service". (13/05/09) speech by Tony Boorman

OFT: Findings from consumer surveys on internet shopping - a comparison of pre and post study consumer research This report presents results from questions placed by OFT on telephone and online consumer omnibus surveys, relating to consumers' experience of online shopping. Later in the year, OFT intends to publish an analysis of the results of the omnibus surveys presented in this report and also of a web-sweep exercise, to form an overall assessment of market developments on such key issues as awareness of cancellation rights, security concerns and consumer confidence. (11/05/09) http://www.oft.gov.uk/shared_oft/reports/Evaluating-OFTs-work/oft1079.pdf (NB: over 40 pages long)

EC: Consumer redress EC has published a paper described as the first working analysis of the impact of policy options designed in the light of the replies to the Green Paper together with a paper entitled "Final Analytical Report on the Green Paper on Consumer Collective Redress. (11/05/09) http://ec.europa.eu/consumers/redress_cons/docs/consultation_paper2009.pdf http://ec.europa.eu/consumers/redress_cons/docs/feedback_statement.pdf (NB: over 120 pages long)

FSA/FOS: Lehman-backed structured products FSA has published a statement saying that it has jointly concluded with FOS that Lehman Brothers' insolvency raises issues in the UK structured products market. As a result, while FOS has been investigating a number of individual complaints, FSA has been actively looking at the wider issues raised in this market. FSA and FOS have agreed that the regulatory options available to FSA would be one way of reducing consumer detriment, as well as potentially being able to deal with the concerns of more consumers than those who have complained to FOS - therefore, they have agreed that FSA will now consider issues relating to Lehman-backed structured products under the "wider implications" process, in order to allow FSA to explore all options to achieve the best outcome for consumers. The FOS link (second one below) also includes links to correspondence between the entities agreeing this and notes that FOS has agreed to defer issuing any adjudicator views or ombudsman decisions in these cases for the time being, and to notify affected complainants and financial firms accordingly. FOS will review the position in three months - in the light of progress by FSA towards a regulatory solution. (7/05/09) Wider Implications referral: Lehman-backed structured products case number: WI-A13

Law Societies: EU legislation on consumer protection (April 2009) This details the current status of various relevant Directives and European-level proposals. (5/05/09) http://www.lawsociety.org.uk/secure/file/179515/e:/teamsite-deployed/documents/templatedata/Internet Documents/Briefing notes on key areas of EU law/Documents/euconsumerlawupdate_apr09.pdf (NB: 30 pages long)

Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers' interests (Codified version) (5/05/09) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:110:0030:0036:EN:PDF 116

EC: Commission wants consumers to surf the web without borders The EC has launched the eYouGuide, a new online tool giving practical advice on the "digital rights" consumers have under EU law and has highlighted gaps in EU rules where consumer confidence and the single market for businesses could be further enhanced, including online payments. (5/05/09) EUROPA - Press Releases - Consumer Rights: Commission wants consumers to surf the web without borders

FOS: Complaints involving older consumers FOS highlights the interview Caroline Mitchell, lead ombudsman for investment and mortgage complaints, broadcast on Radio 4 Money Box about financial disputes involving older consumers. (27/04/09) BBC NEWS | Programmes | Moneybox | Call to help vulnerable customers

Speech by Meglena Kuneva: Restoring consumer trust in retail financial services (27 April 2009) Text of the above, given at the DECO Seminar on Financial Services and Consumer Interest in Lisbon, follows. She highlights work the EC is undertaking in this area, including a forthcoming Communication on Packaged Retail Investment Products and principles for responsible lending and borrowing. She says that "the next Commission should take a long hard look at the commercial marketing of investment products to individual investors. I also invite you and other leading consumer organisations, to look into this issue and to operate as a watchdog against unfair commercial practices in the retail financial sector ... I think more work needs to be done in the regulatory management of risk at retail level. ... I will continue to work closely with Charlie Mc Creevy to address the way investment products are designed, described and marketed to consumers in retail. I will also focus on ensuring that new proposals in relation to the sale of credit and mortgages meet the high standards of modern consumer policy. I intend to be very active in these two fundamental proposals for consumers. Second, I intend to strengthen the strict rules and enforcement on the misselling of retail investment products. There are clear indications that the laws that are meant to protect consumers were insufficient and may have been repeatedly violated. Third, I am already working on an in-depth study on at banking fees and charges to consumers which appear to be unfairly hitting consumers. I will publish a report this summer". (27/04/09) EUROPA - Press Releases - Meglena Kuneva, European Consumer Commissioner, "Restoring Consumer Trust in Retail Financial Services" , DECO Seminar on Financial Services and Consumer Interest, Lisbon, 27 April 2009

Speech by David Thomas: accessibility, transparency and complaints handling (21 April 2009) Text of the above, given at a BBA complaints seminar, follows. Topics include: the Hunt Review; industry liaison; publication of complaints data; collective redress (with regard to the latter, he notes: "The British Bankers' Association was kind enough to show me an early draft of the proposals that will be made later this morning for an 'improved' wider-implications process. I hope it has moved on from the last version I saw. This, it seemed to me, deferred too much to the industry's commercial incentive)". (21/04/09) speech by David Thomas, principal ombudsman, at the BBA complaints seminar

FOS: Ombudsman News – Issue 76 Topics include: case studies involving the transfer of money abroad - and associated currency exchange; a selection of recent travel-insurance complaints; and Walter Merricks on the price of cut-backs by financial services businesses in their customer-service operations. (6/04/09) http://www.financial- ombudsman.org.uk/publications/ombudsman-news/76/76.pdf

Speech by Nausicaa Delfas: Treating Customers Fairly - The way forward (26 March 2009) Text of the above, given at a Freshfields client seminar, follows. Topics include: what FSA expects of firms; what firms might expect from FSA in assessing TCF/conduct risks as part of its core supervisory 117

process; MI and the kinds of action FSA has taken. (3/04/09) Treating Customers Fairly - The way forward

FSA Undertaking: National Australia Bank (Yorkshire Bank) This documents details of the firm's undertaking not to use terms which may be considered unfair in specific contracts. The Home Loan General Offer Conditions gave the bank three powers to exercise in certain circumstances. Each of the sub-terms in Term 10 ((a) withhold facility, (b) forbid any further withdrawals, and (c) demand immediate repayment) conferred varying degrees of power on the bank. FSA raised concerns that the exercise of one or more of these powers may have been unfair in certain circumstances. It also raised concerns with regard to the exercise of some of the powers in some of the circumstances outlined in the Rapid Repay Mortgage (Facility) contract. New terms (set out in this document) limit the scope for the bank to exercise its powers and the bank has agreed to amend these contracts and other contracts containing the same terms or terms with a similar effect. The firm has agreed to not rely on the potentially unfair aspects of these two sets of terms in contracts with existing customers. It has changed its standard contract to reflect these changes for new customers from February 2009 and has taken steps to alert existing customers to the changes. (15/01/09) http://www.fsa.gov.uk/pubs/other/undertaking_nab.pdf

FOS: Corporate Plan and 2009/10 Budget FOS has published the above, which consults on FOS's workload forecasts and proposed budget for the financial year 2009/10. It also provides an update on progress with its longer-term corporate plan. It particularly notes the increase in complaints regarding bank charges and PPI. Responses are required by 23 February 2009. (15/01/09) http://www.financial-ombudsman.org.uk/publications/pb09/cpb-09-10.pdf

FSA: Speech by Katherine Webster on FSA's interpretation of the Unfair Terms in Consumer Contracts Regulations 1999 Text of the above, made at the CML's 7th annual legal issues for mortgage lenders conference, follows. Topics include: regulatory context/specific discussion of terms/FSA practice re UTCCR; TCF; unfair terms “myths” and risks posed by unfair terms. (13/01/09) FSA's interpretation of the Unfair Terms in Consumer Contracts Regulations 1999

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13.3A OFT enforcement

OFT: Citifinancial Europe plc OFT has imposed requirements on Citifinancial Europe plc (Citi) after its T&C had wrongly claimed it did not share joint liability for overseas credit card transactions. Under the requirements Citi will invite those consumers who feel they may have been misled, and think they have a claim, to contact them. Following an investigation, OFT found that up until 1 December 2008, Citi had expressly stated in the T&C of several of its credit cards that use of the cards abroad would not be covered by the provisions of s75 CCA. Under the requirements Citi will inform all holders of its credit cards, past or present (since 22 March 2006) about the issue and invite them, if they feel they have been misled by such reference, and if they feel they may have a valid claim, to contact Citi. (23/04/09) http://www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/Requirements2.pdf

