With so much focus on changes in UK regulation at the moment, it’s easy for firms to shift their focus to what’s happening on our own shores and perhaps not to pay quite so close attention to what’s going on in Europe.
Of course, that’s not to say that regulatory developments from Europe are being ignored. I don’t think any affected insurer could say that about Solvency II; or any investment firm could say that about MiFID II or MAD II. But the challenge these days, particularly for boards and for the functions that advise them, is to make sure that they keep abreast of regulatory change on all fronts.
A complicated situation
Gone are the days when UK regulated firms only had to worry about making sure they complied with the rules laid down by the UK regulator. Before 1997 this would have been one of many self-regulating organisations and from then on it was the FSA up until 2013. But somewhere along the way, European regulation has been slowly making its presence felt to where now it is more direct and intrusive way than ever before.
They can – and they will!
The biggest issue for firms is to try and understand the different ways in which regulations can affect the UK; and the various sources for the rules they have to comply with. Starting off, you have the EU Directives themselves, which form the base of the rules, and therefore have to be read and understood.
Then you have the Technical Standards which are often laid down by one of a number of pan-European regulatory bodies. These include, for insurers and pension schemes, EIOPA (European Insurance and Occupational Pensions Authority), for investment firms, ESMA (European Securities and Markets Authority) and for banks, the EBA (European Banking Authority).
These Standards can put the meat on the bones of the Directives and are designed to fill in the gaps in the detail of the rules which Directives will inevitably not cover.
Then the interesting bit
The next step can often be for these European regulators to request that the host regulators in each state take these rules and translate them into their own handbooks of rules. Quite often, though, the approach taken by regulators is to effectively “copy out” the rules into their handbooks (as was the case in the UK with MiFID).
This means in practice that what these European regulators say in terms of rules can often be taken by firms in the UK to be the final position when a Directive goes live. That seems to be the case with Solvency II, as EIOPA is having a considerable influence on the way many aspects of the new rules will work in practice; for example, the reporting requirements.
So all of this means that developments from Europe have to be taken as seriously as those from the UK, and a close eye has to be kept on new rules as they develop.
Sitting below the line
So, enough about the framework, what’s going on at the moment that needs watching closely? Well, there’s no point in talking about Solvency II or MiFID II anymore as they’re no doubt being tracked very closely as “big ticket” items. But what about other developments?
A change for key features documents?
One change that hasn’t had perhaps as much press as others is the development of the new regulations requiring the production of a Key Information Document (or KID) for products falling within the definition of PRIIPS (Packaged Retail Insurance and Investment-Based Products).
The Directive text for these has now been laid, and the Regulations have been entered into force as a result of this publication. The date at which they come into effect has been set as 31 December 2016, although exemptions are in place for pension products and for UCITS funds. Other than these, insurance products with an investment element, investment funds and structured products will have to produce this new three-page document at the point of sale. Quite a significant change for firms who already produce disclosure documents of one sort or another in a form which they could be forgiven for thinking currently work fine.
The new money laundering directive slips in
After a very long lead in time, the latest European Money Laundering Directive has now been laid before the European Parliament and the two-year clock for implementing the rules in the host nations has now started ticking.
One of the major thrusts of the new regulations is to increase the transparency of beneficial ownership in company and trust structures. But did you know that this has already started? The Small Business Enterprise and Employment Act 2015 has introduced new requirements for non-listed companies to identify and to register those people who control more than 25% of the shareholding or voting rights in the company, directly with Companies House. Does this affect you or your clients?
A question of knowledge
These are just two examples and I could list several more. The point I’m trying to make, though, is that it’s more important than ever before to understand what’s going on in Europe and how it will affect each firm. This is essential information for boards to know, and to a great degree, they will rely on their advisers within the firm to guide them.
And that’s where training can be a big help to short-cut this process. External providers are now providing a significant number of resources to help firms guide their way through upcoming European regulatory developments, and use of these resources would be wise.
Because no firm can afford to fall foul of European regulatory requirements and miss important deadlines.
But with this as your starting point, there’s no reason why that should happen.
By Martyn Oughton a Professional Member of the International Compliance Association (ICA). Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.
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