A&O Shearman | FinReg

EU Review of RTS on Transaction Reporting and Order Book Data Under MiFIR Review

October 3, 2024

The European Securities and Markets Authority has published a consultation on the review of regulatory technical standards on transaction data reporting and on order book data under the revised Markets in Financial Instruments Regulation. The proposed changes to the RTS stem from the MiFIR Review amendments. We discuss the overall MiFIR Review changes in our bulletin "MiFID II: the EU's latest adaptations". The deadline for comments is January 3, 2025. ESMA aims to publish a final report and submit the draft technical standards to the EC by the end of Q2 2025.

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Topic : MiFID II

UK Draft Payment Services (Amendment) Regulations 2024 Published

October 2, 2024

HM Treasury has published a final draft version of the Payment Services (Amendment) Regulations 2024, enhancing efforts to address authorized push payment fraud. The draft Regulations amend regulation 86 of the Payment Services Regulations which require payment service providers to execute payment transactions within maximum time limits. The amendments give a payer's PSP the ability to delay the execution of certain payment orders where, within a specified time, provided the PSP establishes reasonable grounds to suspect the order has been made subsequent to fraud or dishonesty perpetrated by a third party (which may include the payee). The purpose of the delay is to enable the PSP to determine whether the order should be executed and must not exceed a specified time limit. Where the PSP exercises the ability to delay, the PSP will be liable for any charges or interest incurred by the payer resulting from the delay. The legislation is due to be laid before parliament shortly after the government's return from conference recess.

Topic : Payment Services

UK Payment Systems Regulator Publishes Policy Statement Confirming the Maximum Level of APP Scam Reimbursement

October 2, 2024

The Payment Systems Regulator has published a policy statement confirming the maximum level of Authorized Push Payment scam reimbursement. The statement follows the PSRs recent announcement confirming its decision to reduce the maximum level that payment service providers will have to reimburse victims of Faster Payments APP scams to £85,000 per claim, in line with the Financial Services Compensation Scheme limit. The statement provides an overview of the responses the PSR received to the consultation, sets out how the PSR has considered and weighed the responses and information received through the consultation in reaching its view and explains the reasons for its decision on the maximum level. The PSR explains that it will keep this level under review and consider it as part of its 12-month evaluation of the reimbursement policy. The Bank of England, as the operator of CHAPS, has also decided to set the maximum level for CHAPS APP scams to £85,000 per claim. The start date for the reimbursement policy is October 7, 2024, and the PSR reminds PSPs to continue the work already underway to prepare and ensure they are ready to implement the requirements.

Topic : Payment Services

UK Financial Policy Committee Publishes Latest Summary and Record

October 2, 2024

The Bank of England has published the record of the Financial Policy Committee meeting on September 19, 2024. Headline judgements and policy actions from the meeting: (i) risks to U.K. financial stability are broadly unchanged since the June 2024, although significant financial market and global vulnerabilities remain; (ii) there was a significant spike in volatility across global financial markets in August. Although short-lived, the FPC notes that the extent of the moves, in response to relatively limited economic news, illustrates the potential for vulnerabilities in market-based finance to amplify shocks; (iii) the U.K. banking system remains in a strong position to support households and businesses, even if economic and financial conditions were substantially worse than expected.

The FPC decided to maintain the U.K. countercyclical capital buffer at its neutral rate of 2% and as part of its annual review of the leverage ratio Direction, the FPC confirmed that the U.K. leverage ratio framework remained appropriate. The FPC's next meeting will be on November 15, and the record will be published on November 29, 2024.

Topic : Bank Prudential Regulation & Regulatory Capital

UK Regulators Warn Against Use of Credit Sensitive Rates as Successors to LIBOR

October 1, 2024

The Bank of England has published a joint press release with the Financial Conduct Authority and the Working Group on Sterling Risk-Free Reference Rates (Working Group) on the end of LIBOR. On September 30, 2024, the remaining synthetic LIBOR settings were published for the last time. All 35 LIBOR settings have now permanently ceased and the Working Group has been wound down effective on October 1, 2024. Moving forward, market participants are encouraged to continue to ensure they use the most robust rates for the relevant currency, such as SONIA for GBP and SOFR for USD. Market participants should ensure their use of term risk-free reference rates, such as term SONIA and term SOFR, are limited and comply with the best practice guidance. Market participants are reminded that credit sensitive rates should not emerge as successor rates, because they are not robust or suitable for widespread use as a benchmark. In particular, USD credit sensitive rates have the potential to reintroduce many of the financial stability risks associated with LIBOR.

Topic : LIBOR Transition

Net-Zero Banking Alliance 2024 Publishes Progress Report

October 1, 2024

The United Nations Environment Programme Finance Initiative has published a 2024 progress report produced by the Net-Zero Banking Alliance. Launched in 2021, the NZBA is a bank-led alliance of 144 banks globally voluntarily committed to aligning their financing activities with routes to net zero emissions by 2050. The progress report summarizes information received from 122 member banks and offers insights into members' progress on target setting and transition planning. Overall, the report shows that most NZBA banks are taking significant steps towards meeting their climate goals. In the report, the NBZA identifies areas where more work is required, such as setting decarbonization targets for banks, which remains a challenging exercise due to the quality of client greenhouse gas emissions data, unclear decarbonization pathways, and a lack of a supportive policy environment. Insights gained from the progress will inform the steps NZBA will take to support emerging market banks that need more time to meet milestones. Following the vote earlier this year by member banks to reinforce and update the NZBA target setting guidelines, NZBA banks with significant capital markets activities are due to update their targets to include related emissions by November 2025.