OFT: Mackenzie Hall Ltd OFT has taken action against Mackenzie Hall Ltd, a debt collection company, requiring it to improve its practices after an investigation found that some of its business processes failed to meet satisfactory standards. As a result of these requirements, Mackenzie Hall must not: pursue a debt where it has been notified in writing that there is reasonable cause to believe that the debt is in dispute, and pursue a debt where it has been notified in writing that the debt is statute barred. Failure to comply with a requirement could lead to a fine of up to £50,000 and/or possible revocation of Mackenzie Hall's consumer credit licence. (21/04/09) http://www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/requirements.pdf

OFT: Court of Appeal Judgment in Foxtons case on unfair terms In the press release, OFT welcomed a CoA judgment confirming its views on the application of the Unfair Terms in Consumers Contracts Regulations 1999 ahead of a substantive hearing against Foxtons Limited at the end of this month. OFT commenced High Court proceedings against Foxtons in February 2008 seeking an injunction under the UTCCRs preventing the estate agency using terms, considered by the OFT to be unfair, in its lettings agreements with landlords. During the preliminary stages of these proceedings the OFT appealed against a ruling by Mr Justice Morgan which accepted arguments from Foxtons that any injunction on unfair terms could only apply to future contracts, rather than preventing the use or enforcement of unfair terms in existing ones. CoA has now overturned this ruling, stating that the UTCCRs aim to protect consumers, and were of the view that traders should not have the freedom to pursue existing customers without restriction, in correspondence or by litigation, in order to enforce contractual terms that have been found to be unfair. The fairness of the terms in any Foxtons' contract themselves have not yet been considered and this will form the substantive case listed in the High Court during the week commencing 27 April. (2/04/09) The Office of Fair Trading: OFT welcomes Court of Appeal Judgment in Foxtons case on Unfair terms

Consumer Credit Appeals Tribunal Decision: Finance Select (UK) Limited The firm had appealed against the revocation of a consumer credit licence by OFT and this hearing was to ascertain whether or not the notice procedure followed by OFT in seeking to revoke the licence complied with the provisions of CCA 1974. The Decision allowed the firm's appeal, noting "at the time the minded to refuse notice was issued by the Office of Fair Trading on 14 December 2007, the Appellant had been granted a consumer credit licence some two weeks earlier on 30 November 2007. The minded to refuse notice could have had no effect in the circumstances since a licence had already been issued, albeit according to the Office of Fair Trading as a result of the breakdown in the advance marker warning system in respect of its licensing data base. The subsequent erratum notice said to have been given to the Appellant by the Adjudicator at the hearing on 31 January 2008 was not a minded to revoke notice. It purported to update the minded to refuse notice and to change it to a minded to revoke notice. In the Tribunal s view, the erratum notice was 40 incapable in law of having such an effect. The procedure for revocation of a licence under Section 32 of the Act requires the service of a minded to revoke notice. That notice by Section 189 (1) of the Act has to be in writing. The recipient of the notice by Section 34 of the Act then has a period of 21 days to make representations to the Office of Fair Trading". (20/01/09) http://www.consumercreditappeals.tribunals.gov.uk/Documents/decisions/0002_FinanceSelectUK.pdf

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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

Speech by Neelie Kroes: Working together to clear up the banking mess (26 May 2009) Text of the above speech, given in Vienna, follows. She notes: "You should expect that we will be making banks smaller and more focused on core businesses like lending. We have to ensure viability; we will also make transparency a priority; we have to limit the distortions of competition. For banks there is some fundamental soul-searching that needs to be done. Many bank CEOs are not ready for that yet - they are still in denial. But we are not shifting from the need for transparency and change - they will realise that soon. ... Looking beyond competition policy and the immediate crisis, it’s obvious that we need to think more about the regulation of the sector. If we have monetary union and a Single Market it makes sense that we also need a single approach to key elements of banking regulation. I expect these to emerge over the coming months". (27/06/09) EUROPA - Press Releases - Neelie Kroes, European Commissioner for Competition: Working together to clear up the banking mess

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Speech by Neelie Kroes: Competition and regulation in retail banking and payment markets (25 May 2009) Text of a speech made at the ECB-DNB Retail Payments Conference in Frankfurt follows. Topics include: SEPA and MasterCard, Visa and new payment card schemes. (26/05/09) EUROPA - Press Releases - Neelie Kroes European Commissioner for Competition Policy Competition and regulation in retail banking and payment markets ECB-DNB Retail Payments Conference Frankfurt, 25th May 2009

FSA: The costs and benefits of regulation in a market with consumer confusion This paper models theoretically the effect of regulation on a market where consumers are confused about prices. The theory suggests that where entry to the market is very costly, regulation may improve consumer welfare, but in general the effect of regulation is ambiguous; that where firms can freely enter the market, the costs of regulation tend to exceed the benefits in the long run and that it is in consumers’ interest for regulators to raise revenues using levies that are equal per firm rather than proportional to firm output. (7/05/09) http://www.fsa.gov.uk/pubs/occpapers/op33.pdf (NB: over 30 pages long)

HMT: UK international financial services - the future - A report from UK based financial services leaders to the Government HMT has highlighted this report published today by the Financial Services Global Competitiveness Group, co-chaired by Alistair Darling and former Citi Chairman Sir Win Bischoff. The report, which reflects the view of the UK’s financial services leaders, states that the UK’s financial services sector can continue to be a world leader by working as a genuine partner of British business and emerging economies while embracing the need for global regulatory reform. It highlights the contribution of regional financial centres, noting that the majority of financial sector jobs are based outside the City of London, providing employment for hundreds of thousands of workers in regional economies. It also argues that the UK-based industry must seize opportunities to help meet the financial services needs of businesses and citizens in emerging markets, such as China. Alongside regulation, it also highlights the importance of maintaining effective long-term performance in areas such as the UK’s skills base, tax environment, innovation and promotional efforts to ensure that the financial services sector is well positioned to play a role in meeting the future economic opportunities of the UK and global economy. Alistair Darling said today: “next month, we will publish proposals for strengthening the regulation of the financial services industry. Building on that we need to plan for the future. Britain has been a world leader in banking for centuries. Financial services will always be an important part of our own economy, and not just in London. We will all gain from a strong and competitive financial services sector that helps to meet important needs like small business financing, clean energy infrastructure and investment for retirement. And we will also gain from a strengthened financial services sector throughout the world.” (7/05/09) http://www.hm-treasury.gov.uk/d/uk_internationalfinancialservices070509.pdf (NB: over 60 pages long) Report sets out vision for UK financial services sector - HM Treasury (press release)

Competition Appeals Tribunal: Barclays Bank plc CAT has published a ruling on the applications to intervene in the appeal brought by Barclays Bank plc under s179 of the Enterprise Act 2002, seeking review of certain findings of the CC in its final report on the PPI market investigation. It has also published a transcript of the first case management conference and a subsequent order. (5/05/09) http://www.catribunal.org.uk/files/Judg_1109_Barclays_28.04.09.pdf http://www.catribunal.org.uk/files/Tran_1109_Barclays_28.04.09.pdf http://www.catribunal.org.uk/files/Order_1109_Barclays_29.04.09.pdf 121

OFT: Financial services strategy - a consultation document OFT has launched a consultation on its proposed financial services strategy which sets out its approach to the sector in response to the current economic crisis and is asking interested parties to comment on its proposal to focus on two inter-related themes: the prioritisation, in the short term, of promoting fairness and responsibility between the credit industry and consumers, and advocating choice and competition to ensure that public decisions made to deal with the current crisis do not harm competition in the long term to the detriment of consumers. The strategy also announces that OFT is to conduct a review of the unsecured credit market. The consultation will run until 12 June 2009. A final Financial Services Plan, taking account of consultation responses, will be published in July 2009. (7/04/09) http://www.oft.gov.uk/shared_oft/consultations/oft1077con.pdf (NB: over 50 pages long)

