Being better informedFS regulatory, accounting and audit bulletin

PwC FS Risk and Regulation Centre of Excellence

March 2015

In this month’s edition:

EC launches CMU project

ESMA reacts to budget deficit

HMT grants FPC powers of direction

FCA unhappy with wholesale competition

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 1

Welcome to this edition of “Beingbetter informed”, our monthly FSregulatory, accounting and auditbulletin, which aims to keep you up tospeed with significant developmentsand their implications across all thefinancial services sectors.

The advent of spring brings with it the

renewed sense of regeneration and hope.

And while the modest improvement in the

financial results, economic performance and

market sentiment doesn’t herald the

changing of a season, it does suggest that

the dark days of the financial crisis may be

beginning to fade.

Banks haven’t returned to pre-crisis growth

or profitability levels yet (and may never)

but they have made significant strides to

replenish their balance sheets. All of the

largest EU banks now meet the Basel III

minimum 4.5% CET1 capital ratio, while

they are collectively less than €3bn short of

the 7.0% minimum (4.5% plus the capital

conservation buffer of 2.5%), although

including the hypothetical G-SIB buffer

does add to this shortfall. Each year the

FSB determine the G-SIBs and their

respective risk buckets. On 27 February the

BoE confirmed the identity, categorisation,

and representative capital buffers of the G-

SIBs headquartered in the UK

February saw the green shoots of Lord Hill’s

grand CMU endeavour. On 18 February

2015 the EC published a green paper

outlining its wide-ranging agenda for

expanding the scale and opportunities of

alternative financing through a CMU that it

hopes will improve securities offerings,

encourage high quality securitisation,

stimulate cross-border financing for SMEs

and expand the role of the asset

management industry. The green paper

confirms that the EC envisages a much

broader recalibration of the European

capital markets to come closer to the depth,

scale and integration of the US markets,

with the more immediate goal of creating

more balance between a burdened

traditional banking sector and alternative

finance markets that remain constrained by

national borders.

Longer term, the EC wants the CMU to be

an engine for further economic integration

through regulatory intervention and

standardisation. We expect to see a number

of regulatory initiatives to support the CMU

as the idea matures. In February the EC

asked ESMA to determine what kind of

securitisation is safe, transparent and

stable, and asked EIOPA to identify any

barriers to infrastructure investment

inherent in Solvency II. This month's

feature article looks at the rationale for the

CMU and the implications for firms.

In the UK we saw reviews, reports and

consultations all competing for our

attention. On 24 February the CMA

published its final report of its investigation

into the payday lending market, concluding

that competition in the market may be

slanted. Payday lenders will have to publish

details of their products on at least one price

comparison website and provide customers

with a summary of their cost of borrowing.

Last July the FCA began its review of

competition in the wholesale sector. It

canvassed views from across industry, and

on 19 February 2015 published its feedback.

It will launch a market study into

investment and corporate banking to

identify whether competition is working

effectively for consumers. Specifically the

FCA intends to consider the effects of

transparency and bundling in investment

banking and corporate banking services.

The FCA is concerned about the

transparency of the price and quality of

services that firms supply, the bundling and

cross-selling of services and conflicts of

interest which may mean banks are not

acting in the best interests of the client.

Asset managers can expect a similar review

later this year, with the FCA continuing to

be concerned that asset managers are

overpaying for services when using their

investor’s money.

We expect March to be another busy month

as we approach the end of the first quarter

in 2015 with a number of SMR

developments due and this typically being

the period where the FCA sets out its focus

areas for the year ahead in its conduct risk

outlook.

Laura Cox

FS Risk and Regulation Centre of Excellence

020 7212 1579

laura.cox@uk.pwc.com

@LauraCoxPwC

Executive summary

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 2

How to read this bulletin?

Review the Table of Contents therelevant Sector sections to identify thenews of interest. We recommend yougo directly to the topic/article ofinterest by clicking in the active links

within the table of contents.

ContentsExecutive summary 1

Capital Market Union (CMU) 3

Cross sector announcements 6

Banking and capital markets 12

Asset management 14

Insurance 15

Monthly calendar 18

Glossary 24

Contacts 29

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 3

Introducing the CapitalMarkets UnionSince Jean-Claude Juncker announced theEC’s intention to create an EU CapitalMarkets Union (CMU) in his first speech asEC President, there has been limited detailas to what CMU will entail. After months ofspeculation, the EC published a green paperon 18 February 2015, outlining possibleinitiatives and avenues to explore. Feedbackto the green paper will lead to a detailedaction plan later this year, with a view tohaving the majority of the agreed initiativesin place by 2019. Alongside the green paper,the EC also published consultation paperson the EU’s proposed high-qualitysecuritisation framework and on revisionsto the Prospectus Directive. Together thesepapers give us a clearer idea what the CMUcould involve, and allow us to beginassessing the potential impact. While thegreen paper held no real surprises, itconfirmed that the CMU has the potential tosignificantly alter the dynamics of thefinancial services industry in the EU.

Why create a CMU?The EC wants the CMU to support increasedgrowth and more jobs for Europe. Aftertaking extensive steps to increase stability inthe wake of the financial and Eurozonecrises, the question of how to jumpstart theEU economy is now the priority forpolicymakers in Brussels. Although the UKhas seen steady improvements in growthover the past couple of years, the pictureacross the EU, and within the Eurozone inparticular, is not so rosy. Economistspredict that the German economy will only

grow by 1.5% in the coming year, whileGreece and Spain are suffering from highunemployment, including around 50%youth unemployment, which threatens thelong-term economic growth of thosecountries.

The main concern is that businesses,particularly small- and medium-sizedenterprises (SMEs), which are seen as theengine of economic recovery, are not able toaccess the capital they require to grow andcreate jobs. EU banks, faced with stricterrisk-based capital requirements andrecovery and resolution measures, aredeleveraging and therefore lending less tobusinesses. EU business remains heavilyreliant on bank lending. Although partlycultural, this reliance also results from thelack of viable alternative financing sources.Since the financial crisis, bank lending tobusinesses within the Eurozone has fallenby 40%.

The EU’s capital markets areunderdeveloped compared with some partsof the world and clearly the level ofdevelopment within different EU countriesvaries significantly. Economists haveestimated a shortfall of $1 trillion betweenthe funds that companies in the EU canraise currently in the capital markets andthose they could raise if the EU’s marketswere as deep as the US capital markets.Individually, the European high yield bondmarket is one-third the size of the USmarket relative to GDP, representing $150billion in ‘lost’ financing. The EU venturecapital industry would be five times bigger ifit were of a size comparable to the USventure capital industry.

Drawing direct comparisons with the USprovides insights only up to a point.European business and social developmenthas taken a different path than in the US.The EC is keen to emphasise that it is notproposing wholesale adoption of Americansolutions but ones which, while breakingdown the barriers of fragmented EU capitalmarkets, build on the EU’s uniquecharacteristics. A key element to CMU willbe enhancing the role played by non-banksin funding businesses. This increase in non-bank funding should reduce the potentialfor future banking crises to impact the ’real’economy to the same extent as the last one.

The EC therefore wants to increasebusinesses’ ability to access non-bankfinance through the CMU. It advocatesmoving towards a model where SMEs canraise financing as easily as large companiesthrough increasingly straight forwardcapital markets. To support this ambition,CMU must result in pan-EU convergence ofaccess to investment products, reduceinvestment costs and remove legal orsupervisory barriers in some Member Statesthat impede firms seeking funding.

The EC’s priorities for CMUThe EC’s green paper sets out a number ofpotential CMU initiatives for the near andmedium term. The EU has recently adopteda number of initiatives on which the EC cannow build.

MiFID II will be CMU’s foundation. Itcomes into play from early January 2017and which explicitly encourages thedevelopment of SME growth markets.MiFID II, combined with initiatives already

Capital Market Union (CMU)

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 4

well underway such as Target 2 Securitiesand measures addressing marketinfrastructure concerns such as EMIR andCSDR, will radically change the way inwhich the EU financial markets operate.The recalibrated priority for growth andjobs is clearly playing into the currentnegotiations on the MiFID II implementingmeasures. But some tension is beginning toshow between the ‘financial stability’priority driving much of the Level 1 text andthe new political game-plan. The greenpaper was unable to factor in the cumulativeimpact of the regulatory tsunami witnessedover the past several years because littlework has been done so far to assess it.

Specific proposals to streamline access toprimary capital markets will flank theMiFID II changes. Simplifying theProspectus Directive would make the listingprocess less onerous for SMEs, and supportindustry initiatives to promote privateplacement regimes. The EC suggestsamendments to the Prospectus Directive,including extending its usage in certainareas (such as admission to trading on anMTF) and expanding exemptions in otherareas – such as in relation to secondaryissuances and for certain closed-endedalternative investment funds.