Topic : Climate & Sustainable Finance

Single Resolution Board Adapts MREL Policy to Align with the Daisy Chains Directive

September 30, 2024

The Single Resolution Board has published a communication on the changes to its minimum requirements for own funds and eligible liabilities policy to be implemented in line with the "Daisy Chains Directive" (Directive (EU) 2024/1174). That Directive amended the Single Resolution Mechanism Regulation and the Bank Recovery and Resolution Directive. The changes brought in by the Daisy Chains Directive mean that from November 14, 2024, the SRB will not determine the MREL for liquidation entities unless it considers it justifiable to set an amount exceeding the amount sufficient to absorb losses. In addition, provisions of the Capital Requirements Regulation under which resolution authorities may allow, subject to certain conditions being met, institutions to reduce eligible liabilities instruments, will not apply to liquidation entities for which the SRB has not determined MREL. As a result, reporting and disclosure obligations do not apply to the liquidation entities for which the SRB does not determine MREL.

The SRB confirms that the previously adopted decisions setting MREL at the level equal to the loss absorption amount will be repealed with effect as of November 14, 2024. Furthermore, the prior permissions granted to the same liquidation entities under CRR and the related process set out in Delegated Regulation (EU) 241/20146 with validity beyond November 14, 2024 are repealed as of the same date. This means that relevant liquidation entities will no longer be limited by the prior permissions and will be in the position to reduce eligible liabilities instruments without the SRB's prior permission.

Topic : Recovery & Resolution

UK Joint Money Laundering Steering Group Finalizes Amendments to Guidance for Firms Operating in Wholesale Markets

September 30, 2024

The Joint Money Laundering Steering Group has published the amended version to Part II Sector 18 (wholesale markets) of its AML/CTF guidance for the financial services sector. Changes to the guidance include: (i) a new section relating to customer due diligence on authorized personnel acting on behalf of the customer. It includes a clarification that the identities of internal personnel who are authorized to sign contractual documents may be collected by a firm for AML/CTF purposes on a risk-based approach; and (ii) a new section on wholesale subscription finance in private capital funds. The revisions have been submitted to HM Treasury for Ministerial approval.

Topic : AML/CTF, Insider Trading and Sanctions

EU Markets Authority Announces Next Steps for the Selection of Consolidated Tape Providers

September 30, 2024

The European Securities and Markets Authority has announced the next steps for the selection of Consolidated Tape Providers for bonds, shares and ETFs. ESMA will launch the selection procedure for the CTP for bonds on Friday January 3, 2025, intending to adopt a reasoned decision on the selected applicant within six months of the launch, i.e. by early July 2025. In June 2025, ESMA will launch the selection procedure for the CTP for shares and ETFs with the objective to adopt a reasoned decision on the selected applicant by the end of 2025.

ESMA explains that each selection procedure will be launched with the publication of a contract notice and procurement documents on the EU Funding & Tenders Portal. Prospective applicants are invited to register and familiarize themselves with the Portal. In the coming weeks, ESMA intends to share additional guidance on the assessment of exclusion criteria. ESMA will be available to answer questions throughout the application periods, ESMA also confirms that applicants will be granted as much time as possible, within the boundaries of EU procurement rules, to provide details on their projects. ESMA states that it will publish in December the feedback statement to its proposed technical standards on CTPs and the assessment criteria for the CTP selection procedure. We discussed ESMA's draft technical standards in "European Securities and Markets Authority Proposes Draft Technical Standards for Consolidated Tape Providers".

Topic : MiFID II

UK Policy Statement and Final Guidance on the Digital Securities Sandbox

September 30, 2024

The Bank of England and Financial Conduct Authority have published a joint policy statement providing feedback to responses received to the Digital Securities Sandbox joint consultation (CP24/5). We discussed the proposals in April in "UK Regulators Consult on Digital Securities Sandbox". The policy statement covers the following topics: (a) the approach to regulating DSS firms; (b) the scope of the DSS; (c) settlement of the payment leg; (d) operation of the DSS; (e) Gate 2 and end-state rules; (f) supervision of the DSS; and (g) other general issues relating to the DSS. Overall respondents welcomed the regulators proposals, with no respondents explicitly disagreeing with the creation of the DSS.

In response to feedback, the BoE and FCA have made some changes to their proposed approach and guidance, such as: (i) extending the scope of the DSS to include non-GDP (non-pound sterling) denominated assets; (ii) a more flexible approach to firm-specific limits at Gate 2, moving from fixed 'go-live' limits to a flexible range; and (iii) reducing the minimum capital requirement for a DSD from nine to six months of operating expenses.

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Topics : Financial Market Infrastructure, FinTech, Securities, UK Smarter Regulatory Framework

UK Conduct Authority Clarifies Forbearance for Investment Trust Disclosure Requirements Under PRIIPs Regulation

September 30, 2024

The Financial Conduct Authority has updated its statement on forbearance in relation to investment trust disclosure requirements under the U.K.'s current Packaged Retail and Insurance-Based Investment Products Regulation. The Government announced earlier in September its intention to exempt listed investment trusts from the PRIIPs Regulation along with a statement on reforms to the U.K. retail disclosure regime through the introduction of Consumer Composite Investments regime. At the same time, the FCA announced it would immediately apply forbearance until the legislation takes effect. We discussed the earlier announcements by HM Treasury and the FCA in "UK Announces Final Reforms to Financial Services Retail Disclosure Requirements".