EC: Commissioner Kroes takes note of MasterCard's decision to cut cross-border Multilateral Interchange Fees (MIFs) and to repeal recent scheme fee increases Neelie Kroes has indicated that, on the basis of information currently available, she sees no need to pursue MasterCard for non-compliance with a 2007 Commission decision that MasterCard's cross-border MIFs were in breach of EC Treaty rules on restrictive business practices. MasterCard now has decided to apply a new methodology to its MIF for cross-border transactions which will result in a substantially reduced average weighted MIF level compared with that found to be in breach of EU antitrust rules. Following the new methodology, the maximum weighted average MIF per transaction will be reduced to 0.30% for consumer credit cards and to 0.20% for consumer debit cards. Moreover, MasterCard has agreed to withdraw as of July 2009 the increases of its scheme fees imposed in October 2008. Finally, MasterCard has agreed to change its system rules as of July 2009 in order to increase transparency and competition in the payment cards market. Implementation of these changes will be closely monitored in the coming months. (1/04/09) EUROPA - Press Releases - Antitrust: Commissioner Kroes takes note of MasterCard's decision to cut cross-border Multilateral Interchange Fees (MIFs) and to repeal recent scheme fee increases EUROPA - Press Releases - Antitrust: Commissioner Kroes notes MasterCard's decision to cut cross-border Multilateral Interchange Fees (MIFs) and to repeal recent scheme fee increases – frequently asked questions EUROPA - Press Releases - Neelie Kroes, European Commissioner for Competition Policy, MasterCard cuts fees, Introductory remarks at press conference, Brussels, 1, st, April 2009 (Neelie Kroes' remarks in full)

EC: Commission preliminary views on renewal of Insurance Block Exemption Regulation The EC has adopted a report on the functioning of the Insurance Block Exemption Regulation (BER). The BER, which will expire on 31 March 2010, exempts certain agreements between insurance companies from EC Treaty antitrust rules' 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 and the creation of insurance pools. The Report considers, at this stage, that two of the four categories of agreements currently exempted by the BER could be renewed, namely information exchange and insurance pools. A public hearing will take place on 2 June 2009 to allow stakeholders to submit their views orally. The EC will then take a final decision on the future of the BER (24/03/09) EUROPA - Press Releases - Antitrust: Commission preliminary views on renewal of Insurance Block Exemption Regulation EUROPA - Press Releases - Antitrust: review of Insurance Block Exemption Regulation – frequently asked questions

Speech by Neelie Kroes: Time for banks to shoulder their responsibilities (14 March 2009) This is the speech highlighted by the FT in which the competition commissioner, speaking at an event organised by Deutsche Bank in Frankfurt, remarked "In many recent meetings with bank CEOs, I am told their bank is fine, but the other banks have problems. They cannot all be right. So the high levels of transparency we are demanding are essential for determining the full scope of our collective problems and rebuilding trust. Only by fully identifying and correctly valuing the impaired assets can we approve an effective restructure and start again. To protect taxpayers and maintain the level playing field, the public purse will simply not be open to banks who do not want to open their books in return. ... It would be better for banking leaders to take the initiative to restore confidence in the assets they hold. I would be 122

curious to hear the views of Deutsche Bank as to why this is not happening on a large scale. Where is the leadership? Why not create a group of leading European banks and come up with a public statement indicating you trust each other, you are strong and investors should buy your shares?" (16/03/09) EUROPA - Press Releases - Neelie Kroes, European Commissioner for Competition Policy, Time for banks to shoulder their responsibilities , Address at conference organised by Deutsche Bank, Frankfurt, 14, th, March 2009

Speech by Neelie Kroes (Competition Commissioner): The return to long-term viability (19 February 2009) Text of the above, given at the Kangaroo Group Breakfast Debate in the European Parliament, follows. She discusses the banking sector and suggests "banks in the future will certainly be subject to stricter governance. Unsustainable, overleveraged structures will be replaced by simpler, less leveraged, more risk-averse and more transparent forms of banking. Banks will predominantly rely on retail funding, and they will need to focus on their core business". (20/02/09) EUROPA - Press Releases - Neelie Kroes - The return to long-term viability

CC: PPI - final report CC has now published its final report into the PP) market, setting out the measures it has decided are needed to introduce competition between suppliers. It has concluded that businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers. To address the lack of competition, it will be introducing a package of measures to introduce competition in the market: • A prohibition on the sale of PPI by a distributor or intermediary to a customer within seven days of selling credit to that customer. Whilst the distributor or intermediary cannot re-contact the customer for seven days, customers will be able to contact the distributor or intermediary and purchase a PPI policy on their own initiative from 24 hours after the credit sale. • Distributors and intermediaries will be required to provide a personal PPI quote, which will clearly state the cost of the PPI policy individually and when added to the credit product. If this is not given at the point of sale, the credit provider must provide it if they subsequently contact the customer to offer PPI. The seven-day prohibition period starts from the later of the conclusion of the credit sale or the date on which the personal PPI quote is provided to the customer. • A prohibition on the selling of single-premium PPI policies, whose rebate terms act as a barrier to consumers switching while the prices of these policies are unduly difficult to compare with other PPI policies. Premiums can be charged monthly or annually-if an annual premium is charged and the customer decides to terminate the policy, then a pro-rata rebate must be reimbursed. No separate charges can be levied on a customer for administration or other costs arising from the set-up or early termination of a PPI policy. • A requirement on all PPI providers to provide certain information and messages in PPI marketing material (including the price of their PPI, expressed in a common format of monthly cost per £100 of monthly benefit, and that PPI is optional and available from other providers). • A requirement on all PPI providers to provide certain information on PPI policies to FSA and a recommendation to FSA that it uses this information for its PPI price comparison tables. Providers will also be required to supply information to OFT for the purpose of monitoring the remedies package and to provide information about their claims ratios to any person on request. • A requirement on all PPI providers to provide an annual statement for PPI customers, including information similar to that provided in the personal quote, to encourage customers to review their policy annually and make it easier for customers to decide whether to switch. • Where distributors of retail PPI offer an insurance package containing PPI and merchandise cover, they must also offer, as a separate item, PPI cover alone. CC expects that the measures will come into force during 2010, with the information remedies in place by April 2010 and other measures by October 2010, each to coincide with Government common commencement dates for new legislation and regulation. (29/01/09) http://www.competition- commission.org.uk/press_rel/2009/jan/pdf/04-09.pdf http://www.competition- commission.org.uk/rep_pub/reports/2009/fulltext/542.pdf (NB: over 300 pages long)

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13.4A State aid clearances

Chronological Reports

EC: Commission temporarily approves recapitalisation and asset relief by Belgium for KBC Group The EC has temporarily approved, under EC Treaty state aid rules, a package of measures that the Belgian authorities intend to grant to KBC Group N.V. First, the Commission authorised a recapitalisation amounting to €3.5 billion, which is in line with its Guidance Communications on state aid during the current financial crisis. Second, it has granted temporary clearance to the impaired asset relief, with final approval dependent on the result of an in-depth investigation. Whilst some of its provisions are in line with EC guidance on the treatment of asset relief measures, other provisions (including valuation of the portfolio) require further in-depth analysis before a final decision can be taken. Both measures were approved for six months on condition that Belgium submits to the EC an in-depth restructuring plan for KBC Group within 3 months. (30/06/09) EUROPA - Press Releases - State aid: Commission temporarily approves recapitalisation and asset relief by Belgium for KBC Group

EC: Commission temporarily authorises recapitalisation and asset relief for German bank LBBW The EC has granted temporary clearance to a recapitalisation and an asset relief measure provided to Landesbank Baden-W ürttemberg by the German State of Baden-W ürttemberg. The recapitalisation complies with the requirements set out in the EC's communication on the recapitalisation of financial institutions, because it foresees an adequate remuneration. However, it has doubts whether the asset relief measure can be considered fully in line with its guidance on asset relief and will undertake a further in- depth analysis of the complex valuation of the impaired assets before taking a final decision. Both measures have been approved for six months. (30/06/09) EUROPA - Press Releases - State aid: Commission temporarily authorises recapitalisation and asset relief for German bank LBBW

EC: State aid - 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. (29/06/09) EUROPA - Press Releases - State aid: Overview of national measures adopted as a response to the financial/economic crisis

EC: Commission approves prolongation of Italian bank guarantee scheme The EC has authorised, under EC Treaty state aid rules, the prolongation of an Italian guarantee scheme for banks. It found the prolongation of the measures, initially approved on 13 November 2008, to be in line with its Communication on state aid to overcome the financial crisis. In particular, the extended measures are limited in time and scope. They are therefore compatible with Article 87.3.b of the EC Treaty that allows aid to remedy a serious disturbance in the economy of a Member State. (16/06/09) EUROPA - Press Releases - State aid: Commission approves prolongation of Italian bank guarantee scheme

