Revenge Of The Trilogues

They sound like something from a sci-fi horror movie, but the Trilogues are actually already among us. In an excellent article, Vicky Marissen, MD of PACT European Affairs, has explained how these "three-way discussions" have moved further and further away from their rightful place in the latter part of the ordinary European legislative procedure and are now being used informally as a legislative shortcut - something the new EU agreement seems likely to make even worse.

Relying more on trilogues means that about 90% of EU legislation is adopted on first reading without any genuine legislative debate; and secondary legislation is being used to kick more sensitive cans down the Rue du Luxembourg. Indeed, trilogues are now happening within just a few days of each other without publishing the changes agreed, so it's impracticable for those outside the trilogues to follow or attempt to engage in what is really a closed debate. This was a frequent problem in the course of agreeing the new Payment Services Directive, for example.

The recent EU institutional agreement on better regulation won't fix this, as the Commission is able to use its participation in trilogues to (wrongfully) assume the role of legislator - note that its proposal for better regulation didn't even mention the word "trilogue" and merely stated that "The three institutions will ensure an appropriate degree of transparency of the legislative process, including of trilateral negotiations between the three institutions." If anything, that agreement promises more informal trilogues:

"Where appropriate, the three institutions may agree to coordinate efforts to accelerate the legislative adoption process, both during each institution's internal preparatory steps and during the inter-institutional negotiations."

Not only does this increasingly closed shop raise the risk of poor, ill-considered drafting that creates costs for the broader community, but the mere perception of an opaque process also widens the gap between EU legislators and EU citizens - a gap that is already wider than the one between national legislators and their citizens.

The EU's legislative process needs to be more transparent than national processes, not less, if the EU is to be respected or seen as a Good Thing.

I'm amazed the Brexit fans aren't sounding the alarm over this...

Oh, wait, no I'm not. The Brexit 'debate' is pure politics, not connected to anything real.

Privacy Not Core To Your Business? Take The ICO's 12-Step Programme

Though years in the making, it's possible that word of the EU's data protection reforms has yet to penetrate some boardrooms, let alone the IT development roadmaps of UK plc, and the UK Information Comissioner is very concerned that Britain will not be ready to comply. So much so that it has created a new website to urge preparation for the new law - even though the draft directive is not due to be passed until after the UK's referendum on EU membership, and will not take effect until mid-2018. 

Brexit fans should still be concerned. The US will tell you that appropriate privacy safeguards are just one cost of doing business with Europe, and the UK will also need to comply in substance if it is to qualify for cosy trade deals as a non-member of the EU. 

The ICO recommends starting with this 12-step programme.

Is The UK Framing Canada?

The economy, financial services and privacy are among the most sensitive political areas for the United Kingdom, yet with Mark Carney in charge at the Bank of England and the recent appointment of Elizabeth Denham as the UK's next Information Commissioner all these areas are now the responsibility of Canadians. Seems the UK government is looking for someone else to blame...

Distributed Ledger Technology: Cutting Through The Hype

A busy start to 2016 has meant the blog has suffered, but I have at least co-written an article with Susan McLean of Morrison & Foerster that cuts through the hype around blockchain and other distributed ledger technology (DLT). 

The article includes updates on a range of DLT initiatives across numerous business sectors; various policy and regulatory responses; as well as some thoughts on the challenges involved in implementing DLTs.

In January, I also posted on Pragmatist about on the potential use of DLTs for tracking and collecting royalties on music and other creative works. But whether this technology will address the root causes lurking beneath the biggest problems that the creative industry faces is another question...

RegTech Bottleneck?

The UK's Financial Conduct Authority is rightly proud of its Innovation Hub, Regulatory Sandbox and new "RegTech" approach, which includes "managing regulatory requirements more efficiently, and... how we can best support developments and potentially adopt some RegTech solutions ourselves."

But the figures suggest that either more resources are required or there has to be a quicker route to market for new firms.

Of 413 requests received as at February, about 215 firms (52%) obtained support from the FCA's Innovation Hub. But only 39 firms (18%) have either been authorised (18) or are going through the approval process (21).  And in a recent statement defending its record on processing applications for authorisation by P2P lending platforms, the FCA said that it has only processed 8 of 94 applications received (about 9%).

Something is gumming up the works!