The updated forbearance statement provides great clarity on the implication of the forbearance as regards compliance by firms with other rules and regulations, including the Consumer Duty and communicating to consumers. The FCA confirms that the forbearance applies along the distribution chain to any firm carrying on business relating to the relevant investment trusts, including manufacturing, distribution or marketing. The FCA states that firms across the distribution chain will need to consider what approach will deliver good outcomes for their retail clients, including the product information needed to support retail investors.

The FCA expects firms in the distribution chain for securities issued by investment trusts to work together to determine and share the required information to enable the continued distribution of these products, in compliance with their more general obligations towards retail investors, in particular under the Consumer Duty.

Topics : Consumer Protection, Securities

UK Accelerated Settlement Taskforce Technical Group Publishes Draft Recommendations

September 27, 2024

The U.K. Accelerated Settlement Taskforce Technical Group has published a draft recommendation report and consultation. The Taskforce was established to examine the case for the securities settlement cycle to be shortened from its current standard of Trade Date plus 2 days, or 'T+2', to Trade Date plus 1 day or 'T+1'. The Taskforce's initial recommendation was that the U.K. should move to T+1 by the end of 2027, which was accepted by the previous government who asked the newly established Technical Group to make recommendations by the end of 2024 on implementing the move. We discuss that recommendation in "UK To Move to T+1 Settlement by Latest End 2027".

The Technical Group's draft report sets out a number of draft recommendations. The main recommendation, referred to as recommendation zero, looks at the scope of instruments that will be covered by the implementation of T+1. There are two scenarios: (a) the U.K. migrates ahead of the EU/Switzerland. In this scenario, some instruments such as ETPs and Eurobonds will be exempted pending a subsequent transition to T+1 of the EU and/or Switzerland; or (b) the U.K., EU and Switzerland migrate to T+1 together, in which case it would be a straight transfer of all instruments currently covered today Central Securities Depositories Regulation.

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Topic : Securities

UK Financial Conduct Authority Updates Timings on Smarter Regulatory Framework Work

September 27, 2024

The Financial Conduct Authority has published a new webpage on the repeal and replacement of assimilated law. The new webpage predominantly reproduces the FCA webpage on the replacement of retained EU law originally published in July 2023. The timings for the FCA's work on the following files has been updated:

Consumer Composite Investments
The FCA plans to publish a consultation paper in H2 and a policy statement in H1 2025.

Long Term Investment Funds
The FCA will review responses to its consultation on removing references to LTIF from the Handbook, aiming to implement any changes in Q4.

MiFID II Directive, U.K. MiFIR and Wholesale Market Review reforms
The FCA aims to start a tender process later in 2024 to appoint a single consolidated tape provider for bonds and will update on an equities tape before the end of the year. The FCA will also publish a policy statement on commodity derivatives and a discussion paper on transaction reporting in Q4, followed by a consultation paper in H1 2025. The FCA also plans to publish a consultation paper on the MiFID Organisation Regulation in Q4.

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Topic : UK Smarter Regulatory Framework

UK Department for Energy Security and Net Zero Publishes Update on Extension of UK Emissions Trading Scheme First Free Allocation Period to 2026

September 26, 2024

The U.K. Department for Energy Security and Net Zero published an update in relation to an extension of the U.K. Emissions Trading Scheme's first free allocation period. The U.K. ETS Authority is consulting operators in the scheme on a proposal to move the start of the second allocation period from 2026 to 2027, extending the current allocation period to include 2026. Operators will receive the consultation from their scheme regulator and have until October 11, 2024 to submit responses. The change aims to align changes to free allocation with the introduction of the U.K. Carbon Border Adjustment Mechanism in 2027. The Authority received a significant number of responses to the Free Allocation Review consultation indicating a preference for this alignment to ensure a consistent approach to carbon leakage mitigation. The Authority will ensure that any changes made to free allocation rules under the Free Allocation Review will be published by the end of 2025, with implementation in 2027.

Topic : Climate & Sustainable Finance

European Central Bank Publishes Paper on TIBER-EU and EU Digital Operational Resilience Act Requirements

September 26, 2024

The European Central Bank has published a paper outlining how the European framework for threat intelligence-based ethical red teaming, the TIBER-EU framework, can help competent authorities and financial entities fulfil their threat-led penetration testing requirements under the EU Digital Operational Resilience Act. TIBER-EU is a common European framework that delivers a controlled, bespoke and intelligence-led red team test of financial entities' critical live production systems. It was established as a tool for testing and improving key elements of the cyber resilience of participating financial entities, while focusing heavily on the learning opportunities provided by the testing. The ECB suggests that guiding and performing threat-led penetration testing on the basis of the DORA regulatory technical standards alone will be challenging given the high standards required by such tests but that TIBER-EU will alleviate these difficulties to a large extent and provides a framework that can be used to fulfil the DORA threat-led penetration testing requirements. The paper considers the benefits of the TIBER-EU framework for authorities and financial entities subject to DORA.

Topic : Operational Resilience

UK Payment Systems Regulator Confirms Maximum Reimbursement Limit for Authorized Push Payment Scams Reimbursement

September 25, 2024

The U.K. Payment Systems Regulator has confirmed that the maximum reimbursement limit for victims of Faster Payments Authorized Push Payment scams will be £85,000. The PSR began consulting on reducing the reimbursement limit earlier in September. The PSR will publish a final policy statement to explain the reasoning for the decision next week. The Bank of England, as the operator of CHAPS, has also decided that the maximum reimbursement for CHAPS will be £85,000. In making this decision, the BoE has given weight to the benefits to industry and consumers of having consistency of limits across the two payment systems. The BoE is committed to reviewing this limit within 12 months.