EC: Commission endorses rescue aid for German HSH Nordbank The EC has endorsed, under EC Treaty state aid rules, a €3 billion recapitalisation and €10 billion risk shield for the German bank HSH Nordbank. Germany notified the measures as urgent rescue aid to preserve financial stability. The EC authorised the measures as temporary rescue aid because they constitute an adequate means to rescue a bank whose failure would have been likely to provoke a serious disturbance in the German financial sector. Within three months, Germany has to submit a viable plan for the future of HSH Nordbank. (1/06/09) EUROPA - Press Releases - State aid: Commission endorses rescue aid for German HSH Nordbank

EC: State aid The EC has updated its overview of national measures adopted as a response to the financial/economic crisis. In addition, EC has approved, under EC Treaty state aid rules, rescue aid that the Danish authorities have granted to Fionia Bank. The aid is in the form of a credit facility of up to €685 million (DKK 5.1 billion) and a €134 million (DKK 1 billion) capital injection to bring the level of solvency up 124

to a constant 11.5%. It has also approved, under EC Treaty state aid rules, a Portuguese bank recapitalisation scheme intended to bolster financing of the real economy. (20/05/09) EUROPA - Press Releases - State aid: Overview of national measures adopted as a response to the financial/economic crisis EUROPA - Press Releases - State aid: Commission approves Danish rescue aid for Fionia Bank EUROPA - Press Releases - State aid: Commission approves Portuguese bank recapitalisation scheme to boost real economy

EC: Commission approves proposed acquisition of Hypo Real Estate by Germany's Financial Market Stabilisation Fund The EC has approved under the EU Merger Regulation the acquisition of German financial institution Hypo Real Estate AG by Germany's state-owned Financial Market Stabilisation Fund. The EC concluded that the transaction would not significantly impede effective competition in the EEA or any substantial part of it. It is noted that this is the first time in the current financial crisis that a bank nationalisation has been notified to the EC under the EU Merger Regulation. (15/05/09) EUROPA - Press Releases - Mergers: Commission approves proposed acquisition of Hypo Real Estate by Germany's Financial Market Stabilisation Fund

EC: Commission approves recapitalisation of Allied Irish Bank The EC has approved, under EC Treaty state aid rules, an emergency recapitalisation worth €3.5 billion that the Irish authorities intend to grant to Allied Irish Bank. It found the measure to be in line with its Guidance Communications on state aid during the current financial crisis. (12/05/09) EUROPA - Press Releases - State aid: Commission approves recapitalisation of Allied Irish Bank

EC: Commission approves additional aid measures from Belgium and Luxemburg for Fortis The EC has approved, under EC Treaty state aid rules, additional aid measures from the Belgian and Luxembourg States stemming from amendments of the agreement between Fortis Holding, BNP Paribas, Fortis Bank and the Belgian and Luxemburg authorities. It found that the measures in favour of Fortis Bank and Fortis Holding were limited to the minimum necessary to reach their goal and were, as such, compatible with Article 87.3.b of the EC Treaty, that allows aid to remedy a serious disturbance in the economy of a Member State. (12/05/09) EUROPA - Press Releases - State aid: Commission approves additional aid measures from Belgium and Luxemburg for Fortis

EC: Commission approves aid package for German bank WestLB The EC has approved, under EC Treaty state aid rules, the €5 billion risk shield for German bank WestLB and accompanying measures, following an in-depth investigation opened in October 2008. The risk shield was authorised by the EC as temporary rescue aid on 30 April 2008. Germany asked for a prolongation of the measure, together with accompanying measures. In light of the far-reaching measures to be implemented to restore WestLB's long-term viability without undue distortions of competition, the EC concluded that the aid was compatible with the Single Market. In particular, WestLB will refocus on less risky activities and reduce its size by half. (12/05/09) EUROPA - Press Releases - State aid: Commission approves aid package for German bank WestLB

EC: Commission opens in-depth investigation into aid package for German Landesbank BayernLB and its Austrian subsidiary Hypo Group Alpe Adria The EC has opened under EC Treaty state aid rules an in-depth investigation into state support measures for German Landesbank BayernLB and its Austrian subsidiary Hypo Group Alpe Adria (HGAA). BayernLB obtained rescue aid in the form of a capital injection of €10 billion and a risk shield of €4.8 billion, endorsed by the EC on 18 December 2008 and HGAA received €0.7 billion capital injection from BayernLB. In addition, HGAA received a €0.9 billion capital injection from Austria on the basis of the Austrian banking emergency rescue scheme, approved by the EC in December 2008. (12/05/09) EUROPA - Press Releases - State aid: Commission opens in-depth investigation into aid package for German Landesbank BayernLB and its Austrian subsidiary Hypo Group Alpe Adria

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Speech by Neelie Kroes: State aid decisions on Landesbanken (12 May 2009) Neelie Kroes discusses the measures taken in respect of the above Landesbanken. (12/05/09) EUROPA - Press Releases - Neelie Kroes, European Commissioner for Competition Policy, State aid decisions on Landesbanken, Opening remarks at press conference, Brussels, 12, th, May 2009

EC: Commission approves extension of French scheme for refinancing credit institutions In accordance with the state aid rules of the EC Treaty, the EC has authorised the extension of the refinancing scheme for credit institutions in France. It found the extension of the measures, initially approved on 31 October 2008, to be in line with its Communication on state aid to overcome the financial crisis. (12/05/09) EUROPA - Press Releases - State aid: Commission approves extension of French scheme for refinancing credit institutions

EC: Commission approves amendments to Latvian support for JSC Parex Banka The EC has approved, under EC Treaty state aid rules, amendments to the original recapitalisation measure (Tier 2 capital) of the Latvian JSC Parex Banka, initially approved on 24 November 2008. Under the proposed changes, Latvia would acquire newly issued ordinary shares and subordinated term debt. (11/05/09) EUROPA - Press Releases - State aid: Commission approves amendments to Latvian support for JSC Parex Banka

EC: Commission approves recapitalisation of Commerzbank The EC has approved under EC Treaty state aid rules the recapitalisation of Commerzbank. On the basis of the German financial crisis scheme, Germany already granted €8 billion of capital to the bank in December 2008 and intends to grant another €10 billion of capital. Germany notified this second tranche to the Commission for reasons of legal certainty so that the EC could verify the compatibility of the measure with state aid rules. On the basis of the notified plans, the EC is satisfied that Commerzbank's long term viability has been demonstrated, and that the aid is kept to the minimum and will not lead to undue distortions of competition. It has therefore declared the aid compatible. (7/05/09) EUROPA - Press Releases - State aid: Commission approves recapitalisation of Commerzbank

EC: Commission opens in-depth investigation into aid package for German bank Hypo Real Estate The EC has opened under EC Treaty State aid rules an in-depth investigation into state support measures for Hypo Real Estate. This is a first step towards finding a viable long-term solution, in close contact with the German authorities. Hypo Real Estate Holding AG (HRE) obtained rescue aid in the form of a state guarantee of €35 billion, endorsed by the EC on 2 October 2008. Because this measure continues to be necessary for the bank to ensure its financing, Germany has notified a prolongation of the guarantee together with accompanying measures for HRE. The opening of an investigation is common for state interventions of this magnitude and will ensure legal certainty for the companies concerned. It also gives interested parties the possibility to submit their comments. It does not prejudge the outcome of the procedure. (7/05/09) EUROPA - Press Releases - State aid: Commission opens in-depth investigation into aid package for German bank Hypo Real Estate

EC: Commission extends in-depth investigation into UK aid package for Northern Rock The EC has extended the scope of its in-depth investigation under EC Treaty state aid rules, launched on 2 April 2008, into a UK aid package for Northern Rock, following substantial amendments notified on 30 March 2009. The main change introduced is the split of Northern Rock into a 'good' bank, which would continue commercial activities, and a 'bad' bank with most of the previous mortgage loans, which would be wound down. The EC has to examine whether the changes will enable Northern Rock to return to long-term viability while avoiding undue distortions of competition. The extension of the in-depth investigation gives interested parties the possibility to comment on the proposed measures; it does not prejudge the outcome. It notes that not all details of the plan have been communicated to the EC and today's decision requests further information from the UK authorities. The decision also invites third parties to comment on whether the plan's proposals for avoiding undue distortions of competition are adequate and that the text of today's decision, with any confidential information excised, will be published in due course in the EU's Official Journal. (7/05/09) EUROPA - Press Releases - State aid: Commission extends in-depth investigation into UK aid package for Northern Rock 126