Under a private placement, a companymakes an offering of securities to anindividual or small group of investorsoutside of the public markets. The ECbelieves private placements can provide amore cost effective way for companies toraise funds, and broaden the availability offinance for medium to large companies andinfrastructure projects. The green paperemphasises initially looking for privatesector solutions to divergent privateplacement regimes. The EC expects these

solutions to include the creation of marketguides around the structuring anddocumenting issuances that satisfy multiplemember state requirements.

As a complement to these proposals,securitisations are another near termpriority area for the CMU. The EC arguesthat securitisations can provide a powerfulmechanism for transferring risk and canincrease banks’ capacity to lend. Thesecuritisation market in the EU hasstagnated since the crisis: securitisationissuance in 2014 was only €216 billion,compared with €594 billion in 2007. Tochange this trend and reignite thesecuritisation market, the EC suggestsreforming the securitisations framework.Specific proposals include a plan to rewardthe development of simple and transparentsecuritisation products through lighterregulatory treatment.

Improving data available about thecreditworthiness of SMEs is another priorityarea. The EC outlines plans to help SMEsget pan-EU funding through developingstandardised credit quality criteria. It pointsto the fact that around 25% of all EUcompanies, and 75% of owner-managed EUcompanies, do not have a credit score. Inthe medium term, the EC wants to improvethe matching between SMEs that cannotobtain bank loans and alternative financevenues.

Another priority will be to expand the roleof asset management and collectiveinvestment vehicles. High on the list is toensure the rapid take-up of ELTIFs, thelegislation for which should be finalisedimminently. The regulation on MMFsshould also provide alternative financingpossibilities. More widely, the EC plans to:

consider widening the range of investors

who can participate in EuVECA and

EuSEF funds to increase their usage

consider whether exit opportunities for

investors should be improved in venture

capital funding

explore how to increase retail

participation in UCITS

facilitate direct marketing of EU

investment funds into third country

markets through trade agreements and

other vehicles.

The CMU will complement the EC’s recentlyadopted €315 billion Investment Plan forEurope. While the Investment Plan seeksshort-term economic accelerators, the CMUwill look to create a European InvestmentProject Pipeline to facilitate access toinformation for investors on longer-terminvestment opportunities.

What else could CMUinclude?The green paper touches on some long-recognised politically sensitive issues, suchas company law, corporate governancerequirements, insolvency law and taxation,which continue to create barriers to a singleEU capital market. It also considers theneed to address divergent legal regimes andto promote supervisory convergence. Butthese issues, as we know from experience,are tough, and complex, nuts to crackbecause the member states’ national lawstake different approaches and member stategovernments are reluctant to give up theirpowers in some areas, especially when itcomes to taxation. Sensing that there may

be more appetite now to address theseareas, given the very difficult economicsituation in the EU, the EC pragmaticallyputs forward the possibility of a ‘29thregime’, a European-wide solution whichwould bypasses some of the problems atleast in the short- to medium term.

CMU may hold manyopportunitiesThe green paper and concurrentconsultations indicate that newopportunities for firms around securitiesofferings and securitisation may be on thehorizon. The proposals should allowcorporates to increase their financingoptions in a more favourable regulatoryenvironment. SMEs and asset managersshould reap substantial benefits from CMUin time, as the green paper suggests acomprehensive framework for expandingmarket opportunities for these twocommunities. For SMEs this benefit willprimarily result from the Commission’scommitment to create tailored accountingand credit quality criteria that will allowthese resource-constrained entities topresent their financial attributes to a pan-EU investment audience withoutunnecessary administrative and regulatoryburdens. Asset managers should benefit asthe EC prioritises expanding the retail andinstitutional investment audiences for fundvehicles ranging from UCITS to ELTIFS toventure capital funds.

For banks, there are both threats andopportunities. While the possible shifttowards an increased role for non-banks inlending represents a threat to currentrevenues, a revitalised securitisation markethas the potential to offer new opportunities

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 5

to those banks that react swiftly to the newenvironment.

If the EU manages to launch a CMU thatmeets the ambitions laid out in the greenpaper, it will have a transformative effect onthe ways in which EU companies andfinancial entities raise money, marketthemselves across borders and tap intobroader investor communities. It is unlikelythat a full CMU will be in place by 2019, butthe clear sense of purpose, direction andpolitical commitment means that significantregulatory changes are on the horizon.

Consequently, the financial servicesindustry should take the ambitions of theCMU very seriously. The short-term agendaitems are significant in their own right. Inthe longer term the CMU should strengthenalternative sources of finance and increaseEU integration through further regulatorystandardisation. Firms should engage withpolicy makers throughout the process, andtake time to consider the opportunitiesprovided by the green paper, the ProspectusDirective and securitisation consultationsand subsequent developments.

The CMU timelineBrussels has long sought increased capitalmarket integration, but the announcementof the CMU in Jean-Claude Juncker’s firstspeech as European Commission Presidentand its inclusion in Commissioner Hill’sfinancial services portfolio suggest that thiswill be the central regulatory initiative infinancial services over the next few years.Slow Eurozone growth, overreliance onbank lending and recent bank deleveragingcombine to create the political will withinthe EC to build upon the earlier successes ofthe Financial Services Action Plan (FSAP)and more recent initiatives. We may have

wished for a regulatory pause but CMUcannot help but result in further significantregulatory changes.

While we can state with some certainty thatCMU will produce significant legislative andregulatory change, it is far less clearwhether or not all the proposals for theCMU will actually work. On the positiveside, the CMU could coincide with theeffects of other initiatives, such as theInvestment Plan for Europe and the ECB’sQE programme, and provide anenvironment for sustainable growth overthe long-term. Beyond quantitativemeasures of increased jobs and growth, theCMU could also help to deliver a culturalshift in the EU and enhance the role playedby retail investors in financing businesses.

But there are a number of hurdles toovercome. The last fifteen years have seensignificant progress towards the creation ofan EU single market for financial servicesbut some considerable stumbling blocksremain, such as different insolvency and taxregimes. The political will of member statesto agree changes in these areas remains anunknown factor. The ambitious timescalesinvolved present a challenge to thesuccessful completion of the CMU. Junckerhas stated that he wishes to see a “fullyfunctioning” CMU in place by 2019. Giventhat it takes at least two years for even theleast controversial initiative to go from ECproposal to final legislation there is apractical limit on how the EU can achieve infour years. The EC must hope it can achievesuccess with its near and medium termpriorities before 2019, and lay thefoundations for the successful completion ofmore difficult, longer-term objectives.

Next stepsThe EC invites responses to the green paperby 13 May 2015. It intends to release anaction plan this year that will map outdetailed proposals for the short and longerterm. In the meantime, the EC isconsidering a series of consultation papersand requests around specific elements of theCMU to address some of the near-termpriorities, similar to the consultations onthe Prospectus Directive and securitisations,including the development of an EU coveredbond framework, a follow-up to its previouswork on crowdfunding and boosting thesupply of venture capital to start-ups.Delivering on these ambitious plans will notbe easy, but the CMU has the potential to bethe EU’s ‘big bang’ for capital markets. Weare early in the process and some of theideas remain abstract, but firms should payclose attention to how the policy proposalsevolve.

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 6

In this section:

Regulation 6

Benchmark reform 6

Capital and liquidity 6

Corporate Governance 6

Financial stability 7

Market-based finance 7

Market infrastructure 8

Other regulatory 9

Pensions 10

Securities and derivatives 10

Supervision 10

Accounting 10

IFRS 10

Regulation

Benchmark reformBenchmarking performance

IOSCO published its Review of the

Implementation of IOSCO's Principles for

Financial Benchmarks on 25 February

2015. It assesses the voluntary market

adoption of its principles and covers 36

separate benchmarks and found that only a

third of benchmark administrators

considered themselves to be fully compliant

with the principles. Almost half of

administrators are in the process of either

implementing procedures to comply with

the Principles or are still addressing their

compliance requirements. It found the

biggest improvement was in governance

arrangements, including the introduction or

strengthening of oversight committees, new

or formalised policies and training on

conflict of interest management and

whistleblowing. Boards were reported to

have heightened levels of interest in the

benchmark setting process.

IOSCO concluded that further steps may be

necessary, but concedes that it is too early to

say what those steps should be. It does not

have the power to enforce implementation

with its principles, but encourages its

members to implement them as well as they

can.

