Latest Level 3 ESMA Q&As related to MiFID II/MiFIR – July 2017

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the relevant ESMA Q&As from 7 July and 10 July 2017 listed below.

PwC provides you with this newsletter an overview of the latest questions related to the following topics:

  1. Investor protection and intermediaries topics (10 July 2017)
  • Best execution
  • Recording of telephone conversations and electronic communications
  1. Market structures topics (7 July 2017)
  • Direct Electronic Access (DEA) and algorithmic trading
  • Multilateral and bilateral systems
  • Access to CCPs and trading venues
  1. Data reporting (7 July 2017)
  • Field 14 and Field 17 – Total issued nominal amount
  • Field 30 – Quantity
  • Reference data for financial instrument
  • Transaction reporting
  • Order record keeping
  1. Commodity derivatives topics (7 July 2017)
  • Position limits
  • Position reporting

Read the whole article.

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR.

Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory & Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory & Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

Orkan Sahin
Senior
PwC Legal FS Regulatory & Compliance Services
+41 58 792 19 94
orkan.sahin@ch.pwc.com

A look at current financial reporting issues

IFRS 17 marks a new epoch for insurance contract accounting

In May 2017, the International Accounting Standards Board (IASB) issued IFRS 17, ‘Insurance Contracts’, and thereby started a new epoch of accounting for insurers. Whereas the current standard, IFRS 4, allows insurers to use their local GAAP, IFRS 17 defines clear and consistent rules that will significantly increase the comparability of financial statements. For insurers, the transition to IFRS 17 will have an impact on financial statements and on key performance indicators.

Under IFRS 17, the general model requires entities to measure an insurance contract at initial recognition at the total of the fulfilment cash flows (comprising the estimated future cash flows, an adjustment to reflect the time value of money and an explicit risk adjustment for non-financial risk) and the contractual service margin. The fulfilment cash flows are remeasured on a current basis each reporting period. The unearned profit (contractual service margin) is recognised over the coverage period.

Aside from this general model, the standard provides, as a simplification, the premium allocation approach. This simplified approach is applicable for certain types of contract, including those with a coverage period of one year or less.

For insurance contracts with direct participation features, the variable fee approach applies. The variable fee approach is a variation on the general model. When applying the variable fee approach, the entity’s share of the fair value changes of the underlying items is included in the contractual service margin. As a consequence, the fair value changes are not recognised in profit or loss in the period in which they occur but over the remaining life of the contract.

The new standard is applicable for annual periods beginning on or after 1 January 2021. Early application is permitted for entities that apply IFRS 9, ‘Financial Instruments’, and IFRS 15, ‘Revenue from Contracts with Customers’, at or before the date of initial application of IFRS 17. The standard can be applied retrospectively in accordance with IAS 8, but it also contains a ‘modified retrospective approach’ and a ‘fair value approach’ for transition depending on the availability of data.

Read the full report on IFRS 17


Contact:

Immy Pandor
Assurance Partner
Tel. +41 58 792 48 78
immy.pandor@ch.pwc.com

Successful robotics initiatives need the backing of agile staff who are open to change

In the past, managing change has all too often been equated with (belated) project communications and training. More recently, however, experts have concurred that digital transformation, and ultimately its success, hinges on both the organisation and the people involved. Despite this, robotic process automation (RPA) and artificial intelligence (AI) initiatives in particular still tend to focus very much on the technology, paying little heed to how the organisation is going to keep pace. But if you want to harness the full potential of transformation in terms of saving costs and upgrading the work your people do, you have to make changes affecting your business model, organisation, culture and individual people early on.

Efforts to automate always involve far more than simply streamlining processes, boosting efficiency and lowering costs. They’re also bound up with new business models and modern organisational forms – and people who find themselves confronted with fundamental changes. You have to pay special attention to the new roles people will play, the skills they’ll need to do so, and how they’re going to deal with the new technical applications that have been introduced. Other things that change include, notably, the interfaces between people and machines (which go beyond mere repetitive tasks), the way the interaction between people and machines is orchestrated, and the value-adding interfaces between people. This is also confirmed in the recent 20th Annual Global CEO Survey conducted by PwC, in which 52% of CEOs polled said they are currently looking into the benefits of human/machine interaction and the impact of artificial intelligence on future skills and competences.