In its statement on the P2P lending process, the FCA bravely claims that it is "taking a proportionate approach to regulation, recognising the need for consumers to be adequately protected and have the information they need". It has a deadline of 12 months to decide on applications (actually 6 months for complete applications). But it's not like these firms are trying to flout the law - they have willingly approached the FCA for approval. Indeed, the P2P lending industry spent years lobbying for regulation of the sector, which was introduced by the Treasury in early 2013 and took effect on 1 April 2014. Yet since then the FCA's figures suggest that over 40 new firms have applied to enter the market and 42 of them are unable to trade because their application to do so is yet to be approved. Another 44 firms are still relying on their interim permission by virtue of being licensed under the previous regulatory regime, and therefore (ironically) cannot offer the new Innovative Finance ISA because they are not yet fully authorised.

How many firms are able to persist against these regulatory headwinds remains to be seen, but the approach seems neither proportionate nor worthy of the FCA's ambition to foster innovation and competition for the benefit of consumers. So far, the traditional players remain pretty safely sheltered behind the FCA's regulatory wall.

Something must be done.

Either the FCA needs more resources or it must adopt a more expeditious approach to granting regulatory approval - a mechanism that allows firms to begin trading more quickly under certain thresholds, for example, as is the case with small payment institutions and small e-money institutions. Indeed, payment services firms enjoy their own regulatory regime (with a 3 month turnaround time for complete applications); and the P2P industry lobbied for that regime to be used as the basis for regulating their platforms - an approach which the French and Spanish have since adopted and the European Banking Authority supports.

Recent Changes to FCA Rules for P2P Lending Platforms

The FCA has announced some changes to rules on P2P lending (explained amongst other non-P2P changes here). Feedback on the prior consultation papers and final rules are here.

You should consult the listed FCA Handbook sections for the detailed changes, but in summary they are designed to: 

• simplify client money requirements for P2P platform operators that hold money in relation to both regulated and unregulated peer-to-peer business which come into force immediately on 21 March, as they are helpful. The rule changes and related guidance are in: 

Glossary; SYSC 4; CASS 7; TP 1, Schs 1 and 2; SUP TP 1 

• support the introduction of the Innovative Finance ISA (IFISA) and new regulated activity of advising on P2P agreements, by clarifying the FCA’s expectations about standards for IFISA disclosures and establishing a regulatory regime for the provision of regulated advice on P2P agreements that reflects the recent changes to the Regulated Activities Order. The rule change come into force on 6 April 2016. The rule changes and related guidance are in: 

Glossary; SYSC 1 and 4; TC 2, App 1.1 and 4.1, TP 8; FEES 4; COBS 2, 4, 6, 9 and 14; CASS 7; SUP 10A, 12, 16, App 3; DISP 2; COLL 6; and PERG 1, 2, 5, 7, 8, 10 and 13

Are Your Payment Accounts Caught By The Payment Accounts Regulations?

If you offer any type of "payment account" covered by the Payment Services Regulations, then the time has come to assess whether any of those fall within the scope of the Payment Accounts Regulations 2015 (“PARs”). From 18 September 2016, affected accounts will be covered by provisions relating to switching; accounts with basic features; and packaged accounts.

In its recent consultation paper, the FCA has said it expects firms to:

• make (and record) an initial assessment of the potential application of the PARs;

• put processes in place to make ongoing assessments for every new account introduced or changes to the functionalities of accounts are introduced; and

• revisit the issue regularly in case consumers are using the accounts differently or any other relevant factors change.

Unfortunately this is not an easy process. In particular, not all “payment accounts” under the Payment Services Regulations (which include e-money accounts) will necessarily fall within the scope of the PARs, as the definitions are different. This has caused uncertainty as to the scope of the PARs which the FCA has tried to put  right in the consultation paper (see Appendix 2).

The FCA has also offered guidance on what constitutes "packaged accounts" and what information must be given to consumers in relation to those under regulation 13 of the PARs (see Appendix 3).

Payment accounts providers must either participate in a designated switching service or provide one that meets certain minimum requirements in the PARs. There is a separate consultation by the Payment Services Regulator on the designation and monitoring of alternative switching services.

And finally, a little something for those preoccupied by Brexit.

As mentioned in July 2015, the PARs import the provisions of the EU Payment Accounts Directive ("PAD") but, as the FCA has stressed in its consultation paper, the UK created its own complexity and red tape in this scenario - choosing to 'gold-plate' EU law by copying it into UK laws that are interpreted literally, rather than reflecting the purposive interpretation that civil law member states adopt:

"In line with the Government’s default approach to implementing EU directives, the provisions of PAD have been copied out into the regulations as far as this is possible.... " (at para 1.12)

Whichever side of the Brexit debate you're on, if any, it's worth realising that Brussels is not always to blame!