Council ready for benchmarknegotiation

The Council approved its negotiating

mandate with EP on the financial

benchmarks proposal on 13 February 2015.

Its mandate includes:

a binding code of conduct for

benchmark administrators requiring

robust methodologies using sufficient

and reliable data

stricter rules for critical benchmarks

authorisation of benchmark

administrators by national competent

authorities

coordination of benchmark

administrator supervision by ESMA.

The ECON is scheduled to vote on its

position on 9 March 2015. Once agreed,

trilogue negotiations with the Council and

EC will begin. The EP currently expects

these negotiations to take under six months

as the plenary vote is scheduled for 7

September 2015.

Capital and liquidityLiquidity matters

Dame Clara Furse spoke on the importance

of liquidity on 11 February 2015. She is

concerned by the reliance of European

companies on bank loans and the lack of

depth in European capital markets. She

stressed the importance of a more

diversified funding environment and the

role investment banks play in their capacity

as market makers. But Dame Furse noted

that investment banks reducing their

trading has resulted in a more fragile

liquidity environment, and acknowledged

the moral hazard inherent in a central bank

acting as market maker of last resort. It is

imperative that more thought is given to

promoting resilient capital markets in light

of these tensions.

Bulgarian lev not liquid enough

The EC published its ITS on currencies

which have an extremely narrow definition

of central bank eligibility on 14 February

2015, excluding the Bulgarian lev from the

list of liquid assets under CRD IV. The EC

cites the lev as a currency which there is an

extremely narrow definition of central bank

eligibility, thereby failing a liquid assets

condition under CRD IV. Firms expecting

the EC to approve the liquidity of all

European currencies may well have to

reconsider their portfolios in light of this

decision, particularly those with exposures

to Bulgaria.

The ITS came into effect on 15 February

2015.

Corporate GovernanceEC consults on Prospectus Directive

On 18 February 2015 the EC launched a

consultation on the Prospectus Directive. It

Cross sector announcements

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 7

is exploring whether the Directive should be

amended within the larger context of the

proposed CMU and further integration of

European financial markets. It is focused on

increasing the cross-border scale of public

offerings and making public offerings a

more viable financing vehicle for SMEs. The

EC seeks industry insight on:

calibrating total consideration,

denomination per unit thresholds and

secondary issuances

extending requirements to securities

admitted to trade on MTFs

creating a bespoke prospectus regime

for companies admitted to trading on

SME growth markets

eliminating duplicative disclosure

requirements with other EU regulation

imposing a length limit to the

prospectus

updating the sanctioning regime to

ensure uniform enforcement.

Firms should watch the extent to which the

EC addresses the relative strength of the

public offering vs private placement

markets, and how it will strive to make

markets more robust through the

Prospectus Directive consultation and the

wider CMU initiative.

The consultation period closes on

13 May 2015.

SEC addresses proxy voting issues

On 10 February 2015 Keith Higgins, the

SEC's Director of the Division of Corporate

Finance, publicly addressed recent court

opinions challenging the SEC's role in

determining the appropriate corporate

response to shareholder proxy proposals.

Recent court cases suggest that the SEC has

taken an overly broad acceptance of

companies excluding shareholder proposals

because they directly conflict with company

proposals on the same subject. The SEC

justifies this exclusion to prevent board and

shareholder confusion if both conflicting

proposals pass. But the courts are the

ultimate arbiter as to whether a company is

obliged to include the shareholder proposal

in its proxy materials.

In response the SEC announced it will no

longer provide views on specific conflict

exclusion cases. But Mr. Higgins also

suggested a number of ways the SEC could

make the proxy rules more protective of

shareholders in the event of proposal

conflicts.

Financial stabilityFSB highlights priorities

FSB Chairman Mark Carney wrote to the

G20 on Financial Reforms – Finishing the

Post-Crisis Agenda and Moving Forward

on 4 February 2015. He identified the FSB’s

priorities as full, consistent and prompt

implementation of agreed reforms, and

finalising the design of remaining post-

crisis reforms. He wants the G20 to focus on

three particular reforms in particular:

completing banks’ new capital

framework

ending too-big-to-fail

making derivatives markets safer.

Carney considers the main risks to the

global economy to be market based finance

and conduct risk.

Setting G20’s priorities

On 11 February 2015, the G20 published a

communiqué following the meeting of

finance ministers and central bank

governors in Istanbul on 9 and 10 February

2015. It outlined a regulatory action plan for

the next 12 months which includes:

agreeing the TLAC ratio for G-SIBs

implementing effective resolution

regimes for all systemic parts of the

financial sector

agreeing the methodology for identifying

systemically important financial

institutions beyond the banking and

insurance sector

enhancing cross-border cooperation of

resolution and OTC derivatives market

reforms.

The G20 also agreed to implement the

updated shadow banking roadmap agreed

in Brisbane last year, intended to improve

global oversight and regulation of shadow

banking.

SEC prioritises transparency

On 20 February 2015, SEC Chair Mary Jo

White outlined the SEC's regulatory

priorities for the remainder of 2015. At the

top of her list she put transparency and

disclosure, particularly enhancing the

transparency of alternative trading system

operations and broker routing decisions,

and improving broker-dealer disclosure of

pricing information. She also mentioned a

targeted anti-disruptive trading rule,

modernising data reporting for both funds

and investment advisers and finalising

crowdfunding rules.

Market-based financeEC's grand vision for CMU

On 18 February 2015 the EC released a

green paper outlining its overall vision for

the CMU. It wants to support the CMU

project with initiatives around securities

offerings, high quality securitisation and

improving the opportunities for SMEs to get

pan-European funding. The EC wants to

create a European capital market that

supports cross-border activity and involves

alternative financing. So it sees market

growth, greater balance between traditional

banking and alternative finance, and further

financial integration as intertwined.

The EC's more developed proposals

concern:

strengthening cross-border public

offerings and pan-European private

placements

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 8

encouraging the high-quality

securitisation through lighter regulatory

treatment for securitisation products

that are simple, transparent and

adequately address risk

raising the profile of SMEs across

Europe by developing tailored

accounting and credit assessment

regimes, and improving matching

between SMEs and alternative finance.

The EC will be looking to strengthen the

asset management industry and increase

the market role of alternative investment

funds, specifically venture capital and

ELTIFs, as well as increasing retail

participation in UCITS. It also indicates that

it will be looking at creating an integrated

covered bond market.

The EC only briefly touches the more

controversial elements of any truly

integrated CMU, such as the harmonisation

of national tax, insolvency and company

law. It wants industry and stakeholders to

reply to the issues it has raised and its

specific proposals to incorporate responses

into an action plan scheduled for the end of

2015. The consultation period closes on 13

May 2015.

EC playing with fire

The EC launched a consultation on

developing a high quality securitisation

market to support the CMU on 18 February

2015. It wants to further integrate EU

financial markets and diversify funding

sources without repeating the mistakes

made before the financial crisis. It believes a

high quality EU securitisation framework

will unlock capital by making it easier for

banks to lend to households and businesses.

In its October 2014 discussion paper on

securitisations, the EBA determined that

simple, standard and transparent

securitisations warrant a different and more

risk-sensitive capital treatment than other

securitisations. So the EC wants to use this

base to build a market for high-quality

securitisation and encourage a framework

that better reflects the different

characteristics of securitisations within the

strengthened EU regulatory environment.

The EC is preparing work on an EU

securitisation framework with a view to:

restarting markets on a more

sustainable basis, so that simple,

transparent and standardised

securitisation can act as an effective

funding channel to the economy

allowing for efficient and effective risk

transfers to a broad set of institutional

investors as well as banks

allowing securitisation to function as an

effective funding mechanism for some

nonbanks as well as bank

protecting investors and managing

systemic risk by avoiding a resurgence

of the flawed "originate to distribute"

models.

The EC aims to gather information and

views from stakeholders on the current

functioning of European securitisation

markets and how the EU legal framework

can be improved. It feels there is a need to

look again at the EU's approach to

securitisation – from a bank, investor and

broader economic perspective – to create

an effective and targeted initiative.

Using consultation replies the EC will

propose how to build a sustainable

securitisation market. Its goal is for Europe

to benefit from a safe, deep, liquid and

robust market for securitisation, which is

able to attract a broader and more stable

investor base to help allocate finance to

where it is most needed in the economy.

Converging crowdfunding regulation

The EBA published an opinion on lending-

based crowdfunding on 25 February 2015

as part of its regulatory remit to monitor

and respond to new financial activities. It

recommends that EU legislators clarify the

applicability of existing EU law to lending-

based crowdfunding’ to avoid regulatory

arbitrage and ensure a level-playing field for

all participants across the EU. The EBA

addressed its opinion to the EC, EP and the

Council.