These findings suggest that front-to-end automation shapes an organisation in ways that go far beyond the kind of changes we’ve seen in the past, and compel decision makers to take a comprehensive view of this type of transformation.

  1. Interfaces: It’s not just the interfaces between employees and technology (software) that change in the wake of automated processes, but those between employees and customers as well. The goal has to be for both the customer and the employee (the internal customer) to perceive human/machine interaction as something that adds value and eliminates tasks that cost time and nerves.
  2. Roles: Once the process of value generation has been completely automated, the role of humans changes fundamentally, with new tasks created and old ones eliminated or taken care of by machines. With the focus shifting to new types of customer interaction, the employees involved need new skills and areas of responsibility. It’s one thing to be relieved of certain repetitive monotonous tasks, but they also need to be able to take on new work involving a level of skill, and often also a control function, for which they don’t necessarily have the digital agility, skills and competences.
  3. Orchestration: An organisation that automates its value creation needs to skilfully orchestrate the new or redesigned interaction between people and machines and employees and (internal) customers. These touchpoints are key to the sustained success of any automation solution. In particular, when tasks are passed on – for example from an avatar to a human colleague – this has to happen smoothly so that the customer perceives the whole thing as a satisfying interplay rather than receiving the impression that they’re getting second-class service.
  4. Networks: Automation often has to be tackled on a cross-divisional basis, requiring networking skills from everyone involved. Particularly challenging is the fact that networks are increasingly merging together, meaning that sooner or later there will have to be changes in hierarchies and structures as well.

Evolution required

The majority of Swiss companies embarking on automation projects still aren’t very advanced in terms of digital organisation. Most, for example, will pick individual processes that are suitable for automation and start out by testing prototypes, even though the underlying technology for purely repetitive processes has long since reached maturity. In the process they usually neglect the enterprise-wide impact on staff and customers and their potential for helping optimise value creation, and partnerships are generally relegated to Plan B.

An RPA business case will often claim staff savings of more than 50%, but rarely will it talk about the organisational and employee-related consequences if this potential is actually to be realised.

An interesting discussion then is whether it’s easier for the organisation to follow suit if you start with processes that were originally outsourced to low-wage countries. But even if you take this view there’s no way around the necessity of defining new roles and on this basis working out what skills and competences the remaining staff will have to bring or acquire.

Look beyond silos at the whole picture

As we’ve already discussed, companies undertaking automation have to flesh out the new forms of collaboration between people, and between people and machines. But they also have to define how sharing, collaboration and the generation of new business ideas and products across departmental boundaries – in fact across entire fields of business and hierarchical levels – are to take place.

For example it’s not sufficient to try to onboard customers by simply giving them an intuitive app for data capture. You have to assess the entire process front to back and automate every step that offers the customer an unparalleled experience, boosts efficiency and effectiveness, and eliminates unnecessary costs. This means taking whole steps in the process and redesigning, simplifying or replacing them, or creating new ones. This will fundamentally change the work packages involved.

It follows that the company will have to adapt its entire workflows and organisational structures in line with the automated structures, right down to the design of functions, roles, competences and working models.

Hello bot, goodbye Joe?

Things get really interesting when artificial intelligence is involved. At this point it’s not just about executing rule-based processes more efficiently and precisely; it’s about intelligent interaction with customers, whether they’re internal or external. The result is a wide range of different dialogue and advice services. Lively interaction between humans and artificial intelligence, for example in the form of avatars, ensures that the customer is always dealing with the counterpart best able to solve their problem.

Of course the spheres of application are endless. Recently a bank announced that an avatar with an episodic memory originally used in the back office is now also to be used for direct consultations with clients. Naturally avatars of this sort can also be used in less complex situations, for example when it comes to helping people find information more easily or fill out forms correctly. In other words, why not start out by trying things with a simple issue and then move on to more complex cases?

The voice from offstage

Employees involved in an RPA or AI project, who in most cases will be affected, ask questions. “Why does our company need this when things are working better than ever?” “Should I be going along with this?” “What’s it all good for?” “Where will it all end?” “What does this mean for me personally?” “What will my job be like in the future?” “Will they even need me?” Companies have to have clear answers to these questions. Management has to explain clearly and confidently the company’s vision, strategy and business model so that people can understand and grasp the efforts to automate and what they mean in concrete terms for the organisation and each individual person. Only if management demonstrably provides a clear road map of a shared journey into the digital future, allows the organisation to accommodate the changes, and gives staff the chance to change track, will automation efforts bear the desired fruit.