Topic : Payment Services

UK Financial Conduct Authority Consults on Changes to the Safeguarding Regime for Payments and E-Money Firms

September 25, 2024

The U.K. Financial Conduct Authority has published a consultation on proposals to address weaknesses in the safeguarding regime for payments and e-money firms. The FCA explains that there remain poor practices across the industry due to poor implementation of the regulatory framework. For firms that became insolvent between Q1 2018 and Q2 2023, there was an average shortfall of 65% in funds owed to clients (difference between funds owed and funds safeguarded). In developing the safeguarding proposals, the FCA has adapted the approaches in the existing CASS rules to reflect payment services.

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Topic : Payment Services

Bank of England Establishes Artificial Intelligence Consortium

September 25, 2024

The Bank of England has announced the establishment of an Artificial Intelligence consortium. Its purpose is to provide a platform for public-private engagement to gather input from stakeholders on the capabilities, development, deployment and use of AI in U.K. financial services. Its specific aims are:

to identify how AI is or could be used in financial services, for example, by considering new capabilities, deployments and use cases as well as technical developments where relevant;
to discuss the benefits, risks and challenges arising from the use of AI. Such benefits, risks and challenges may be with respect to financial services firms or with respect to the wider financial system; and
to inform the BoE's approach to addressing risks and challenges, and promoting the safe adoption of AI.

Membership of the consortium is at the BoE's invitation following a selection process. A consortium membership call for interest explains that applications to join the consortium can be submitted until November 8, 2024.

Topic : Artificial Intelliegence

UK Financial Conduct Authority Speech on Evolving Approach to Enforcement

September 24, 2024

The U.K. Financial Conduct Authority has published a speech by Therese Chambers, FCA Joint Executive Director of Enforcement and Market Oversight, on the FCA's evolving approach to enforcement.

The FCA is adapting its approach to enforcement to meet evolving threats and maximise the deterrent effect. It has more than doubled its trading data coverage to around 1 billion records per day, and its systems can interrogate data across multiple asset classes quickly. The Cyber Forensics Unit is equipped with the latest technology and expertise to handle complex digital forensic tasks, and the FCA is improving those capabilities all the time. Going forwards, the FCA's approach will be ever more data and technology driven, and Ms Chambers strongly encourages firms to collaborate with the FCA in this.

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Topic : Enforcement

UK Payment Systems Regulator Publishes Policy Statement and Guidance on the Identification of Authorized Push Payment Scams and Civil Disputes

September 23, 2024

The U.K. Payment Systems Regulator has published a policy statement and draft guidance to support payment service providers in assessing whether an authorized push payment scam claim raised by a consumer is not reimbursable under the Faster Payments Scheme and CHAPS reimbursement rules because it is a private civil dispute. By private civil dispute the rules mean a dispute between a consumer and payee which is a private matter between them for resolution in the civil courts, rather than involving criminal fraud or dishonesty. The guidance sets out five high-level factors that PSPs should consider when determining whether a claim is a reimbursable APP scam or a civil dispute.

PSPs should consider all high-level factors and the information provided by the consumer or third party when assessing a claim. Changes to the draft guidance as consulted on include: (i) clarification that the guidance does not set any expectations on consumers; (ii) broadening the guidance where possible to include more detail on peer-to-peer disputes; and (iii) clarification on how to use information from Companies House, as an unverified source of information. The PSR consulted on the draft guidance in July this year.

Topic : Payment Services

UK Payment Systems Regulator Updates Powers and Procedures Guidance

September 20, 2024

The U.K. Payment Systems Regulator updated its Powers and Procedures Guidance to reflect recent developments in its processes and structure. The guidance explains: (i) the PSR's role and its ways of working; (ii) the Financial Services (Banking Reform) Act 2013 legal and regulatory framework under which it operates; (iii) the PSR's powers to take regulatory action under the FSBRA, how the PSR will decide what, if any, action to take, what processes and procedures it will follow, and how a party can appeal against regulatory action; and (iv) the PSR's powers to take enforcement action under the FSBRA where it considers that a potential compliance failure has occurred, how it will decide what, if any, enforcement action to take, what processes and procedures it will follow, and how a party can appeal against a decision to impose a penalty or publish details of any compliance failure.

The PSR has also published a response to its October 2023 consultation on the updated guidance. Changes to the guidance include in relation to: (a) the process for opening an investigation; and (b) flexibility for staff deployed on monitoring or enforcement to work across functions. The guidance applies from September 20, 2024.

Topic : Payment Services

UK Announces Final Reforms to Financial Services Retail Disclosure Requirements

September 19, 2024

Post Brexit, the U.K. Government and Financial Conduct Authority are committed to the ongoing reform programme to reinvigorate the U.K.'s capital markets. As part of this, the Government and FCA are committed to replacing EU-inherited consumer cost disclosure regulation with a new framework tailored to U.K. markets and firms, and removing the legal uncertainties that arose from the EU Packaged Retail and Insurance-Based Investment Products Regulation, particularly as to the scope of instruments captured. HM Treasury and the FCA have announced final plans to reform U.K. retail disclosure rules. HM Treasury plans to replace the EU-inherited PRIIPs Regulation with a new framework for Consumer Composite Investments (CCIs). HM Treasury aims to lay legislation as soon as possible to provide the FCA with the appropriate powers to deliver this reform. The new CCI regime will deliver more tailored and flexible rules which will address concerns across industry with current disclosure requirements, including for costs.