Market infrastructureTransparency for MiFID II

On 19 February 2015 ESMA released a

MiFID II Addendum Consultation Paper

supplementing the more extensive

consultation of 19 December 2014. ESMA

proposes liquidity thresholds for certain

classes of non-equity instruments including

foreign exchange derivatives, credit

derivatives, other derivatives and contracts

for difference. Firms must provide

additional transparency, including pre trade

transparency, when trading liquid financial

instruments.

ESMA proposes thresholds determine when

a transaction is either large in scale

compared to the market, or above a size

specific to the instrument. Firms may waive

transparency requirements for order sizes

above these thresholds.

The consultation closes 20 March 2015.

Capital requirements for CSDs

The EBA published draft RTS on prudential

requirements for CSDs on 27 February

2015. It defines the capital requirements for

CSDs, outlines the methodology for

supervisors to calculate capital surcharges,

and establishes the framework CSDs must

follow to monitor, measure and manage

credit and liquidity risks. It proposes a

methodology for CSDs offering banking-

type ancillary services to determine how an

additional capital surcharge should be

calculated, to reflect the risks of providing

intra-day credit.

The consultation closes on 27 April 2015.

ESMA and Japan agree CCPsupervision

On 24 February 2015 ESMA published the

Memorandum of Cooperation related to

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 9

CCPs established in Japan it agreed with

the Financial Services Agency of Japan

(FSAJ), in effect from 18 February 2015. It

agreed terms for information sharing on

Japanese CCPs recognised under EMIR. It

outlines terms for use of information,

execution of information requests and on-

site visits.

The EC adopted legislation granting

conditional EMIR equivalence to Japanese

CCP rules, paving the way for Japanese

CCPs to obtain EMIR recognition. With

EMIR recognition Japanese CCPs will be

able to provide clearing services to EU

clearing members and trading venues.

ESMA does not have direct supervisory or

enforcement powers over third country

CCPs recognised under EMIR. But the

memorandum of cooperation allows ESMA

and the FSAJ to share information relating

to Japanese CCP's applications for

recognition. The regulators will be able to

exchange information on changes in

recognised CCP’s rules and procedures, and

any regulatory or supervisory actions that

may affect EMIR recognition conditions.

Other regulatoryCFTC outlines priorities

CFTC Chariman Timothy Massad testified

before the US House Committee on

Agriculture on 12 February 2015. He

focused on recent CFTC derivatives clearing

and reporting rules, crafting appropriate

exemptions for commercial end-users, and

reconciling cross-border issues. He

identified ongoing priorities including

requiring exchanges and clearinghouses to

notify the CFTC promptly of cyber security

attacks and to have adequate recovery

systems in place.

Mr Massad highlighted the CFTC's review of

firms' screening for automatic execution

orders and testing of algorithmic trading

programs. He concluded that the CFTC

plans to use its authority to combat

spoofing, a growing problem in the market.

…and so does the SEC

On 12 February 2015, SEC chair Mary Jo

White provided an overview of the SEC's

agenda. It plans to focus on:

completing Dodd-Frank executive

compensation rules

finalising proposed crowdfunding rules

extending the fiduciary standards

governing broker-dealers

enhancing target date funds' disclosure

of risk

changing the definition of "accredited

investor", and the consequences for the

scope of parties that can invest in

private investment funds and private

placements.

This suggests that the SEC and other US

regulators will be active in meeting their

rule-making responsibilities under recent

financial regulation, such as Dodd-Frank, as

well as using existing rules to address

evolving market developments.

Political agreement on AMLD 4

On 10 February 2015 the Council formally

approved AML Directive 4, the latest

Directive and Regulation package designed

to prevent money laundering and terrorist

financing. It intends the package to

strengthen EU rules against money

laundering and terrorist financing and align

them with international approaches.

European policy makers have:

reduced cash payment threshold for the

inclusion of traders in goods from

€15,000 to €10,000

encouraged evidence-based decision

making, to better target risks

introduced specific provisions on the

beneficial ownership of companies,

including a central register containing

information on beneficial ownership of

companies

required gambling firms to conduct due

diligence for transactions of €2,000 or

more

provided a maximum pecuniary fine of

at least twice the amount of the benefit

derived from the breach.

The Council’s approval paves the way for

adoption of the package at second reading.

Member States will have two years to

transpose the Directive into national law

and the Regulation will be directly

applicable.

Eurobarometer on cyber security

The EC published a Eurobarometer report

assessing the public opinion on cyber

security on 9 February 2015. It surveyed

people from all 28 EU Member States in

October 2014.

Sweden, the Netherlands and Denmark had

the most frequent internet users in the

EU, with the lowest levels in Romania,

Portugal, Greece and Bulgaria. 24% of the

respondents had never used the internet nor

had access, with 61% of those who do have

access use a smart phone.

Respondents were concerned

about criminals misusing their personal

data and the security of online payments.

More than half of interviewees felt ill-

informed about the risks of cyber crime and

would therefore avoid disclosing personal

information online.

Studying the CRA industry

ESMA called for evidence on competition,

choice and conflicts of interest in the CRA

industry on 3 February 2015 in light of

mounting concerns that the European CRA

industry is dominated by three big players.

Separately, on 5 February, IOSCO published

a questionnaire for issuers in the credit

rating industry. It wants to better

understand the industry and, in particular,

certain products and services.

ESMA’s call for evidence closes on 31

March 2015 and IOSCO’s questionnaire

closes on 23 March 2015.

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 10

PensionsCosts and charges of IORPs

EIOPA published its EIOPA Report on

Costs and charges of Institutions for

Occupational Retirement Provisions

(IORPs) on 5 February 2015. This report

considers existing EU practices and

approaches re costs and charges of IORPs as

EIOPA believes that these costs and charges

are a key issue when considering the value

for money or affordability that IORPs

deliver, since these may have an important,

and potentially detrimental, impact on the

accrued benefits or calculated contributions.

EIOPA considers that it would be beneficial

for all parties that bear costs and charges in

IORPs if all costs and charges within the

value chain are disclosed to the parties

bearing them so those parties are able to

assess if they represent good value for

money and to enables all parties to exert

market pressure on costs. Secondly, this

would also allow NCAs to assess these costs

and charges and judge how they affect value

for money or the affordability of the pension

schemes provided.

EIOPA will take further steps to address

these two issues, taking due note of the

national initiatives that have already proven

effective in this field and the differences in

the IORP systems.

Pension modification published

The FCA published a modification by

consent of COBS 13 ‘Preparing product

information’ and COBS 14 ‘Providing

product information to clients’ to clients’ on

4 February 2015. This covers the provision

of product information when a retail client

proposes to withdraw the funds in full from

their personal pension scheme, stakeholder

pension scheme or drawdown pension

reducing the value of their rights to zero and

payments out of uncrystallised funds.

Uncrystallised funds are those not yet used

to pay a scheme pension, annuitised or

designated to a flexi-access drawdown fund

or a drawdown fund. It takes effect on 6

April 2015 and ends on 31 October 2016.

Securities and derivativesSEC issues swap reporting rules

On 11 February 2015 the SEC issued swap

reporting rules under Dodd-Frank Title VII,

requiring security-based swap market

participants to report transactions to data

repositories. Repositories must then make

transaction, volume and pricing

information publicly available. Though the

new rules largely mirror the

CFTC's requirements for more traditional

swaps activity, firms may have to implement

two distinct sets of reporting procedures, or

integrate the more stringent elements of

each regime, to comply.

In contrast to the CFTC, the SEC requires

firms to provide unique entity identifiers for

a wider range of entities, including asset

managers, platforms, brokers, desks and

individual traders. The SEC has not yet

provided a substituted compliance regime

to mitigate the cross-border impact, which

currently has an extraterritorial effect. But

firms are allowed a more lenient reporting

window of 24 hours, as opposed to the

CFTC's standard of "as soon as

technologically practicable".

Divisions over repository rules

The SEC issued final rules on the

registration, duties and core principles for

security-based swap data repositories

(SDRs) on 11 February 2015. Two of its five

commissioners dissented, arguing that the

final rules will hinder compliance

communications.

The dissenters feared that the rules' vague

prohibition against SDR personnel

"manipulating" the chief compliance

officer could lead to staff avoiding critiquing

compliance policies in case it

was interpreted by regulators as

manipulation. The two dissenters also

feared that the rules will lead to confusion

around the indirect regulation of CCO

competency by requiring certain disclosures

without outlining competency standards.