In a nutshell

Digitisation, RPA and IA projects free up vast financial and human resources. Companies have to make sure they not only address transformations of this sort at the technical level, but assess the organisational and human consequences and redesign accordingly. They can stand out by making sure their automation efforts revolve around the anticipated (internal and external) customer experiences, give social skills and networking high priority, and introduce intelligent machines as ‘equal’ colleagues. Last but not least, it’s important to ensure staff have support and guidance when it comes to relinquishing administrative work in favour of tasks that, thanks to their skill and judgement, they can perform better than machines.

Contact

Dr. Milena Danielsen
Director Advisory
Tel. +41 58 792 4447
milena.danielsen@ch.pwc.com
https://ch.linkedin.com/in/dr-milena-danielsen

Juliane Welz
Assistant Manager
Tel. +41 58 792 1913
juliane.welz@ch.pwc.com

Insurance’s new normal: Driving innovation with InsurTech

The pace of change in the Financial Services industry is accelerating, and while the insurance world won’t change overnight, many have begun to look outside their own organisations in order to respond to challenges and take opportunities. New products and services are developing which meet the needs of an expanding and changing customer base. Costs will begin to decrease as new ways of doing business evolve and emerging technologies, such as artificial intelligence
(AI) and the Internet of Things (IoT), not only provide customers with a better experience, but also streamline back office operations. InsurTech is reshaping the insurance industry. Previously viewed as a disruptive force, it is now driving innovation across the sector.

The insights in this report are based on the responses of 189 senior Insurance Sector executives from 40 countries who participated in PwC’s Global FinTech Survey 2017. With an editorial board made up of specialists from around the world we complemented the report with our own insights and analysis into how InsurTech and Insurance are moving closer together and how insurance is innovating in response to InsurTech. The report is also fuelled by proprietary research from PwC’s DeNovo, focused on InsurTech innovation and its impact on business.

Global InsurTech Report – 2017

Contact:

Patrick Mäder
Advisory Partner
Tel. +41 58 792 4590
maeder.patrick@ch.pwc.com
https://ch.linkedin.com/in/pmaeder/de

Swiss Federal Council Adopts Dispatch on AEOI with 41 Jurisdictions

On 16 June 2017, the Swiss Federal Council agreed to adopt the dispatch on the introduction of the Automatic Exchange of Information (“AEOI”) with 41 states and territories. Switzerland will activate the AEOI with each individual state/territory via specific federal decrees within the framework of this dispatch.

This dispatch strengthens Switzerland’s international position, as its AEOI network has extended to most of the G20 and OECD states, in addition to the already existing agreements with 38 states and territories, including all EU member states.

As part of this dispatch, collection of information will begin in 2018 for a first data exchange in 2019. Brazil, China, Liechtenstein, and Russia are notable states included within the list of 41 states and territories.

Please refer to the following link for the Swiss Federal Council’s official media release:

Englishhttps://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-67079.html
Germanhttps://www.admin.ch/gov/de/start/dokumentation/medienmitteilungen.msg-id-67079.html

FFIs should renew their FATCA agreements by 31 July 2017

IRS reminds FFIs to renew their FATCA agreements on the FFI Registration System

On 7 June 2017, the U.S. Internal Revenue Service (“IRS”) reminded foreign financial institutions (“FFIs”) that the FATCA FFI Registration system has been updated to include the ability for FFIs to renew their agreement with the IRS.

FFIs that are required to renew their FFI Agreements should resubmit their registration applications by 31 July 2017, in order to be treated as having the FFI Agreements in effect as of 1 January 2017.

In addition, FIs around the world have been receiving messages from the IRS FATCA Registration System reminding them to update their agreements, if required. To make this process simpler, a “Renew FFI Agreement” now appears on the account home page after logging in.

For more information regarding which FFI’s are required to register, please see Table 17 on page 85 in Publication 5118.