EC: Commission approves prolongation of Finnish support scheme for financial institutions The EC has approved under EC Treaty state aid rules a prolongation of the Finnish support scheme to stabilise financial markets by providing guarantees to eligible financial institutions. It found the measure, initially approved on 13 November 2008, to be in line with its Guidance Communication on state aid to overcome the financial crisis. In particular, the measure as amended is limited in time and scope. The EC therefore concluded that the measure is an adequate means to remedy a serious disturbance of the Finnish economy and as such in line with Article 87.3.b of the EC Treaty. (30/04/09) EUROPA - Press Releases - State aid: Commission approves prolongation of Finnish support scheme for financial institutions

HMT: State aid approval for the UK’s three tax-based venture capital schemes/EC: Commission approves three UK fiscal venture capital schemes The EC has approved, under EC Treaty state aid rules, three UK fiscal venture capital schemes: Enterprise Investment Scheme, Venture Capital Trusts and Corporate Venturing Scheme. The schemes form part of the UK's measures to support access to finance to SMEs and provide tax incentives to individual and corporate investors to encourage their investments in unquoted SMEs. HMT notes that legislation implementing changes required by the approval will be introduced in Finance Bill 2010, to provide time for consultation with industry over the detail. (29/04/09) State aid approval for the UK’s three tax-based venture capital schemes - HM Treasury EUROPA - Press Releases - State aid: Commission approves three UK fiscal venture capital schemes

EC: Commission adopts Simplification Package to accelerate state aid decisions The EC has adopted a Simplification Package for state aid with a Best Practice Code and a Simplified Procedure Notice. (29/04/09) EUROPA - Press Releases - State aid: Commission adopts Simplification Package to accelerate state aid decisions EUROPA - Press Releases - State aid: Commission adopts Best Practices Code and Simplified Procedure to accelerate state aid decisions – frequently asked questions

EC: Commission approves amendments to Swedish bank guarantee The EC has approved under EC Treaty state aid rules a package of amendments to the Swedish state guarantee scheme for financial institutions, initially approved on 30 October 2008 and 29 January 2009. The changes concern the prolongation of the scheme's validity until 31 October 2009 and the extension of its scope. The EC found that the amendments were in line with its guidance on state aid to banks during the crisis. (28/04/09) EUROPA - Press Releases - State aid: Commission approves amendments to Swedish bank guarantee

EC: Overview of national measures adopted as a response to the financial and economic crisis The EC has updated its table showing, on a country-by-country basis, an overview of bank guarantee schemes. (22/04/09) EUROPA - Press Releases - State aid: Overview of national measures adopted as a response to the financial and economic crisis

EC: Commission approves UK Asset-Backed Securities Guarantee Scheme The EC has approved, under EC Treaty state aid rules, the UK's Asset-Backed Securities Guarantee Scheme. It found that current conditions on the financial markets justify the scheme, which aims at facilitating banks to acquire liquidity and underpin lending to the UK real economy. (22/04/09) EUROPA - Press Releases - State aid: Commission approves UK Asset-Backed Securities Guarantee Scheme

EC: Commission approves UK Homeowners Mortgage Support Scheme to help households affected by financial downturn The EC has approved under EC Treaty state aid rules the UK Homeowners Mortgage Support Scheme, which is aimed at reducing the level of home repossessions that are likely to occur as a result of the current economic downturn. It will allow households that are unable to meet their mortgage repayments following a temporary drop of income, which could be linked to crisis-related unemployment, to defer all of their principal and up to 70% of their interest repayments for a period of up to 2 years. In return, the UK will provide the lender with a guarantee on part of the deferred interest. The EC concluded that this 127

UK support measure is compatible with Article 87.2.a of the EC Treaty. (20/04/09) EUROPA - Press Releases - State aid: Commission approves UK Homeowners Mortgage Support Scheme to help households affected by financial downturn

EC - State aid: Scorecard reviewing Member States Action to fight the economic crisis This special edition of the State Aid Scoreboard focuses on measures adopted by Member States and reviewed and coordinated by the EC in the current financial and economic crisis. (8/04/09) EUROPA - Press Releases - State aid: latest Scoreboard reviews Member States' action to fight economic crisis EUROPA - Press Releases - State aid: latest Scoreboard - Commission's role in the financial and economic crisis – frequently asked questions

EC: Commission opens in-depth investigation into alleged aids to Fortis Bank Nederland and Dutch activities of ABN Amro The EC has opened an in-depth investigation to establish whether state measures in favour of Fortis Bank Nederland and the activities of ABN Amro which were acquired by Fortis are in line with EU state aid rules. The EC has reason to believe that the measures may not be in line with its Communications on state aid to banks during the crisis. (8/04/09) EUROPA - Press Releases - State aid: Commission opens in- depth investigation into alleged aids to Fortis Bank Nederland and Dutch activities of ABN Amro

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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

Co-operative and Community Benefit Societies and Credit Unions Bill A Bill to make provision for societies to be registered as co-operative or community benefit societies and to re-name the Industrial and Provident Societies Acts; to apply to registered societies the provisions relating to directors’ disqualification and to make provision for the application of certain other enactments relating to companies; to confer power to make provision for credit unions corresponding to any provision applying to building societies; and for connected purposes. (22/06/09) http://www.publications.parliament.uk/pa/ld200809/ldbills/053/2009053.pdf http://www.publications.parliament.uk/pa/ld200809/ldbills/053/en/2009053en.pdf (Explanatory Notes)

FSA: Statement on profit participating deferred shares Following today’s announcement by West Bromwich Building Society about its use of profit participating deferred shares (PPDS) this statement sets out how PPDS will be treated for capital purposes by FSA. PPDS will take the legal form of a deferred share similar to the PIBS currently issued by societies, but instead of paying a fixed coupon it may pay up to a fixed percentage of profits as a dividend on a fully discretionary basis. Dividends may only be paid where a society makes a profit. If the society makes a loss, the share allocated to the PPDS is, first, set off against any positive balance on the PPDS reserve account (into which undistributed profits are allocated) and, secondly, applied to reduce the principal value of the PPDS. If the principal value has been reduced and is less than the initial principal value of the PPDS, the PPDS’ share of profit must first be applied to building up the principal value until it has been restored to its original amount before dividends on the PPDS can be declared. Dividends on the PPDS are not cumulative. The PPDS will not be protected deposits for the purposes of FSCS. FSA has determined that in principle PPDS are capable of core tier 1 treatment. The exchange of subordinated debt, which is classified as Tier 2 capital, for a core tier 1 instrument will improve the resilience of the firm to a severe stress. The increased loss absorbency of the PPDS will improve the quality of building society capital and its going concern loss absorbency. The PPDS demonstrably absorb losses on a going concern basis by their write down feature. FSA suggests that other building societies should consider whether PPDS could be useful for their own capital management. (12/06/09) FSA statement on profit participating deferred shares

The Building Societies (Accounts and Related Provisions) (Amendment) Regulations 2009/1391 (previously reported on when in draft) Section 2 of the Dormant Bank and Building Society Accounts Act 2008 (c.31) enables certain smaller banks and building societies to transfer part of the balance of a dormant account to a local charity or one with which the institution has a special connection. These Regulations amend the Building Societies (Accounts and Related Provisions) Regulations 1998 (S.I. 1998/504) to require a building society which makes a transfer to identify in the directors’ report those charities to which a transfer has been made and the amounts transferred to such charities. (Date in force: 13/7/09) (11/06/09) The Building Societies (Accounts and Related Provisions) (Amendment) Regulations 2009 No. 1391

CP09/17**: A Specialist Sourcebook for Building Societies: Enhanced supervisory guidance on financial and credit risk management This CP proposes guidance on the systems and controls which FSA believes are appropriate for a variety of levels of sophistication within building society business models. The guidance is structured as five basic classifications for treasury management and three for lending. This builds on existing (although

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interim) Handbook guidance on financial risk management, to make more explicit FSA's expectations of building societies’ business and operations. FSA will ask each society proactively to review its financial risk management self-classification against the amended criteria and consider the implications in relation to its liquidity and wholesale funding models. They will similarly self-classify their existing lending model against the new categories and compare their risk management. Societies that demonstrate the necessary risk management systems and skills will have complete flexibility to run their business within the statutory limits set by the Building Societies Act. Those which cannot, FSA will steer to a simpler business model category and activities they can safely undertake processes to its expectations. Supervisors will, as now, consider as part of the supervisory process whether they are convinced that each society has the management skills, systems and controls consistent with its self-assessment and preferred categorisation. The supervisor could either accept the categorisation, or require the firm to improve its systems and controls first. If a society wishes at a future date to move to a higher categorisation, the published guidance will help it to understand what additional systems and controls. FSA will expect it to put in place to manage the extra activities. When FSA's new liquidity regime for banks and building societies is implemented, it will delete significant sections of IPRU BSOC, will rationalise the material that remains, and combine it with this new material in a new specialist sourcebook, which will make the key material more easily accessible to societies. The consultation closes on 5 September 2009. (5/06/09) http://www.fsa.gov.uk/pubs/cp/cp09_17.pdf (NB: over 90 pages long)