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Topic : Consumer Protection

UK Payment Systems Authority Consults on Draft Statement of Policy on its Cost Benefit Analysis Framework

September 18, 2024

The Payment Systems Authority has published a consultation paper on a draft statement of policy on its cost benefit analysis (CBA) framework. The draft statement builds on and replaces the draft CBA framework published earlier this year, and explains the PSR's approach to CBAs and how the CBA framework in this document helps the PSR develop policies with a positive impact. The draft statement of policy also:

Sets out the purposes of the PSR's CBAs and how it sees them being applied in the most useful way.
Explains the typical circumstances in which the PSR develops and publishes CBAs.
Presents the scope and high-level methodology of the PSR's CBAs, including the questions it tries to answer and how the PSR goes about answering them.
Describes how the PSR develops CBAs.

The deadline for comments is November 3, 2024. The PSR aims to publish its final statement of policy at the end of the year.

Topic : Consumer Protection

UK Financial Conduct Authority Review of Implementation of Price and Value Outcome Under Consumer Duty

September 18, 2024

The Financial Conduct Authority has published its findings from the first year of the implementation of the price and value outcome under the Consumer Duty. The specific focus of the price and value outcome rules is to ensure that the price a customer pays for a product or service is reasonable compared to the overall benefits they receive. Firms are expected to think about price when assessing fair value, but it should not be the sole consideration. The FCA rules do not set prices, require prices to be low or require firms to charge the same as competitors. However, the FCA requires firms to assess whether they are providing fair value and act if they are not.

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Topic : Consumer Protection

UK Financial Conduct Authority Publishes Update on Cash Savings Market

September 18, 2024

The Financial Conduct Authority has published an update on progress in the cash savings market. This update provides further detail on how the cash savings market has developed since the FCA's update in December 2023. Specifically, the update considers the progress that has been made in respect of the points identified by the FCA in its July 2023 Review. In this update, the FCA identifies eight FCA-specific actions that should be helpful for all firms which offer cash savings products and highlights areas where it expects to see further improvements.

Since publication of the review, the FCA has seen improvements in both the rates available to savers and the volume and timing of firms' communications to savings customers. However, despite these improvements, the review of fair value assessments has shown that many firms have found the assessment of value challenging and the largest firms generally continue to pay below the market average for standard easy access products. The FCA reminds firms that they should be carefully reviewing its good and poor practice examples. The FCA also expects firms to improve fair value assessments over time and the FCA will take appropriate action where it considers this is not the case.

The FCA will continue to closely monitor firms' future savings rate changes and will expect a clear explanation where it identifies that a firm has changed its savings rates significantly more quickly and fully in response to interest rate reductions, compared to previous interest rate increases. The FCA explains that while it will continue to monitor how well the savings market is operating, it does not anticipate providing further savings updates unless it identifies further market-wide concerns not addressed within this publication.

Topic : Consumer Protection

UK Prudential Regulation Authority Consults on Restatement of UK Capital Requirements Regulation Rulebook Requirements

September 12, 2024

The U.K. Prudential Regulation Authority has published a consultation on its proposals to restate, and in some cases modify, the U.K. Capital Requirements Regulation requirements relating to the definition of own funds in its own rulebook. The PRA rules will replace the existing definition of own funds under CRR, which HM Treasury is proposing to revoke under draft legislation published on September 12, 2024 (discussed above).

The PRA proposes to restate in its rules the vast majority of the current U.K. CRR requirements in this area, with some modifications to ensure their operability in the PRA Rulebook, and to omit some provisions that are not necessary or relevant for U.K. firms. The PRA also proposes to make some minor adjustments to enhance the proportionality or transparency of the PRA's approach covering the following elements of the definition of own funds framework: (i) proportionality in the Pre/Post-Issuance Notification regime; (ii) inclusion of interim profits in Common Equity Tier 1 capital resources; (iii) reduction of Additional Tier 1 and Tier 2 instruments; (iv) clarification of the regulatory capital treatment of non-CET1 shares; (v) a requirement for PRA permission for additional forms of capital reduction; and (vi) permitting the terms governing CET1 instruments to reflect the possibility of (but not commit to) a future capital reduction.

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Topics : Bank Prudential Regulation & Regulatory Capital, Brexit for Financial Services

UK Prudential Regulation Authority Consults on Streamlining Pillar 2A Capital Framework and Capital Communications Process

September 12, 2024

The U.K. Prudential Regulation Authority has published a consultation on streamlining the Pillar 2A capital framework and capital communications process. In addition to PRA-regulated banks, building societies, designated investment firms and PRA-approved or PRA-designated holding companies, the revised rules will also be relevant to Small Domestic Deposit Takers, firms who meet the SDDT criteria and are considering becoming a SDDT and firms that anticipate being subject to the Interim Capital Regime. The deadline for comments is December 12, 2024.

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Topics : Bank Prudential Regulation & Regulatory Capital, Brexit for Financial Services

UK Prudential Regulation Authority Publishes Second Near-Final Policy Statement on Implementation of the Basel 3.1 Standards

September 12, 2024

The U.K. Prudential Regulation Authority has published its second near-final Policy Statement on the implementation of the Basel 3.1 standards. The PRA has decided to move the implementation date by a further six months to January 1, 2026 with a transitional period of 4 years to ensure full implementation by January 1, 2030.

The policy statement provides feedback to responses to the following sections of the PRA's Consultation Paper 16/22: Chapter 3 – credit risk – standardized approach; Chapter 4 – credit risk – internal ratings based approach; Chapter 5 - credit risk mitigation; Chapter 9 - output floor; Chapter 11 - disclosure (Pillar 3); and Chapter 12 - reporting. The statement also contains feedback to responses on the parts of Pillar 2 relating to the Pillar 2A credit risk methodology, use of IRB approach benchmarks, and the interaction with the output floor.