SupervisionSupervising CRAs and TRs

ESMA published its supervision of CRAs

and TRs: Annual report 2014 and work

plan on 16 February 2015. It summarises its

key actions taken in 2014 and outlines its

supervisory work plans for 2015.

ESMA is now responsible for overseeing the

activities of 27 registered and certified CRAs

in the EU. Its immediate priority is

minimising conflicts of interest in the CRA

rating process. To do so ESMA is planning

investigations into the review and validation

of ratings methodologies, IT internal

controls and information security, and a

follow up on investigations regarding

structured finance and SMEs.

Six TRs have registered in the EU and

ESMA’s supervisory focus for TRs will be on

data quality. ESMA is planning a number of

individual reviews and investigations into

TR systems software development lifecycle,

data availability and regulators’ access to

TRs and the confidentiality of TR data.

Accounting

IFRSInsurance Contracts project

The IASB met on 19 February 2015 to

continue its discussions on insurance

contracts at an education session. The IASB

discussed its tentative decisions on the level

of aggregation and considered the

application of those decisions to contracts

with and without participation features. See

our meeting notes for details.

Joint arrangements’

Our In depth publication - IFRS 11, ‘Joint

arrangements’ – Implementation issues

considered by the IFRS Interpretations

Committee considers the tentative

conclusions reached by the IFRS

Interpretations Committee (IC) on issues

surrounding the implementation of IFRS 11.

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 11

The conclusions are not expected to result

in a significant change in how the standard

is applied but might provide some

additional clarity on its application,

particularly the classification of a joint

operation.

IFRS News - February 2015

Our IFRS News February 2015 looks at:

Financial volatility: Accounting

implications.

Revenue TRG: January meeting.

IFRS in the EU: A good idea?

Cannon Street Press:

Disclosure initiative.

Employee Benefits.

Questions and answers: ‘W’ for Written

options.

Classification of liabilities

The IASB published Exposure Draft:

Classification of Liabilities (Proposed

amendments to IAS 1) on 10 February 2015.

This ED proposes amendments to IAS 1 to

clarify how entities classify debt,

particularly when it is coming up for

renewal. The proposed amendments are

designed to improve presentation in

financial statements by clarifying the

criteria for the classification of a liability as

either current or non-current. The

amendments clarify that the classification of

a liability as either current or non-current is

based on the entity’s rights at the end of the

reporting period and making clear the link

between the settlement of the liability and

the outflow of resources from the entity. The

comment period ends on 10 June 2015.

Changes to revenue standard

The FASB and IASB discussed several

implementation issues related to the new

revenue standard at their February meeting.

The boards were aligned on the need to

address stakeholder feedback on licenses

and performance obligations, but did not

agree on the approach to do so. The FASB

decided to amend the principle related to

licenses, whereas the IASB decided to

simply clarify it. The FASB also intends to

make several changes to the guidance for

determining performance obligations. The

IASB will instead explore adding additional

examples to illustrate the principle of

“distinct in the context of the contract”.

Our publication In transition ‘The latest of

revenue recognition implementation’

provides an overview of the implementation

issues discussed.

IFRS 13 disclosures

IFRS 13 expanded the guidance on assessing

fair value measurements within the three

levels of the fair value hierarchy. As a result,

the classification as Level 1, Level 2 or Level

3 became required for non-financial assets

and liabilities measured at fair value and

disclosures of fair values in the notes to the

financial statements. Experience suggests

that challenges arise in practice when

determining where measurements fall

within the fair value hierarchy.

In depth ‘A look at current financial

reporting issues - IFRS 13 disclosure

requirements – Questions and answers’

sets out our views on some of the key

considerations in determining the

appropriate classification of fair value

measurements, such as:

the meaning of observable and

unobservable inputs;

key differences between Level 1 and

Level 2 inputs; and

when an unobservable input is

significant enough to make the whole

fair value measurement Level 3.

Leases project update

The IASB staff published a short Project

Update: Definition of a Lease on 24

February 2015. This document explains

how a lease would be defined in the new

Leases Standard based on the IASB’s

decisions in redeliberations.

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 12

In this section:

Regulation 12

Capital and liquidity 12

Governance 12

Reporting 13

Supervision 13

Regulation

Capital and liquidityBasel consults on expected credit losses

The Basel Committee consulted on

guidance on accounting for expected credit

losses on 2 February 2015. It outlined 11

fundamental principles, eight for banks and

three for supervisors, and detailed sound

credit risk practices for banks when

implementing and applying an expected

credit loss accounting framework. The Basel

Committee expects practices to include

validation of credit risk assessment models

and public disclosure. It addresses how

supervisory expectations of an expected

credit loss framework should interact with a

bank's overall credit risk practices and the

regulatory framework.

The Basel Committee is replacing the 2006

guidance on Sound Credit Risk Assessment

and Valuation for Loans which was based

on the incurred-loss model of accounting.

The consultation closes on 30 April 2015.

IOSCO compares prudential regimes

IOSCO published its final findings and

analysis of prudential standards in the

securities sector on 24 February 2015. It

highlights similarities, differences and gaps

among the different international

frameworks for securities commissions with

a view to updating its 1989 report on

Capital Adequacy Standards for Securities

Firms in light of the identified issues.

In 2014 IOSCO consulted on two regulatory

and supervisory areas that might be

considered in an update of its 1989 report:

regulatory arbitrage opportunities created

by differences across jurisdictions, and the

use of internal risk models that may leave

the system undercapitalised.

IOSCO concluded that it was not possible to

determine whether the capital requirements

in one jurisdiction are more onerous than

another, chiefly because supervisory

discretion and the use of internal models

makes numerical comparisons misleading.

But if felt it did not need to make any

further amendments to the 2014 or 1989

reports because it felt that overall

prudential standards were sufficient to

address its concerns.

GovernanceImproving credit risk management

The Basel Committee, IAIS and IOSCO

jointly recommended developments in

credit risk management across sectors on 5

February 2015. A combined committee of

the three standard setters, known as the

Joint Forum, surveyed supervisors and

firms in the banking, securities and

insurance sectors to understand how the

approach to credit risk management has

changed since the financial crisis of 2008.

Banking and capital markets

Mark JamesPartner, Jersey office+44 (0) 1534 838304mark.james@je.pwc.com

James de VeulleDirector, Jersey office+44 (0) 1534 838375james.de.veulle@je.pwc.com

Nick VermeulenPartner, Guernsey office+44 (0) 14 81 752089nick.vermeulen@gg.pwc.com

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 13

Firms have improved their management of

credit risk in governance and risk reporting.

But some supervisors cautioned that some

credit risk management and regulatory

capital models could mask increased risk-

taking, so the Joint Forum cautioned

against over-reliance on internal models. As

firms hunt for yield in the low interest rate

environment, firms increased their risk

tolerance in a variety of products. So the

Joint Forum recommended supervisors

monitor the potential increase of these risk-

taking behaviours.

The Joint Forum found OTC derivatives to

be a significant source of credit risk. It

recommended that supervisors be aware of

the growing need for collateral to meet

margin requirements for OTC derivatives,

and committed the Basel Committee, IAIS

and IOSCO to monitor collateral availability

in their future work. As the increase in

central clearing of OTC derivatives has

concentrated credit risk into CCPs,

supervisors must consider whether firms

are accurately capturing CCP exposures as

part of their credit risk management.

The consultation closed for comments 4

March 2015.

ReportingTweaking supervisory reporting

The EC’s ITS with regard to supervisory

reporting of CRD IV institutions was

published in the Official Journal on 20

February 2015. It makes minor changes to

reporting templates and provides

instructions to correct errors and reflect the

revised data point entry and taxonomy for

asset encumbrance and forbearance under

CRD IV. The ITS entered into force on 21

February 2015.

SupervisionCalculating the ECB's supervisory fees

The ECB published a decision on the

methodology and procedures for the

determining and collecting fee data and

factors used to calculate annual

supervisory fees on 26 February 2015. It

outlines the procedures that firms should

follow when submitting data on fee factors

to their national supervisors, and the

procedures for supervisors to follow when

submitting to the ECB.

The decision will enter into force the day

after it has been published in the Official

Journal.

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 14

In this section:

Regulation 14

Financial crime 14

Regulation

Financial crimeBetter post-trade surveillance needed

The FCA published the results of its

thematic review into asset management

firms and the risk of market abuse on 18

February 2015. It reviewed how 19 equity

managers (including long-term investors,

hedge funds and an occupational pension

scheme) deal with market abuse risks in

their business.

