Shipleys LLP

Chartered Accountants and Professional Business Advisers

Financial Services Update - May 2017

Cyber Security

Although not specific to financial services institutions it is worth mentioning cyber security, especially in the wake of the recent large Ransomware cyber-attack. Ransomware encrypts files on a system and demands a payment to release them back to you. This can be crippling for any business but for a financial services business it is worth considering the following:

  • What would the impact be of your systems being down while you recover data from a cyber attack - would you be able to remain FCA compliant?
  • Ensure you have the most recent security updates installed and make regular backups.
  • Train staff in cybercrime awareness – attacks these days tend not to be direct hacking attempts, but a phishing email designed to look innocent containing a file/link which, when followed, will compromise your system. It only takes one person to do this, so training staff on what to look for and maintaining an air of scepticism about what is in their inbox is very important.
  • Fraudsters have been using fake emails purporting to be from the FCA, so be aware of these too: www.fca.org.uk/news/statements/fake-fca-email

Future of COREP

The EBA has issued proposals to shake up how the capital requirement under CRD IV is calculated for firms. The rules as they stand are complex and were principally designed with banks and large financial institutions in mind. If you are subject to COREP you will know that these rules also caught much smaller firms and the reporting can be onerous.

The proposal is to calculate the capital requirement based on a new method using capital factors (k-factors).

The fixed overhead and base requirements will remain ‘floors’ under the k-factor approach. The k-factors (and therefore the requirement) are based on the risk to customers, risk to market access and integrity.

These have yet to be adopted, and remain in the early phases of discussion, but you should be aware of the potential changes to this regime.

www.eba.europa.eu/documents/10180/1647446/Discussion+Paper+on+a+new+prudential+regime+for+Investment+Firms+%28EBA-DP-2016-02%29.pdf

Investments in illiquid funds

The FCA has released a discussion paper (DP17/01) which will affect open ended investment funds investing in illiquid investments. One area this will potentially apply to is property funds which are becoming increasingly popular. After the Brexit decision in June some property funds had to temporarily stop redemptions for investors, and this is something that the FCA identified as a risk. While the discussion paper does not propose anything yet, it would be worth keeping on the radar for property fund managers.

MiFID II

I’m keeping this on here as a reminder as it is approaching every closer! If you have not yet assessed the impact of MiFID II and the way this is going to impact your business you should act now. A gap analysis will help show where the company is against where it needs to be. If you need help with this, please get in touch and we can point you in the direction of a specialist compliance firm.

If you need to change any permissions or apply for authorisation, the deadline is 3 July 2017 for the application to go into the FCA, to guarantee it will be in place for when it goes live on 3 January 2018.

The FCA has released its first policy statement (PS17/05) on how MiFID II will be implemented in the handbook.

Payment Services Regulations

The new PSRs 2017 are covered by a consultation paper (cp17/11) with how the FCA is approaching to implement them. This will affect you if you an e-money issuer, so please ensure you are up-to-date with the potential changes if you are within scope.

General points

On the back of a 2014 thematic review, the FCA has found that not all investment managers are ensuring effective oversight of best execution. If the FCA comes to inspect you, expect that this will be on the agenda, so something to address if needs be.

There has been a new policy statement on remuneration on CRD IV firms (ps17/10). However, you are classified as a level three firm (the lowest level of regulation) if you have assets of less than £15bn, so these rules are generally dis-applied.

The FCA has proposed an increase in fees of 1.5% on average across the board and, as usual, the way these will be apportioned has been altered slightly. If you are in scope of MiFID II, expect the FCA’s cost of implementing this to be reflected in your fee for the coming year.

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered.

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