FSA: Building society statistics FSA has published building society statistics for 2008 and a set of 13 tables follows, similar in scope, coverage and level of detail to the tables published in May 2008, are available via the following link. (4/06/09) Building Society Statistics

BSA: Speech by Chairman to Annual Conference Text of John Goodfellow's speech follows. He discusses the past year for the building society sector, the "underlying strength" of building societies and challenges the sector faces. He notes "the potential for unfair competition from the nationalised banks. We need framework agreements in place similar to that governing Northern Rock", argues that the sector needs a different funding mechanism for future contributions to FSCS; urges FSA to consider "a more balanced solution ... on the liquidity issue - current and likely future regulatory requirements go too far on quality and amount of liquidity, and not far enough in recognizing the impact of this policy on earnings capability" and "a more sensible balance between TCF and prudential requirements". Some TCF requirements can prevent sensible prudential improvements being put in place". (21/05/09) http://www.bsa.org.uk/docs/presspdfs/chairman_speech_2009.doc

FSA: Letter from Adair Turner to Vince Cable Further to the recent FT reports on allegations passed to Vince Cable by an ex-FSA staff member, FSA has published Adair Turner's response to Vince Cable's letter. He says "your principal point is to raise the issue of whether there are other building society issues of which the FSA is unaware. It is not our practice, for obvious reasons, to comment on individual institutions. But as a general point, the building society sector has been subject to increased intensity of supervision since the autumn 2007 and we believe we have a thorough understanding of their circumstances. In particular, as our letter relating to Dunfermline explains, we subjected the building societies to severe stress tests as a condition of eligibility to the Government’s Credit Guarantee Scheme. These stress tests evaluated whether the societies have adequate capital to absorb the significant losses which might arise, in different categories of lending, in a severe economic downturn. All of the rated building societies other than the Dunfermline passed the stress tests. The names of these societies can be found on the relevant website. As to your point about the issue of the ‘climate of fear’ at the FSA, I can assure you, and I believe we have demonstrated, that the FSA prides itself on its ability to learn and listen to all reasoned views". (20/04/09) http://www.fsa.gov.uk/pubs/other/letter_Dunfermline.pdf

FSA: FSA's supervisory approach to Dunfermline Building Society FSA has published the text of a letter dated 17 April 2009 from Adair Turner to Alistair Darling, setting key points in the development of problems at Dunfermline Building Society, and FSA’s supervisory 130

approach, including: the evolution of building society freedoms to conduct different types of business; the chronology of Dunfermline’s diversification into the problem loan categories; the chronology of FSA’s general warnings to the building society sector about the importance of maintaining the quality of their loan books and risk controls; FSA’s response to emerging problems of Dunfermline over the last 18 months and the possible implications for future regulatory and supervisory approaches. It is noted that FSA is working on a general code of practice for building societies, which it plans to issue by July 2009. (17/04/09) http://www.fsa.gov.uk/pubs/other/response_Dunfermline.pdf

FSA: Presbyterian Mutual Society FSA has issued a statement in which it says it has investigated the activities of Presbyterian Mutual Society, now in administration, to consider if it was conducting regulated activities without the necessary authorisation or exemption and concluded that it was, but on the basis of the information currently available to it, and applying the criteria in the Code for Crown Prosecutors, decided that it would not be right to take a case against any of those involved in running the PMS. It adds that FSA remains in touch with the administrator and, if further information comes to light relating to the issues FSA has investigated, it will look into it. (9/04/09) Presbyterian Mutual Society

Co-operative and Community Benefit Societies and Credit Unions Bill A Bill to make provision for societies to be registered as co-operative or community benefit societies and to re-name the Industrial and Provident Societies Acts; to apply to registered societies the provisions relating to directors’ disqualification and to make provision for the application of certain other enactments relating to companies; to confer power to make provision for credit unions corresponding to any provision applying to building societies; and for connected purposes. (6/04/09) http://www.publications.parliament.uk/pa/cm200809/cmbills/014/2009014.pdf http://www.publications.parliament.uk/pa/cm200809/cmbills/014/en/2009014en.pdf (Explanatory Notes)

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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

IOSCO: Disclosure principles for public offerings and listings of asset-backed securities IOSCO has published this consultation paper, which sets out preliminary recommendations for disclosure principles for asset-backed securities for consideration and analysis by securities regulators. Responses are required by 10 August 2009. (30/06/09) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD296.pdf

CEBS: Assessment of banks’ Pillar 3 disclosures The analysis of Pillar 3 disclosures made by the CEBS on 25 banks highlights the fact that banks have made a huge effort to provide market participants with information, allowing a better assessment of their risk profile and their capital adequacy. Banks have notably heightened the level of quantitative and qualitative disclosures on their credit risk and securitisations activities. However, CEBS has identified some areas in which disclosures could be enhanced, namely, the composition and characteristics of own funds; the back-testing information for credit risk and market risk, the quantitative information on credit risk mitigations and counterparty credit risk; and the granularity of information on securitisations. CEBS does not currently envisage issuing guidance in the area of Pillar 3 disclosures but intends to foster further convergence of Pillar 3 disclosure practices through liaison with the industry. For this purpose an open meeting is foreseen to be held in early autumn 2009. (25/06/09) http://www.c-ebs.org/getdoc/6efe3a55- b5c5-4f73-a6af-a7b24177e773/CEBS-2009-134-Final-published-(Transparency-assess.aspx

FSA: Disclosure of CFDs - Q&A - version 2 This new version of the Q&As includes a new Q&A 16 in respect of underwriting and a new Q&A 19 in respect of the treatment of rights/entitlements. The other Q&As are unchanged. (12/06/09) http://www.fsa.gov.uk/pubs/ukla/disclosure.pdf

AIC: Further guidance on the Disclosure and Transparency Rules AIC has updated its September 2008 guidance, which is in a Q&A format, on DTR. (22/05/09) http://www.theaic.co.uk/Documents/Technical/AICDTRQandASept2008.pdf

The Companies (Shareholders’ Rights) Regulations 2009 (Draft) BERR has published a marked up version of the above SI, issued in response to feedback to the consultation on implementing the Shareholders' Rights Directive. The legislation is intended to come into force on 3 August 2009. (22/05/09) http://www.berr.gov.uk/files/file51502.pdf

FSA: List! (Issue 21) Topics include: property valuation reports; timetables in relation to investment trust rollovers; risk factors under the Prospectus Rules; transferring officially-listed securities from a regulated market to an MTF; principles for sponsors in relation to conflicts; forthcoming initiatives in relation to compensatory open offers and accelerated rights issues; segmentation and labelling of officially-listed securities and the results of an interim management statements review. (21/05/09) http://www.fsa.gov.uk/pubs/ukla/list_may09.pdf

CESR: Transparency Directive FAQ CESR has published this document covering common positions agreed by CESR Members. (19/05/09) [CESR] - Document

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UKLA Update (March 2009) This short document covers the dissemination of information in Annual Financial Reports. FSA notes that it has received some queries on various aspects of the production and announcement of the Annual Financial Report as required by the DTRs and provides clarification on how FSA interpret these requirements. (31/03/09) http://www.fsa.gov.uk/pubs/ukla/ukla_update3.pdf

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16 Business as usual (inc money-laundering and bribery)

Chronological Reports

FSA: Review of outdoor financial promotions FSA has carried out a review of outdoor financial promotions (eg. billboards and ads on trains etc) to assess their level of compliance with financial promotions rules and guidance. FSA says it was generally satisfied with the promotions it reviewed, but notes that some firms appeared to have difficulty in determining whether promotions (particularly for investment products) were exempt from the detailed financial promotion rules; firms did not always provide the capital-at-risk or past performance risk warnings that were required to ensure their outdoor promotions were compliant and some firms marketing high-risk products assumed a relatively sophisticated target audience for their promotions. The item includes examples of good and bad practice. FSA is writing to the firms which gave it cause for concern and emphasises that it expects firms to review their outdoor financial promotions practices. (22/06/09) Outdoor financial promotions