The FCA found that:

firms were very poor at reviewing trades

after execution to highlight or

investigate potentially suspicious trades

policies for receiving insider information

were lacking, particularly when the

threat of receiving insider information is

unknown (such as a meeting with

investment consultants)

few firms monitored how successful

their policies were at controlling the

spread of insider information and

managing the threat of staff trading on

this information

firms generally had good pre-trade

controls to prevent market abuse, which

included a segregated dealing function

reviewing trades before execution to

identify any potentially manipulative

transactions

most firms have good personal account

dealing policies, though in some cases

the FCA felt firms should impose stricter

limits on individuals trading within

certain timeframes of funds trading

the majority of firms have implemented

ongoing training programmes updating

employees on new developments and

using recent practical examples of

market abuse risks.

The FCA will send individual feedback to all

19 firms involved in the thematic review.

But it also advises all firms to review their

own market abuse approach compared to

the good and bad practice identified. It is

likely the FCA will focus on how firms

manage market abuse risks in future

supervisory meetings.

Asset management

John LuffPartner, Guernsey office+44 (0) 1481 752121john.luff@gg.pwc.com

Mike ByrnePartner, Jersey office+44 (0) 1534 838278Michael.j.byrne@je.pwc.com

Adam GulleySenior Manager, Jersey+44 (0) 1534 8382390adam.gulley@je.pwc.com

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 15

In this section:

Regulation 15

Solvency II 15

Conduct 16

EU update 16

Recovery and resolution 17

Regulation

Solvency IIEIOPA guides on own risk

EIOPA published its final report on

Guidelines on systems of governance and

its final report on Guidelines on own risk

and solvency assessment (ORSA) on 3

February 2015. It’s guidelines on the system

of governance outlines firms' requirements

for their sound and prudent management.

In its ORSA guidelines EIOPA looks to

better understand insurers overall solvency

needs and capital allocation as well as the

interrelation between risk and capital

management in a forward looking

perspective. EIOPA intends to issue these

guidelines in all the official EU languages in

April 2015, to apply from 1 January 2016.

Infrastructure investments project

EIOPA published a letter from the EC on

formally requesting technical advice on the

identification and calibration of

infrastructure investment risk categories for

Solvency II on 27 February 2015. This

project follows on from EIOPA’s work on

the regulatory treatment of long-term

investments and advice on high quality

securitisation. EIOPA is now concentrating

on a more granular treatment of

infrastructure investments. The main goals

of the Investment in infrastructure projects

are to:

develop a definition of infrastructure

investments that offer predictable long-

term cash-flows and whose risks can be

properly identified, managed and

monitored by insurers

explore possible criteria for the new

class of long-term high quality

infrastructure assets covering issues

such as standardization and

transparency

analyse the prudentially sound

treatment of the identified investments

within Solvency II, focusing on their

specific risk profile.

EIOPA has been asked to provide its advice

on the refinements which could be made to

the capital charges on debt and equity

infrastructure investments within Solvency

II’s standard formula by 30 June 2015.

Update on colleges of supervisors

EIOPA published its Year-end report on

functioning of Colleges and

accomplishments of the Action Plan 2014

on 20 February 2015. Colleges of

Insurance

Evelyn BradyPartner, Guernsey office+44 (0) 1481 752013evelyn.brady@gg.pwc.com

Adrian PeacegoodDirector, Guernsey office+44 (0) 1481 752013adrian.peacegood@gg.pwc.com

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 16

Supervisors (colleges) are the main tool for

cooperation and coordination of supervisory

activities in the context of cross-border

group supervision under Solvency II. In this

report, EIOPA concludes that:

In most countries colleges have

developed in line with targets regarding

information exchange, risk assessment,

development of emergency plans and

coordination arrangements. However,

only a minority of the 92 colleges are on

track on all tasks

The implementation of the Solvency II

preparatory guidelines will require

significant further attention both from

national supervisors and insurance

groups.

Group supervision and colleges require

proper resourcing.

EIOPA plans to focus its support to colleges

to ensure consistent supervisory practices

within Solvency II. EIOPA staff will keep on

working closely, in both an informal and a

formal way, with group supervisors and

individual supervisory authorities to

improve the status and quality of the

colleges work.

Equity capital charge adjustment

EIOPA published technical information on

the symmetric adjustment of the equity

capital charge for Solvency II on 4

February 2015. This adjustment is required

in the calculation of the equity risk sub-

module in the Market Risk of Solvency

Capital Requirements standard formula to

cover the risk arising from changes in the

level of equity prices. This publication aims

to help insurers to calculate their solvency

position as of 31 December 2014 and 31

January 2015, and to deliver reporting

templates for the Solvency II preparatory

phase. The publication includes the daily

level of the symmetric adjustment during

the last eight years and the values of EIOPA

equity index considered in the calculation of

the symmetric adjustment. In addition

EIOPA provides a step-by-step example

allowing for full transparency of all the

details of the calculation methodology. As of

March 2015, the publication will be updated

on a monthly basis.

Risk free interest rate

EIOPA published a technical document

regarding the risk free interest rate term

structure on 28 February 2015. Solvency II

requires EIOPA to set the risk-free interest

rate for insurers to use in discounting their

technical provisions to ensure the consistent

calculation of technical provisions

throughout the EU. This technical

document sets out the basis on which

EIOPA will publish the risk-free interest

rate. The reference date of the published

term structures is 31 December 2014 and

the published date may help insurers’ in

their preparatory phase reporting. Term

structures for 31 January and 28 February

2015 are due to be released in the beginning

of March 2015 and going forward the

information will be published monthly.

Q&A on Guidelines updated

EIOPA published updated Q&A on

Guidelines: Answers to questions on

Submission of Information to NCAs on 4

February 2015.

Where to go for moreinformationRead more about Solvency II UK on our

webpages at www.pwc.co.uk/solvencyII .

ConductInsurance Act 2015

The Insurance Act received Royal Assent on

12 February 2015 and will come into force in

August 2016. It applies to policies entered

into or varied after August 2016 and covers:

the duty of business and other non-

consumer insurance to disclose

the law of insurance warranties

insurer’s remedies for fraudulent claims

late payment of insurance claims.

The Act brings into force the Third Parties

(Rights against Insurers) Act 2010, by

correcting a defect in the original

legislation.

EU updateEIOPA 2015 budget

EIOPA published its Budget for 2015 on 10

February 2015. This includes a number of

cuts as discussed in EIOPA’s press release

explaining the implications of its budget

cuts for the year 2015. Because of these

cuts, EIOPA has undertaken a severe

reprioritisation exercise, including

reallocation of human resources,

rationalisation of funds and

postponement/cancellation of some

ongoing projects. Solvency II remains the

highest priority but will be subject to a

number of cuts including a 20% reduction

in the training programme for supervisors

and cancellation of the production of the IT

supervisory toolkit related to XBRL

reporting.

EIOPA Opinion on internet sales

EIOPA published its Opinion on sales via

the Internet of insurance and pension

products on 4 February 2015. In this EIOPA

recommends that NCAs take the necessary

and proportionate supervisory actions to

ensure that:

Online distributors comply with a duty

of advice, if such a duty exists in

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 17

national law or when sales are so

promoted

Customers are provided with

appropriate information on the selling

process of the online distributor with a

view to avoiding unsolicited, or

mistakenly concluded, contracts.

NCAs, where relevant, prevent

consumer detriment by taking a more

proactive approach to how they

Collect information on online

distribution activities used by

distributors

Identify challenges and address issues

with newly established online

distribution channels at national level.

NCAs have been requested to provide

EIOPA with feedback and details of any

investigations/supervisory actions taken

within six months.

Conflicts report published

EIOPA published Final report on public

consultation on the draft technical advice

on conflicts of interest in direct and

intermediated sales of insurance-based

investment products on 4 February 2015.

This sets out a summary of the comments

received in the public consultation and the

main conclusions EIOPA has reached in

view of the feedback. EIOPA also published

revised Technical advice on conflicts of

interest in direct and intermediated sales of

insurance-based investment products on 4

February 2015. This summarises EIOPA’s

advice to the EC on the identification,

prevention, management and disclosure of

conflicts of interest which may arise in the

course of the distribution of insurance-

based investment products. This advice has

been prepared to assist the EC on possible

future implementing legislation.

Recovery and resolutionRRP regime for insurers

In a letter sent to Commissioner Hill on11 February 2015, EIOPA ChairmanGabriel Bernardino supported the ideaof introducing a pan-EU recovery andresolution regime for insurers.