IRS releases revised FATCA Online Registration User Guide

In June 2017, the U.S. Internal Revenue Service (“IRS”) released a revised Publication 5118 Foreign Account Tax Compliance Act Online Registration User Guide. Under the “What’s New” section, the IRS has provided the following information:

  • The FATCA Online Registration System now allows FIs to renew their foreign financial institution (FFI) agreement with the IRS. Certain financial institutions (FIs) must complete the renewal by July 31, 2017. All registered entities should use the system to determine whether they need to renew their agreement. (Table 17: Self Determination for Renewal of FFI Agreement can assist FIs with their determination.)
  • The FATCA Online Registration System adds account home page information regarding Renewal of FFI Agreement information including updates to account information such as the renewal due date and submitted date.
  • The IRS has discontinued the limited status for new or renewing FI applicants. Existing branches will no longer be marked as being in limited status.
  • Additional updates include:
    • A warning banner added to the login steps.
    • The number of attempts allowed to login to the registration system is reduced from five to three attempts.

Latest Level 3 ESMA Q & As related to MiFID II/MiFIR

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the relevant June and May 2017 Q&As below.

PwC provides you with this Newsletter an overview of the latest questions related to the following topics:

  1. Investor Protection
  • Information on costs and charges
  • Post-sale reporting
  • Appropriateness / complex financial instruments
  1. Transparency
  • None-Equity transparency
  • Pre-trade transparency waivers
  • The systematic internaliser regime
  • Data reporting services providers
  • Third country issues
  1. Market Structure
  • Direct Electronic Access (DEA) and algorithmic trading
  1. Commodity Derivatives
  • Position Limits
  • Ancillary Activity
  • Third country issues

Read the whole article.

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR. Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

Orkan Sahin
Senior
PwC Legal FS Regulatory and Compliance Services
+41 58 792 1994
orkan.sahin@ch.pwc.com

Live PwC IFRS 17 webcast

IFRS 17 is coming – Why should you care about it?

In May 2017, the IASB will be finalising its long-standing project on insurance accounting and publish IFRS 17.

As an insurer, you will need to apply IFRS 17 for annual periods beginning on or after 1 January 2021. IFRS 17 will fundamentally change the accounting for all entities that issue insurance contracts and investment contracts with discretionary participation features.

Join our live webcast on IFRS 17, ‘Insurance Contracts’, on 31 May 2017 when we’ll be joined by Darrell Scott, an IASB board member. During the webcast you’ll get:

  • An overview of the accounting requirements
  • Practical issues that your organisation should consider in relation to IFRS 17
  • Expected implementation challenges

Webcast details

Date: Wednesday 31 May 2017

Time: 11:00 (GMT + 01:00)

 

Registration

You will receive a link to join the webcast from Alex Bertolotti, our Global IFRS Insurance Leader, nearer the time.

Contact

Patrick Maeder
Partner – FS Advisory
PwC Switzerland
+41 58 792 4590
maeder.patrick@ch.pwc.com

Transforming Businesses through Drone Technologies

Tuesday, 30 May 2017, Papiersaal Sihlcity, Zurich

The digital transformation agenda is revolutionising business operations and impacting technological progress as well as improving economic results. The disruption through drones is a perfect example of the transformation of operational processes and PwC is pioneering on this front with the development of a dedicated solution that helps businesses.

PwC’s Drone Powered Solutions sees the commercial application of drone technologies which provides the ability to capture unparalleled levels of both data volume and data accuracy that are analysed to suit the business’ requirements. After a presentation of PwC’s global thought leadership report “Clarity from Above” which focuses on the commercial application of drones technologies, we will highlight case studies that demonstrate how drone solutions can be integrated in insurance, construction and agriculture industry businesses. We will follow with workshops around opportunities and challenges facing drones technologies implementation.

We would like to welcome you to presentations and discussions that focus on drone technologies. The event features drones in flight, virtual reality and the opportunity to engage with subject matter experts in this exciting topic.

Date and Time: Tuesday, 30 May 2017 – 10:00 – 16:00 hours
Venue: Papiersaal, Alte Sihlpapierfabrik, Kalenderplatz 6 (Sihlcity), 8045 Zurich
Costs: There will be no costs charged for this Event
Programme: Find the detailed programme online

Please register online

We are looking forward to your participation!