Handbook Notice 89/FSA Instruments On 25 June, the FSA Board made changes to the Handbook in four instruments which: • permits firms to pay fees by credit or debit cards when submitting applications to vary their Part IV permission (Fees (Electronic Payments) Instrument 2009/32 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_32.pdf ; • brings forward the date for submission of data by insurance firms on their business in other EEA Member States (Interim Prudential Sourcebook for Insurers (Other EEA States Insurance Statistics Amendment) Instrument 2009/33 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_33.pdf ); • clarifies the rules, forms and guidance for the regulatory returns (Integrated Regulatory Reporting (Amendment No 5) Instrument 2009/34 http://fsahandbook.info/FSA/handbook/LI/2009/2009_34.pdf (NB: over 50 pages long) ;and • extends the short selling disclosure provisions regarding disclosure of net short positions greater than 0.25% in UK financial sector companies (Short Selling (No 6) Instrument 2009/35 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_35.pdf . (30/06/09) http://www.fsa.gov.uk/pubs/handbook/hb_notice89.pdf

OFT: Anti-money laundering enforcement principles The enforcement principles set out in this document are tailored to the supervisory functions that OFT has been given under the MLR. These principles will be reviewed regularly, at least on an annual basis. (22/06/09) http://www.oft.gov.uk/shared_oft/business_leaflets/general/oft1094.pdf

Transparency International UK: Combating money laundering and recovering looted gains This report argues that "at every stage of the process of AML and AR [asset recovery] there is a multiplicity of UK agencies involved but none has overall responsibility. International cooperation appears to be frustrated at times because some foreign governments are apparently unable to access the right UK authorities for help with investigations and AR. Often this is because of a lack of understanding of UK processes. What is needed is a more coordinated proactive approach that: makes the best use of the powers the UK has; strengthens the identification and monitoring of Politically Exposed Persons (PEPs); ensures AML obligations are implemented consistently and effectively across different institutions; identifies the countries that need help with investigations and AR; strengthens the UK Central Authority’s (UKCA) capacity to respond quickly and helpfully to requests for assistance; and removes obstacles that impede criminal and civil processes for AR". (12/06/09) http://www.transparency.org.uk/reports/AML_report09.pdf (NB: 80 pages long)

ICO: Privacy notices code of practice ICO has launched this new code of practice intended to help organisations provide more user-friendly privacy and marketing notices. In its accompanying press release, (second link below), ICO notes that it had called for an overhaul of privacy notices after consumer research revealed that half of consumers do

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not understand what they are signing up to when they fill in online and paper forms and that "too many companies baffle customers with lengthy and unnecessary legalese" (12/06/09) http://www.ico.gov.uk/upload/documents/library/data_protection/detailed_specialist_guides/privacy_noti ces_cop_final.pdf http://www.ico.gov.uk/upload/documents/pressreleases/2009/privacy_notices_cop_press_release_final.pd f

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2009/1389 (previously reported on when in draft) This Order amends the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) so as to specify as regulated activities for the purposes of the Financial Services and Markets Act 2000 (c. 8) (“FSMA”) the activities of reclaim funds in meeting repayment claims and managing dormant account money. The matters with respect to which regulated activities may be specified include the activities of a reclaim fund (paragraph 9A of Schedule 2 to FSMA, inserted by the Dormant Bank and Building Society Accounts Act 2008 (c.31)) (Date in force: 13/7/09) (10/06/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091389_en.pdf

The Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) (Amendment) Regulations 2009/1390 The Dormant Bank and Building Society Accounts Act 2008 (c.31) amends Part 7 of the Financial Services and Markets Act 2000 (c.8) to enable a reclaim fund to transfer its business to another FSA authorised reclaim fund with the approval of the court. Regulation 2 of these Regulations amends the Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001 (S.I. 2001/3625) to extend regulations 5 and 6 (which concern the giving of notices prior to the determination of an application) to a reclaim fund’s application to transfer its business. http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091390_en.pdf (Date in force: 13/7/09) (10/06/09)

BIS/BERR: Government response to the consultation on extending the coverage of the regulators' compliance code and the principles of good regulation Section 6, Application to Anti Money Laundering Supervisors, may be of particular interest - the Government intends to extend the application of the code and the principles to HMRC and other AML supervisors in relation to the exercise of their anti-money laundering functions. (5/06/09) http://www.berr.gov.uk/files/file51591.pdf (NB: over 30 pages long)

FSA: Complaints Commissioner report GE-L0998 The complainant raised concerns over a specified unnamed firm over its decision to start stock lending, saying that FSA should "cease to support, and withdraw support for stock lending by investment companies dealing with private citizens". The Commissioner did not uphold the complaint, saying that the complainant had failed to demonstrate any statutory failing by FSA nor how he had been disadvantaged by stock lending. (4/06/09) http://www.fscc.gov.uk/documents/final/GE-L0998.pdf

FSA: Complaints Commissioner report GE-L0990 The complainant alleged that FSA did not adequately protect policyholders when closed funds were bought out by companies (a specified unnamed firm was cited). The Commissioner did not uphold the complaint in respect of FSA's regulation of the firm in question, but regrets an "inconsistent approach" in some of FSA's correspondence with the complainant. FSA notes in its response that "in our early correspondence with complainants we always set out our understanding of the complaint, and request that the complainant inform us if our understanding is wrong. While we also note the Commissioner’s concerns about how that process worked in this particular case, we followed our usual practice and, although we had lengthy correspondence with the complainant, we were not informed that our understanding was incorrect". (4/06/09) http://www.fscc.gov.uk/documents/final/GE-L0990.pdf http://www.fsa.gov.uk/pubs/complaints/complaint_fsa_gel0990.pdf

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FSA: PS09/9: Regulating sale and rent back: an interim regime - Feedback on CP09/6 and near- final rules HMT: Regulating the sale and rent back market: summary of responses to consultation HMT has published the responses to its consultation, noting that the Government will lay before Parliament secondary legislation to bring activities relating to sale and rent back agreements into FSA regulation (see yesterday's update for this); subject to Parliamentary approval, FSA will commence its interim regime for the sale and rent back on 1 July 2009. Simultaneously, FSA has published a PS and "near final" rules which it aims to introduce on 1 July 2009. It explains that FSA is taking a two stage approach to regulating this market. An interim regime will be brought in as soon as any statutory changes come into force (expected on 1 July) in order to address the most immediate problems for consumers, followed by a more comprehensive regime which will start on 30 June 2010. Under the interim regime firms will need to meet FSA threshold conditions including the requirement to have adequate resources and to be run by fit and proper people. Firms will also have to comply with the Principles for Businesses and meet a number of systems and controls and conduct of business rules. Firms that are currently unauthorised and that intend to carry on any of the new SRB regulated activities after the commencement of the interim regime will need to apply for interim permission. Similarly, firms that are currently authorised for other activities will need to apply for interim variation of permission. Firms are encouraged to start preparing now for authorisation and to apply as soon as the interim regime starts. (3/06/09) http://www.fsa.gov.uk/pubs/policy/ps09_09.pdf (NB: over 60 pages long) http://www.hm-treasury.gov.uk/d/consultsalerent_response020609.pdf (NB: over 40 pages long)

ICO Decision Notice: FSA The complainant had made a freedom of information request to FSA for any information it holds in relation to any concerns it may have regarding the management of the Leeds City Credit Union. FSA refused to confirm or deny if it held the requested information by relying on s31(3) (Law enforcement) and s43(3)(Commercial Interests) FOIA and concluded that the public interest favoured maintaining the exclusion of the duty to confirm or deny. The public authority also applied s40(5) (Personal information) but only after the Commissioner had commenced his investigation. The Commissioner has investigated the complaint and has found that s31(3), s43(3) and s40(5) are not engaged. Therefore he has found that FSA breached s1(1)(a) by failing to confirm or deny if the information was held and s10 by failing to confirm or deny if he information was held within 20 working days. In its handling of the request the Commissioner found that FSA also breached s17(1), 17(1)(b) and 17(1)(c) (refusal of a request). It is noted that at the internal review stage FSA set out the arguments it had taken into account when considering the public interest test, but did not explicitly state which arguments applied to which exemption. The Commissioner stresses that he expects public authorities to consider the public interest inherent to each exemption and no aggregation of the public interest test should take place. (3/06/09) http://www.ico.gov.uk/upload/documents/decisionnotices/2009/fs_50193437.pdf