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Topics : Bank Prudential Regulation & Regulatory Capital, Brexit for Financial Services

UK Prudential Regulation Authority Consults on Simplified Capital Regime for Small Domestic Deposit Takers

September 12, 2024

The U.K. Prudential Regulation Authority has published a consultation on its proposed simplified capital regime and additional liquidity simplifications for small domestic deposit takers. This consultation forms the second phase of the PRA's simplified prudential regulation for SDDTs, the PRA having already finalised its requirements in relation to non-capital related prudential regulation, along with the criteria that must be met to be a SDDT. Together with the Phase 1 simplifications, the proposals would create a simpler, more certain and less costly capital regime for SDDTs.

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Topics : Bank Prudential Regulation & Regulatory Capital, Brexit for Financial Services

UK Prudential Regulation Authority Consults on Updates to UK Policy Framework for Capital Buffers

September 12, 2024

The U.K. Prudential Regulation Authority has published a consultation on amendments to the U.K. framework on capital buffers under the Capital Requirements (Capital Buffers and Macro-Prudential Measures) Regulations (CBR), which will be revoked. HM Treasury has published a draft statutory instrument that will restate certain of the CBR provisions. Other provisions under the CBR will be transferred to the PRA's rulebook. The CBR sets out the statutory framework for the Countercyclical Capital Buffer (CCyB), Capital Conservation Buffer (CcoB), Global Systemically Important Institutions (G-SII) buffer, Other Systemically Important Institutions (O-SII) buffer and the Systemic Risk Buffer (SRB).

The PRA's consultation does not propose changes to its policy approach to capital buffers, but rather streamlines some of its policy materials to enhance usability and clarity. The PRA may make further amendments to its proposals depending on the outcome of HM Treasury's proposed changes to the CBR. The PRA proposes to: (i) revoke the U.K. Technical Standards on the methodology for the identification of G-SIIs; (ii) introduce a new Statement of Policy (SoP) setting out the PRA's approach to G-SII identification and buffers, which will replace the aforementioned U.K. Technical Standards and relevant provisions to be revoked in the CBR; (iii) make minor amendments to the PRA's existing Statements of Policy on O-SII designation and O-SII buffer setting to reflect proposed amendments to the CBR; and (iv) make minor consequential amendments to PRA rules that refer directly to the current CBR.

The deadline for responses to the PRA's consultation is December 12, 2024. The PRA proposes that the implementation date for the changes will be Q2 2025.

Topics : Bank Prudential Regulation & Regulatory Capital, Brexit for Financial Services

HM Treasury Publishes Policy Update on Applying the Financial Services and Markets Act 2000 Model to the UK Capital Requirements Regulations

September 12, 2024

HM Treasury has published a policy update to confirm its legislative approach for applying the "FSMA model" to the assimilated EU capital requirements regime under the U.K. Capital Requirements Regulation and Capital Buffers Regulations. The application of the Financial Services and Markets Act model, which transfers firm-facing rulemaking powers to the regulators, will take place in three stages. HM Treasury will: (i) revoke articles of the U.K. CRR which the U.K. Prudential Regulation Authority will replace with rules in order to implement the Basel 3.1 package; (ii) revoke any U.K. CRR provisions left on the statute book following Basel 3.1 implementation and revoke and restate (with modifications) the CBR; and (iii) publish new legislation to: (a) restate the U.K. CRR equivalence regimes in legislation (with the exception of the Article 142 regime); (b) restate (with certain modifications) key U.K. CRR definitions which are needed to ensure that the overall framework continues to operate as intended; and (c) make any consequential amendments to other parts of the statute book which will be needed once the U.K. CRR has been completely revoked.

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Topics : Bank Prudential Regulation & Regulatory Capital, Brexit for Financial Services

UK Financial Conduct Authority Publishes Guidance on Approach to Recognition of Funds under the Overseas Funds Regime

September 12, 2024

The U.K. Financial Conduct Authority has published guidance to assist firms in making an application for an overseas investment fund to be recognised under the Overseas Funds Regime. The OFR will allow certain investment funds established outside the U.K. to be promoted in the U.K., including to retail clients. At the outset, the OFR will be available to most funds established in EEA and EU member states that have been authorised under the Undertakings for Collective Investment in Transferable Securities Directive (other than EEA UCITS that have been authorised as money market funds).

The FCA provides details of the application process and sets out the standards required of funds to be eligible for the regime, including that they are managed in the best interests of investors, hold appropriate investments that align with a clear investment objective and policy and demonstrate good governance. The FCA sets out certain features that funds may exhibit that are unlikely to be compatible with its standards. These include: (i) funds with unsuitable names; (ii) funds that have economic exposure to cannabis-related investments; (iii) funds that have exposure to crypto-currency; (iv) funds that have exposure to contingent convertible bonds; and (v) liquid funds that charge permanent redemption/exit charges.