Bernardino explained that theinsurance industry faces a number ofspecific challenges that requiredifferent solutions to the existingBRRD, such as the substantialdifferences in national supervisors'recovery and resolution powers overinsurers. He highlighted the likelihoodof a sharp reversal in asset prices,together with the prospect of very lowinterest rates, will pose severechallenges to the insurance sector andso RRPs. He felt this combined double

challenge would threaten the entiregeneral life insurance business model.

He also highlighted the role ofinsurance guarantee schemes.Policyholder's rights and compensationexpectations are inconsistent acrossmember states so potentially limitingRRP effectiveness.

.

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 18

Open consultations

Closing datefor responses

Paper Institution

20/03/15 Auditing and ethical standards Implementation of the EU Audit Directive and Audit Regulation FRC

22/03/15 Joint Committee Consultation Paper on guidelines for cross-selling practices JCESA

27/03/15 Revisions to the Standardised Approach for credit risk BaselCommittee

27/03/15 Capital floors: the design of a framework based on standardised approaches BaselCommittee

27/03/15 Discussion Paper Share classes of UCITS ESMA

29/03/15 Consultation document – draft guidance on the CMA’s approval of voluntary redress schemes CMA

31/03/15 Call for evidence – competition, choice and conflicts of interests in the CRA industry ESMA

10/04/15 Consultation paper – rethinking the UK financial services trade association landscape FS tradeassociations

10/04/15 Consultation paper on a report on good practices on individual transfers of supplementary occupational pension rights EIOPA

10/04/15 Joint consultation paper – draft ITS on the allocation of credit assessments of ECAIs to an objective scale of credit quality stepsunder Article 109(a) of Solvency II Directive

JointCommittee ofESAs

Monthly calendar

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 19

Closing datefor responses

Paper Institution

14/04/15 Consultation paper: draft ITS on procedures, forms and templates for the provision of information for resolution plans under theBRRD

EBA

15/04/15 CP15/7: proposed changes to FCA pension transfer rules FCA

17/04/15 CP1/15: assessing capital adequacy under Pillar 2 PRA

20/04/15 DP15/1 – UK Listing Authority fees: covering the cost of regulation FCA

24/04/15 Consultation on changes to the investment regulations following the Law Commission’s report “Fiduciary Duties of InvestmentIntermediaries”

DWP

27/04/15 Consultation paper – draft RTS on prudential requirements for central securities depositories under the CSDR EBA

27/04/15 CP15/5 (FCA)/CP7/15 (PRA) – approach to non-executive directors in banking and Solvency II firms and application of thepresumption of responsibility to Senior Managers in banking firms

FCA/PRA

30/04/15 Consultative document – guidance on accounting for expected credit losses BaselCommittee

04/05/15 Transaction costs disclosure – improving transparency in workplace pensions DWP/FCA

05/05/15 Discussion paper – future of the IRB approach EBA

06/05/15 CP15/6: Consumer credit – proposed changes to our rules and guidance FCA

13/05/15 Green paper – building a CMU EC

13/05/15 Consultation document – review of the Prospectus Directive EC

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 20

Closing datefor responses

Paper Institution

13/05/15 Consultation document – an EU framework for simple, transparent and standardised securitisation EC

19/05/15 Consultative document: assessment methodologies for identifying non-bank non-insurer G-SIFIs – proposed high-levelframework and specific methodologies

FSB andIOSCO

27/05/15 CP8/15: engagement between external auditors and supervisors and commencing the PRA’s disciplinary powers over externalauditors and actuaries

PRA

04/06/15 Consultation paper – draft guidelines on sound remuneration policies under CRD IV and the CRR EBA

06/06/15 Consultation paper – draft RTS on a minimum set of the information on financial contracts that should be contained in thedetailed records and the circumstances in which the requirement should be imposed under the BRRD

EBA

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 21

Forthcoming publications in 2015

Date Topic Type Institution

Client Money

Q1 2015 Review of the client money rules for insurance intermediaries Policy statement FCA

Consumer protection

Q1 2015 National Depositor Preference and UK depositors Policy statement PRA

Q3 2015 Calculation of contributions to DGSs Guidelines EBA

Financial crime, security and market abuse

Q2 2015 Draft MAR technical standards Technical standards ESMA

TBD 2015 Advice to Commission on Benchmark legislation Advice ESMA

Prudential

Q1 2015 Update on ITS on reporting of the leverage ratio Technical standards EBA

Q2 2015 LGD floors for mortgage lending Consultation EBA

Q2 2015 RTS on PD estimation Technical standards EBA

Q4 2015 Report on NSFR methodologies Report EBA

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 22

Date Topic Type Institution

Securities and markets

Q1 2015 Implementing acts on third country equivalence decisions on exposuresto third country investment firms, clearing houses and exchanges treatedas exposures to an institution

Advice EBA

Q2 2015 Consultation Paper on MAR guidelines Consultation paper ESMA

Q2 2015 Feedback and Policy Statement on CP14/02, consultation on jointsponsors and call for views on sponsor conflicts – PS to CP14/21

Policy statement FCA

Q2 2015 Technical advice to the Commission on the review of EMIR Technical advice ESMA

Q2 2015 MiFID/MiFIR Draft Regulatory Technical Standards Technical standards ESMA

Q2 2015 Draft technical standards on CSDR Technical standards ESMA

Q4 2015 MiFID/MiFIR Draft Implementing Technical Standards Technical standards ESMA

Q4 2015 Securities Financing Transactions Regulation Discussion or ConsultationPaper on technical standards

Consultation or technical standards ESMA

Products and investments

Q2 2015 Restrictions on the retail distribution of regulatory capital instruments –PS to CP14/23

Policy statement FCA

Q3 2015 Advice on the application of the passport to third-country AIFMs andAIFs

Advice ESMA

TBD 2015 Undertakings For The Collective Investment of Transferable Securities V Technical advice ESMA

TBD 2015 RTS on format and content of disclosures in KID for PRIPs Technical standards ESMA

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 23

Date Topic Type Institution

Recovery and resolution

Q2 2015 Advice on the criteria for determining the number of years by which theinitial period for the build up of the SRF may be extended

Advice EBA

Q2 2015 Partial transfer safeguards Advice EBA

Q3 2015 Notification requirements Technical standards EBA

Q3 2015 RTS on Contractual Bail in Technical standards EBA

TBD 2015 Recovery and Resolution Directive – PS to CP14/15 Policy statement FCA

TBD 2015 Strengthening the Alignment of Risk and Reward: New RemunerationRules – PS to CP14/14

Policy statement FCA

TBD 2015 Strengthening accountability in banking: a new regulatory frameworkfor individuals – PS to CP14/13

Policy statement FCA

Solvency II

Q1 2015 Solvency II

changes – PSPolicy statement FCA

TBD 2015 Solvency II Level 3 measures Level 3 text EIOPA

Supervision, governance and reporting

Q4 2015 Assessment of national SREP approaches Report EBA

Main sources: ESMA 2015 work programme; EIOPA 2015 work programme; EBA 2015 work programme; EC 2015 work programme; FCA policy development updates

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 24

2EMD The Second E-money Directive 2009/110/EC

ABC Anti-Bribery and Corruption

ABI Association of British Insurers

ABS Asset Backed Security

AIF Alternative Investment Fund

AIFM Alternative Investment Fund Manager

AIFMD Alternative Investment Fund Managers Directive 2011/61/EU

AIMA Alternative Investment Management Association

AML Anti-Money Laundering

AML3 3rd Anti-Money Laundering Directive 2005/60/EC

AQR Asset Quality Review

ASB UK Accounting Standards Board

Banking ReformAct (2013)

Financial Services (Banking Reform) Act 2013

Basel Committee Basel Committee of Banking Supervision (of the BIS)

Basel II Basel II: International Convergence of Capital Measurement andCapital Standards: a Revised Framework

Basel III Basel III: International Regulatory Framework for Banks

BBA British Bankers’ Association

BCR Basic capital requirement (for insurers)

BIBA British Insurance Brokers Association

BIS Bank for International Settlements

BoE Bank of England

BRRD Bank Recovery and Resolution Directive

CASS Client Assets sourcebook

CCD Consumer Credit Directive 2008/48/EC

CCPs Central Counterparties

CDS Credit Default Swaps

CEBS Committee of European Banking Supervisors (predecessor of EBA)

CET1 Core Equity Tier 1

CESR Committee of European Securities Regulators (predecessor ofESMA)

Co-legislators Ordinary procedure for adopting EU law requires agreementbetween the Council and the European Parliament (who are the ‘co-legislators’)

CFT Counter Financing of Terrorism

CFTC Commodities Futures Trading Commission (US)

CGFS Committee on the Global Financial System (of the BIS)