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009/1342 This Order extends the scope of FSA regulation to include sale and rent back agreements. (Date in force: the activities will become regulated activities for the purposes of the interim regime on 1/7/09 2009 and for the purposes of making applications for Part IV permission or variation of Part IV permission on 30/6/10. In order to ensure that the business of those persons who are currently lawfully carrying on the activity which will be regulated for the first time under the Act is not disrupted, a person who requests interim permission on or before 1/8/09 will receive an interim permission to enable him to continue to carry on that activity. Persons who are already authorised to carry out another regulated activity may request interim variation of permission. The interim permission (or interim variation of permission) will take effect from 1/7/09. The interim permission (or interim variation of permission) lapses at the time when the request is withdrawn or refused, is superseded by the determination of an application for Part IV permission or on 30/6/10, whichever date is the earliest). (1/06/09) http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091342_en.pdf

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Handbook Notice 88 On 28 May 2009, at its monthly meeting, the FSA Board made the following instruments which: • set the FSA periodic fees and FOS general levies for 2009/2010 (Periodic Fees (2009/2010) and Other Fees Instrument 2009/27 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_27.pdf ); (NB: over 30 pages long) • prescribe the periodic fees tariff bases for payment services institutions (Fees (Payment Services) (No 2) Instrument 2009/28 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_28.pdf ); • make changes to COMP in order to reflect changes to the Deposit Guarantee Schemes Directive (Compensation Sourcebook (Deposit Guarantee Schemes Directive Amendments) Instrument 2009 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_29.pdf ); • reflect changes to the regulations governing the recognition requirements for recognised investment exchanges and recognised clearing houses (Recognised Investment Exchanges and Recognised Clearing Houses (Amendments to Recognition Requirements) Instrument 2009/30 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_30.pdf ); • change the periodic fees rules for Unauthorised Mutual Societies (Periodic Fees (Unauthorised Mutual Societies Registration) (2009/2010) Instrument 2009/31 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_31.pdf ). (29/05/09) http://www.fsa.gov.uk/pubs/handbook/hb_notice88.pdf (NB: over 40 pages long)

Handbook Development 111 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. (29/05/09) http://www.fsa.gov.uk/pubs/handbook/hb111.pdf

FSA: Help for sale and rent back firms This webpage sets out information for firms to help them prepare for sale and rent back authorisation should HMT decide that FSA should regulate this market. It intends to publish draft application forms here from early next month. (19/05/09) Help for sale and rent back firms

FSA statement for firms on swine flu FSA says that regulated firms should be assessing their contingency plans to consider what steps they may need to take to address possible issues. It is already contacting the 'high impact' firms including infrastructure providers that it regulates to establish whether the influenza outbreak is affecting any aspects of their business. In 2006 the FSA ran a market wide business continuity exercise that was based on a pandemic scenario available via the following link. (1/05/09) FSA statement for firms on Swine Flu

HMRC: Guidance for Money Service Businesses on complying with Directions issued under the Counter Terrorism Act 2008 Schedule 7 (CT Act 2008 Sch. 7) The purpose of this guidance is to provide money service businesses supervised by HMRC with comprehensive guidance on complying with directions issued by HMT under the Counter Terrorism Act 2008 Schedule 7. It outlines the legislation in the Counter Terrorism Act 2008 Schedule 7, explains the requirements of the Counter Terrorism Act 2008 Schedule 7 in relation to money service businesses and how these should be applied in practice and explains the link between these requirements and those under the Money Laundering Regulations 2007. (29/04/09) http://www.hmrc.gov.uk/mlr/news/hls-guidance.pdf

FSA: Financial services firms’ approach to UK financial sanctions This review highlights areas where there is significant scope across the industry for improvement in firms’ systems and controls. FSA notes that some firms have robust systems in place that are appropriate to their business needs, but others, including some major firms, are struggling with integrating legacy systems or have inappropriate systems for their business. With regard to small firms, FSA found a widespread lack of awareness of the UK financial sanctions regime. The report also provides some examples of good and poor practice, common misconceptions held by firms, and the challenges that all firms face. (28/04/09) http://www.fsa.gov.uk/pubs/other/Sanctions Final Report.pdf (NB: over 40 pages long)

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Handbook Notice 87 On 23 April 2009, at its normal monthly meeting, the FSA Board made five instruments which: • make minor administrative corrections to the Handbook, none of which represents any change in FSA policy (Handbook Administration (No 13) Instrument 2009/22 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_22.pdf ). These include: correction to the definition of “close links”; correction to SYSC 8.1.8R(5) to bring the text into line with Article 14(2)(e) of MiFID; additional material within FIT 1.2.4AG to clarify the application of the approved persons regime in relation to the branches of incoming EEA firms; • implement the provisions for firms paying application fees to FSA in respect of the new Payment Services regime (Fees (Payment Services) Instrument 2009/23 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_23.pdf ); • introduce a new banking conduct of business sourcebook (Banking: Conduct of Business Sourcebook Instrument 2009/24 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_24.pdf ) - see also PS09/6 above; • introduce new compensation limits for investments, home finance mediation and insurance (Financial Services Compensation Scheme (Limits Amendment) Instrument 2009/25 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_25.pdf ) - see also PS09/7 above; and • make amendments to EG to provide guidance to firms which choose to provide FSA with a copy of an investigation report commissioned by the firm in anticipation of potential FSA enforcement action (Enforcement Guide (Use of Firm Commissioned Reports) Instrument 2009/26 - http://fsahandbook.info/FSA/handbook/LI/2009/2009_26.pdf ). (24/04/09) http://fsahandbook.info/FSA/handbook/LI/2009/2009_22.pdf (NB: 50 pages long)

Handbook Development 110 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. (24/04/09) http://www.fsa.gov.uk/pubs/handbook/hb110.pdf

The Proceeds of Crime Act 2002 (References to Financial Investigators) Order 2009/975 This Order revokes and replaces the Orders set out in Schedule 2 of this Order. This Order 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 this Order. A person may be an accredited financial investigator by reference to their job description, designated grade and/or type of training undertaken by them. The Order sets out in the first column of Schedule 1 the powers that can be exercised by an accredited financial investigator under the Act. The second column of Schedule 2 sets out who is an accredited financial investigator for the purpose of the exercise of these powers. Column 1 of Schedule 1 specifies a number of new sections that provide for additional functions that can be performed by accredited financial investigators: the seizure of property to which a restraint order applies under Part 2; prior approval for the search of cash under Part 5; search, seizure, detention and application for forfeiture of cash under Part 5 and the application for warrants for the seizure of property in relation to confiscation, money laundering and detained cash investigations under Part 8.For a person to be an accredited financial investigator for the purposes of these additional functions they would have to have undertaken a training course that includes instruction on the operation of the new sections. This training is provided or approved by the National Policing Improvement Agency. Column 2 of Schedule 1 specifies a number of additional bodies whose members are deemed to be accredited financial investigators, including OFT. (Date in force: 12/5/09) (22/04/09) The Proceeds of Crime Act 2002 (References to Financial Investigators) Order 2009 No. 975

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permissions of their responsibility under FSA Principle 10 and specifically covers records, acknowledgement of trust, due diligence and diversification. It notes that FSA is continuing work in this area to ensure that firms are arranging the adequate protection of their clients' assets and money and that a number of FSA firm visits will be scheduled for the Q2 and Q3, focusing specifically on CASS compliance, including areas highlighted in this letter and an assessment of the 2009 regulatory client money audit report. A report setting out FSA's findings will be published in Q4. (1/04/09) http://www.fsa.gov.uk/pubs/other/letter_client_assets.pdf

FSA: "Dear Compliance Officer" letter - Arranging adequate protection of clients' assets and money FSA has published the text of a letter dated 20 March 2009 from the Head of Prudential Standards, Conduct and Organisational Policy. It is to remind all firms which hold relevant client money permissions of their responsibility under FSA Principle 10 and specifically covers records, acknowledgement of trust, due diligence and diversification. It notes that FSA is continuing work in this area to ensure that firms are arranging the adequate protection of their clients' assets and money and that a number of FSA firm visits will be scheduled for the Q2 and Q3, focusing specifically on CASS compliance, including areas highlighted in this letter and an assessment of the 2009 regulatory client money audit report. A report setting out FSA's findings will be published in Q4. (1/04/09) http://www.fsa.gov.uk/pubs/other/letter_client_assets.pdf

Financial Crime Newsletter Issue 12 Topics include: boiler rooms; tackling mortgage fraud; stakeholder perceptions survey results (the full report is available via the second link below); data security; update on small firms thematic review. (19/01/09) http://www.fsa.gov.uk/pubs/newsletters/fc_newsletter12.pdf http://www.fsa.gov.uk/pubs/other/perceptions.pdf (NB: over 70 pages long)

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