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Topic : Funds

UK Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 Published

September 12, 2024

The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (together with explanatory memorandum) have been laid in Parliament. The Regulations equip the soon to be launched Office of Trade Sanctions Implementation (OTSI) with its civil enforcement powers. Breach of trade, aircraft and shipping sanctions is already a criminal offence, but it is hoped the introduction of civil penalties will strengthen the U.K. government's enforcement capability. OTSI will be responsible for the civil enforcement of certain trade sanctions as they relate to U.K. services and overseas trade with a U.K. nexus. The office will be able to impose monetary penalties of up to £1 million, or 50% of the estimated value of the breach, whichever is higher. Where a civil monetary penalty can be imposed, breaches may be determined on a 'strict liability' basis. OTSI will also be empowered to make public disclosure of breaches. The Regulations introduce reporting obligations for relevant persons, and powers to request information. Failure to comply with either of these can amount to a criminal offence. The powers will come into effect on 10 October. To assist people in complying with the new regulations, the Department for Business and Trade has published statutory guidance. It covers the prohibitions and requirements imposed by the regulations and provides guidance on compliance, enforcement and the circumstances where they do not apply.

Topic : AML/CTF, Insider Trading and Sanctions

UK Financial Conduct Authority Consults on New Regulatory Reporting Return for Consumer Credit Firms

September 12, 2024

The U.K. Financial Conduct Authority has published a consultation paper on a new regulatory reporting return for consumer credit firms engaging in any one, or more, of the regulated activities of credit broking, providing credit information services, debt adjusting and debt counselling services. If introduced, the new return will replace some of the existing returns for these activities. The return will include the following five mandatory sections of questions for all firms in scope: (i) permissions – regarding the regulated activities firms have undertaken in the past 12 months; (ii) business model – regarding the financial products, goods, and/or services that firms are providing; (iii) marketing – regarding the channels firms are using to target consumers; (iv) revenue – total revenue from credit-related activities and non-credit related activities; and (v) employees – regarding the number of employees and incentive and remuneration arrangements. Firms will then be presented tailored questions specific to the relevant permissions they hold. The FCA hopes to receive more detailed, accurate, and consistent data from firms through the proposed return, as well as simplifying the experience for firms. This should enable the FCA to accurately identify how firms are using their permissions so that it can better understand which firms are engaging in activities with a higher risk of harm to consumers and how these risks are changing over time. The data will also help the FCA to identify earlier firms that aren't using their permissions and no longer require authorisation. The deadline for comments is October 31, 2024. The FCA intends to publish a final policy statement in Spring 2025. The FCA proposes that the first reporting period will cover January 1 to December 31, 2025. There will be no change to the reporting frequency for firms.

Topic : Consumer Protection

UK Office of Financial Sanctions Implementation Annual Frozen Asset Review

September 11, 2024

The Office of Financial Sanctions Implementation has published a financial sanctions notice reminding firms of their annual frozen assets reporting requirement. Every year HM Treasury carries out a review to update its records to reflect any changes to these assets during the reporting period. As part of this review, HM Treasury requests all persons that hold or control funds or economic resources belonging to, owned, held, or controlled by a designated person, to provide a report to OFSI with the details of these assets. The deadline for submission is November 11, 2024. The report must include details of all funds or economic resources frozen in the U.K. as well as those overseas where these funds or economic resources are subject to U.K. financial sanctions legislation. Accounts blocked solely by other national authorities (e.g., Office of Foreign Assets Control) do not need to be reported. The report must include the value of all such assets as at close of business on September 30, 2024. Reports therefore must not be submitted before this date. Firms that submitted a report last year (other than a nil return) and no longer hold the frozen assets should submit a nil return.

Topic : AML/CTF, Insider Trading and Sanctions

Euopean Commission report on the future of European competitiveness

September 10, 2024

The European Commission has published a report on the future of European competitiveness, prepared by Mario Draghi, former President of the European Central Bank. The report aims to set out a new industrial strategy for Europe to overcome barriers to the EU's competitive strength. It sets out priority proposals in the short and medium term in key strategic sectors. For financial regulation, the report focuses on the completion of the Capital Markets Union and the Banking Union.

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Topics : Bank Prudential Regulation & Regulatory Capital, Climate & Sustainable Finance, Financial Market Infrastructure, Securities

UK Central Counterparties (Transitional Provision) (Extension and Amendment) Regulations 2024 Published

September 10, 2024

The U.K. Central Counterparties (Transitional Provision) (Extension and Amendment) Regulations 2024 (together with explanatory memorandum) have been published. The Regulations come into force on November 29, 2024. The SI:

extends the temporary recognition regime for overseas central counterparties by 12 months, until December 31, 2026. This will allow overseas CCPs in the regime to continue to offer clearing services in the U.K. whilst they wait for their applications for recognition to be determined by the Bank of England; and
extends the transitional regime for overseas qualifying central counterparties (QCCPs) contained within the U.K. Capital Requirements Regulation for an additional 12 months. The expiry date of the QCCP transitional regime varies between individual CCPs as it is dependent on when a firm has applied for recognition in the U.K., but the explanatory memorandum notes that for a large percentage of firms this currently expires on December 31, 2024. The extension will ensure that U.K. firms with indirect exposures to the QCCPs within the regime will not face a sudden and disruptive increase in their capital requirements on the expiry of the QCCP transitional regime. HM Treasury has previously extended the temporary recognition regime and the QCCP transitional regime twice, by 12 months each time.

Topic : Financial Market Infrastructure

UK Prudential Regulation Authority Thematic Findings of Internal Audit Review of the Credit Risk Management Framework

September 10, 2024

The U.K. Prudential Regulation Authority has sent a letter to lenders' chief risk officers to share the thematic findings from an internal audit review of non-systemic U.K. deposit takers' credit risk management framework. Approximately two-thirds of the findings related to notable breaches of rules around lending. The PRA considers that its observations reinforce the need for some firms to continue to enhance their portfolio management controls and affordability assessments, with consideration of changes in the macroeconomic environment to ensure that new lending is sustainable. The PRA sets out the key improvements that were identified in the following areas (in priority order based on the number of findings): affordability assessment, quality assurance and underwriting process, quality of management information, credit risk appetite, lending policy and collections. The PRA recommends that lenders use the points outlined in the letter as a reference when they next review and assess their credit risk management framework controls and potential areas that might need strengthening.