CIS Collective Investment Schemes

Glossary

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 25

CMA Competition and Markets Authority

CMU Capital markets union

CoCos Contingent convertible securities

Council Generic term representing all ten configurations of the Council of theEuropean Union

CRA1 Regulation on Credit Rating Agencies (EC) No 1060/2009

CRA2 Regulation amending the Credit Rating Agencies Regulation (EU)No 513/2011

CRA3 proposal to amend the Credit Rating Agencies Regulation anddirectives related to credit rating agencies COM(2011) 746 final

CRAs Credit Rating Agencies

CRD ‘Capital Requirements Directive’: collectively refers to Directive2006/48/EC and Directive 2006/49/EC

CRD II Amending Directive 2009/111/EC

CRD III Amending Directive 2010/76/EU

CRD IV Capital Requirements Directive 2013/36/EU

CRR Regulation (EU) No 575/2013 on prudential requirements for creditinstitutions and investment firms

CTF Counter Terrorist Financing

DFBIS Department for Business, Innovation and Skills

DG MARKT Internal Market and Services Directorate General of the EuropeanCommission

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act (US)

D-SIBs Domestic Systemically Important Banks

EBA European Banking Authority

EC European Commission

ECB European Central Bank

ECJ European Court of Justice

ECOFIN Economic and Financial Affairs Council (configuration of theCouncil of the European Union dealing with financial and fiscal andcompetition issues)

ECON Economic and Monetary Affairs Committee of the EuropeanParliament

EEA European Economic Area

EEC European Economic Community

EIOPA European Insurance and Occupations Pension Authority

EMIR Regulation on OTC Derivatives, Central Counterparties and TradeRepositories (EC) No 648/2012

EP European Parliament

ESA European Supervisory Authority (i.e. generic term for EBA, EIOPAand ESMA)

ESCB European System of Central Banks

ESMA European Securities and Markets Authority

ESRB European Systemic Risk Board

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 26

EU European Union

EURIBOR Euro Interbank Offered Rate

Eurosystem System of central banks in the euro area, including the ECB

FASB Financial Accounting Standards Board (US)

FATCA Foreign Account Tax Compliance Act (US)

FATF Financial Action Task Force

FC Financial counterparty under EMIR

FCA Financial Conduct Authority

FDIC Federal Deposit Insurance Corporation (US)

FiCOD Financial Conglomerates Directive 2002/87/EC

FiCOD1 Amending Directive 2011/89/EU of 16 November 2011

FiCOD2 Proposal to overhaul the financial conglomerates regime (expected2013)

FMI Financial Market Infrastructure

FOS Financial Ombudsman Service

FPC Financial Policy Committee

FRC Financial Reporting Council

FSA Financial Services Authority

FSB Financial Stability Board

FS Act 2012 Financial Services Act 2012

FSCS Financial Services Compensation Scheme

FSI Financial Stability Institute (of the BIS)

FSMA Financial Services and Markets Act 2000

FSOC Financial Stability Oversight Council

FTT Financial Transaction Tax

G30 Group of 30

GAAP Generally Accepted Accounting Principles

G-SIBs Global Systemically Important Banks

G-SIFIs Global Systemically Important Financial Institutions

G-SIIs Global Systemically Important Institutions

HMRC Her Majesty’s Revenue & Customs

HMT Her Majesty’s Treasury

IAIS International Association of Insurance Supervisors

IASB International Accounting Standards Board

ICAS Individual Capital Adequacy Standards

ICB Independent Commission on Banking

ICOBS Insurance: Conduct of Business Sourcebook

IFRS International Financial Reporting Standards

IMA Investment Management Association

IMAP Internal Model Approval Process

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 27

IMD Insurance Mediation Directive 2002/92/EC

IMD2 Proposal for a Directive on insurance mediation (recast) COM(2012)360/2

IMF International Monetary Fund

IORP Institutions for Occupational Retirement Provision Directive2003/43/EC

IOSCO International Organisations of Securities Commissions

ISDA International Swaps and Derivatives Association

ITS Implementing Technical Standards

JCESA Joint Committee of the European Supervisory Authorities

JMLSG Joint Money Laundering Steering Committee

JURI Legal Affairs Committee of the European Parliament

LCR Liquidity coverage ratio

LEI Legal Entity Identifier

LIBOR London Interbank Offered Rate

MA Matching Adjustment

MAD Market Abuse Directive 2003/6/EC

MAD II Proposed Directive on Criminal Sanctions for Insider Dealing andMarket Manipulation (COM(2011)654 final)

MAR Proposed Regulation on Market Abuse (EC) (recast) (COM(2011) 651final)

MCD Mortgage Credit Directive

Member States countries which are members of the European Union

MiFID Markets in Financial Instruments Directive 2004/39/EC

MiFID II Proposed Markets in Financial Instruments Directive (recast)(COM(2011) 656 final)

MiFIR Proposed Markets in Financial Instruments Regulation (EC)(COM(2011) 652 final)

MMF Money Market Fund

MMR Mortgage Market Review

MREL Minimum requirements for own funds and eligible liabilities

MTF Multilateral Trading Facility

MoJ Ministry of Justice

MoU Memorandum of Understanding

NAV Net Asset Value

NBNI G-SIFI Non-bank non-insurer global systemically important financialinstitution

NFC Non-financial counterparty under EMIR

NFC+ Non-financial counterparty over the EMIR clearing threshold

NFC- Non-financial counterparty below the EMIR clearing threshold

NSFR Net stable funding ratio

OECD Organisation for Economic Cooperation and Development

Official Journal Official Journal of the European Union

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

FS regulatory, accounting and audit bulletin – March 2015 PwC 28

OFT Office of Fair Trading

Omnibus II Second Directive amending existing legislation to reflect LisbonTreaty and new supervisory infrastructure (COM(2011) 0008 final)– amends the Prospectus Directive (Directive 2003/71/EC) andSolvency II (Directive 2009/138/EC)

ORSA Own Risk Solvency Assessment

OTC Over-The-Counter

p2p Peer to Peer

PERG Perimeter Guidance Manual

PRA Prudential Regulation Authority

Presidency Member State which takes the leadership for negotiations in theCouncil: rotates on 6 monthly basis

PRIIPsRegulation

Proposal for a Regulation on key information documents forinvestment and insurance-based products COM(2012) 352/3

PSR Payment Systems Regulator

QIS Quantitative Impact Study

RDR Retail Distribution Review

RFB Ring Fenced Bank

RRPs Recovery and Resolution Plans

RTS Regulatory Technical Standards

RWA Risk-weighted assets

SCR Solvency Capital Requirement (under Solvency II)

SEC Securities and Exchange Commission (US)

SFT Securities financing transactions

SFD Settlement Finality Directive 98/26/EC

SFO Serious Fraud Office

SIPP Self-invested personal pension scheme

SOCA Serious Organised Crime Agency

Solvency II Directive 2009/138/EC

SSM Single Supervisory Mechanism

SSR Short Selling Regulation EU 236/2012

T2S TARGET2-Securities

TLAC Total Loss Absorbing Capacity

TR Trade Repository

TSC Treasury Select Committee

UCITS Undertakings for Collective Investments in Transferable Securities

XBRL eXtensible Business Reporting Language

Executive summary Capital Market Union

(CMU)

Cross sector

announcements

Banking and capital

markets

Asset management Insurance Monthly calendar Glossary

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives andpractical advice. See www.pwc.com for more information.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation orwarranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability,responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

150310-102457-PM-OS

Laura Cox020 7212 1579laura.cox@uk.pwc.com@LauraCoxPwC

Asset Management Banking & Capital Markets Insurance Local regulations & AML

John Luff

+44 (0) 1481 752121

john.luff@gg.pwc.com

Mark James

+44 (0) 1534 838304

mark.james@je.pwc.com

Evelyn Brady

+44 (0) 1481 752013

evelyn.brady@gg.pwc.com

Nick Vermeulen

+44 (0) 1481 752089

nick.vermeulen@gg.pwc.com

Mike Byrne

+44 (0) 1534 838278

michael.j.bryne@je.pwc.com

Nick Vermeulen

+44 (0) 1481 752089

nick.vermeulen@gg.pwc.com

Adrian Peacegood

+44 (0) 1481 752084

adrian.peacegood@gg.pwc.com

Neil Howlett

+44 (0) 1534 838349

neil.howlett@je.pwc.com

Adam Gulley

+44 (0) 1534 838390

adam.gulley@je.pwc.com

James de Veulle

+44 (0) 1534 838375

james.de.veulle@je.pwc.com

Chris van den Berg

+44 (0) 1534 838308

chris.van.den.berg@je.pwc.com

Contacts