Topic : Bank Prudential Regulation & Regulatory Capital

UK Prudential Regulation Authority Publishes Direction for Modification by Consent for Leverage Ratio Requirements

September 10, 2024

The U.K. Prudential Regulation Authority has announced that it is reviewing the leverage ratio requirement thresholds and is offering a modification by consent, where certain conditions are met, to disapply the relevant part of the PRA Rulebook until the review is complete. The modification by consent is available to a firm if it: (i) did not meet the criteria set out in 1.1 of the Leverage Ratio – Leverage Ratio – Capital Requirements and Buffers Part of the PRA Rulebook before September 10, 2024; and (ii) expects to meet the criteria after the next accounting reference date or any accounting reference date before December 31, 2025. This modification will cease to have effect at the end of June 30, 2026, however the PRA may revoke the modification earlier, at an appropriate time following the completion of the review.

Topic : Bank Prudential Regulation & Regulatory Capital

UK Financial Conduct Authority Publishes Temporary Measures for Firms on Naming and Marketing Sustainability Rules

September 9, 2024

The U.K. Financial Conduct Authority has set out temporary measures to offer firms flexibility to comply with the naming and marketing rules under the Sustainability Disclosure Requirements (SDR) regime, which come into force from December 2, 2024. It has taken longer than expected for some firms to make the required changes to comply with the new regime, so the FCA is offering limited temporary flexibility, until 5pm on April 2, 2025, for firms to comply with the naming and marketing rules set out in ESG 4.3.2R to ESG 4.3.8R.

The temporary relief applies in exceptional circumstances in relation to a U.K. authorised investment fund caught by the regime where the firm: (i) has submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for that fund by 5pm on October 1, 2024; and (ii) is currently using one or more of the terms 'sustainable', 'sustainability' or 'impact' (or a variation of those terms) in the name of that fund and is intending either to use a label, or to change the name of that fund. Where firms can comply with the rules without requiring this flexibility, they should do so. The FCA also expects firms to comply with the rules as soon as they can, without waiting until April 2, 2025. The FCA has received queries about the authorisation of mergers, wind-ups or terminations before December 2, 2024 and will take a supportive, proportionate and outcomes-based approach in these circumstances. Firms with questions should contact their supervisor or usual supervisory contact to discuss on a case-by-case basis.

Topics : Climate & Sustainable Finance, Funds

UK Financial Conduct Authority Findings from Review into Firm Oversight of Appointed Representatives

September 6, 2024

The U.K. Financial Conduct Authority has published its key findings, good practices and areas for improvement following a review of how principal firms are meeting the FCA's enhanced appointed representative rules that were introduced in December 2022. Examples of good practice from principals included keeping clear documentation to show compliance with the FCA's enhanced rules, outlining any material deficiencies in the principal's AR oversight and proposals to address them, and using a broad range of checks and gathering information to oversee and monitor ARs' activities. Firms are expected to consider the examples of good practice when reviewing their own approach to AR oversight. The FCA found some firms were taking a tick-box approach to complying with its rules, relying on basic information like website checks, or using self-declarations from their ARs, to demonstrate effective oversight. The review also found: (i) 1 in 5 principals had not carried out a required self-assessment or annual review of their ARs; (ii) approximately half of principals were not regularly reviewing their AR agreements; (iii) a third of principals were not using data or management information to keep tabs on whether ARs were acting within the scope of AR agreements; and (iv) most firms had not changed their AR onboarding or termination procedures since the rules were introduced. The FCA states that it has followed up directly with firms in the review and will take swift action where it sees principals not meeting its standards in the future.

Topic : Conduct & Culture

UK Listed Investment Companies (Classification etc) Bill Published

September 5, 2024

The Listed Investment Companies (Classification etc) Bill (with explanatory memorandum) has been published on the U.K. Parliament website, following its first reading in the House of Lords on the same day. The Bill seeks to make provisions about listed investment companies, the classification and characteristics of those companies which regulators must take into account when, among other things, making any rules or guidance. It relates to collective investment undertakings of the closed-end type, the shares of which are admitted to trading on any market or venue operated by a U.K.-recognized investment exchange, known as Listed Closed-End Investment Companies and does not relate to collective investment undertakings other than the closed-end type. The Bill is sponsored by Baroness Bowels of Berkhamsted. The date of the Bills second reading has not yet been announced.

Topic : Funds

Financial Conduct Authority Talks about a Targeted and Outcomes-Based Approach to Tackling Financial Crime

September 5, 2024

The Financial Conduct Authority has published a speech by Sarah Pritchard, FCA Executive Director, Markets and International, on taking a targeted and outcomes-based approach to tackling financial crime. Points of interest in the speech include:

The FCA is using its powers more assertively than ever. In the last financial year, the FCA charged 21 individuals with financial crime offenses; the highest number of charges it has ever achieved in a single year.
Using data and technology, the FCA has increased its ability to identify illegal financial promotions, including on social media.
Using the FCA's own supervisory reach, the FCA has created a dedicated financial crime function within its Consumer Investments department—an area it has seen evolving threats of financial crime and fraud. Over the past 18 months the team has been out on unannounced spot visits, gathering evidence and intervening to prevent harm by, for example, imposing requirements on firm's permissions, compelling asset restrictions or banning firms from providing financial services.

The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.