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.
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European Banking Authority finalizes guidelines on management of ESG risks
January 9, 2025
The European Banking Authority has published its final guidelines on the management of ESG risks. The guidelines set out requirements for institutions for the identification, measurement, management, and monitoring of ESG risks, including through plans aimed at ensuring their resilience in the short, medium, and long term. The guidelines will apply from January 11, 2026, except for small and non-complex institutions for which the guidelines will apply at the latest from January 11, 2027.
The guidelines specify requirements regarding the internal processes and ESG risk management arrangements that institutions should have in place in accordance with the CRD VI. They also specify the content of plans to be prepared by institutions with a view to monitoring and addressing the financial risks stemming from ESG factors, including those arising from the adjustment process towards the objective of achieving climate neutrality in the EU by 2050. The EBA explains that these plans will support the preparedness of institutions for the transition and should be consistent with transition plans prepared or disclosed by institutions under other pieces of EU legislation.Topic : Climate & Sustainable Finance -
UK Financial Conduct Authority publishes research note on bias in natural language processing
January 9, 2025
The Financial Conduct Authority has published a research note on a pilot study into bias in natural language processing (NLP). The research note presents the results of a technical investigation into biases in word embeddings. There are three main findings from the investigation, namely that:- No individual measurement technique can fully capture bias in embeddings, but bias can be seen more clearly when a mix of techniques is used.
- Even when multiple methods are used, tackling bias is still complicated. The research note highlights that existing tools have limits, and bias is often shaped by context, language, and social factors.
- Techniques that try to reduce bias, like Hard Debiasing, do not always work as well as anticipated. While they can lower bias in some areas, they often reduce the overall quality of the model. The research note explains that future research could involve testing applications that utilize embeddings—for instance, studying the impact of biased embeddings on downstream outcomes for consumers. The authors of the research note also believe that mitigation of bias in contextual and sentence embeddings would also be a worthy avenue of enquiry.
Topic : Artificial Intelligence -
UK Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2025 published
January 9, 2025
The Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2025 has been published, alongside an explanatory memorandum. The Order includes a new paragraph 22 to the Schedule to the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 (the "CIS Order"). The Schedule to the CIS Order specifies the kinds of arrangements which do not amount to a collective investment scheme. The new paragraph clarifies that arrangements for qualifying crypto-asset staking do not amount to a collective investment scheme. The aim of the instrument is to provide clarity to firms so that they are able to offer staking services to their U.K. customers without being subject to the collective investment scheme rules for this activity. The U.K. government has considered the need for an appropriate degree of consumer protection from the risks associated with the marketing of staking products and considers that this protection is delivered by communications on staking arrangements provided in compliance with the requirements of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and relevant FCA rules and guidance. The Order comes into force on January 31, 2025. -
EU platform on sustainable finance draft report and call for feedback on activities and technical screening criteria to be updated or included in EU Taxonomy
January 8, 2025
The EU Platform on Sustainable Finance has published a draft report on activities and technical screening criteria to be updated or included in the EU taxonomy, with a related call for feedback. The draft report, prepared by the Platform on Sustainable Finance's technical working group, is a deliverable required under the EU Taxonomy Regulation. Responses to the call for feedback may be submitted until February 5, 2025.
The draft report contains preliminary recommendations relating to: (i) the review of the criteria and analysis for the EU Taxonomy Climate Delegated Act; (ii) new activities mandated by the European Commission; (iii) new activities mandated by the European Commission but not completed; and (iv) further recommendations for climate change adaptation.
The Platform on Sustainable Finance explains that the aim is to gather feedback and evidence from a wider set of stakeholders to improve the draft criteria and make them more robust and usable. However, the Platform on Sustainable Finance emphasizes that the call for feedback is not an official Commission consultation.Topic : Climate & Sustainable Finance -
UK Financial Markets Standards Board updated final statement of good practice for front office supervision of wholesale traded markets
January 8, 2025
The Financial Markets Standards Board has published its updated final statement of good practice for front office supervision of wholesale traded markets. The statement of good practice sets out 15 good practice statements, grouped under five themes, to support firms with their approach to supervision of market and client-facing activities. The statement of good practice represents an update to FMSB's original 2017 publication on front office supervision and includes new guidance to help firms meet challenges to supervision that have emerged since then amid evolving regulation, new working practices, and technological change.
Significant updates include good practice guidance around:- Establishing clearer support for the role of a supervision framework.
- Clarifying the concepts of supervision, responsibility and controls.
- Specifying the roles and responsibilities of a supervisor and the standards expected.
- Providing clarity around reasonable spans of supervision.
Topic : MiFID II -
European Banking Authority consults on draft technical standards on the prudential treatment of crypto-assets exposures
January 8, 2025
The European Banking Authority has published a consultation paper on its draft Regulatory Technical Standards on the calculation and aggregation of crypto-exposure values under the Capital Requirements Regulation 3. The RTS specify the technical elements necessary for institutions to calculate and aggregate crypto-asset exposures in relation to the prudential treatment of such exposures. The RTS aim to address implementation aspects and ensure harmonization of the capital requirements on crypto-assets exposures by institutions across the EU.
The draft RTS also further develop the relevant capital treatment for credit risk, counterparty credit risk, market risk and credit valuation adjustment risk for 'asset reference tokens' and 'other' crypto-assets exposures and align, to the extent possible, the capital treatment with the elements specified in the Basel standard on prudential treatment of crypto-asset exposures.
Read more. -
UK Prudential Regulation Authority finalizes amendments to resolution assessment reporting and disclosure dates
January 7, 2025
The Prudential Regulation Authority has published a policy statement on amendments to resolution assessment reporting and disclosure dates. The statement provides feedback to responses the PRA received to its consultation paper (CP12/24) on the same topic. It also contains the PRA's final policy which provides greater flexibility over the timing of Resolution Assessment report submissions and disclosures by moving from fixed two-year cycles to a periodic basis. The final policy takes effect on January 10, 2025.
The PRA's final policy is reflected in: (i) amendments to the Resolution Assessment Part of the PRA Rulebook, which can be found in Appendix 1 of the statement; and (ii) an updated supervisory statement (SS4/19) on resolution assessment and public disclosure by firms, found in Appendix 2.
Read more. -
EU final report on updated guidelines on stress test scenarios under Money Market Funds Regulation
January 7, 2025
The European Securities and Markets Authority has published its final report on guidelines on stress test scenarios under the Money Market Funds Regulation. The MMF Regulation requires ESMA to annually update the guidelines, taking into account the latest market developments. The final report includes:- An additional explanation on the way to report the results of the macro systemic shocks.
- Updated guidelines and risk parameters, so that managers of MMFs have the information needed to fill in the relevant reporting template.
Read more.Topic : Funds -
EU launches selection procedure for Consolidated Tape Provider for bonds
31 December, 2024
The European Securities and Markets Authority has launched the first selection procedure for the Consolidated Tape Provider for bonds. The CTP aims to enhance market transparency and efficiency by consolidating trade data from various trading venues into a single and continuous electronic stream. ESMA believes that this consolidated view of market activity should help market participants to access accurate and timely information and make better-informed decisions, leading to more efficient price discovery and trading.
Entities interested in applying are encouraged to register and submit their requests to participate in the selection procedure by February 7, 2025. ESMA will assess the received requests against the exclusion and selection criteria and will invite the successful candidates to submit their application. ESMA intends to adopt a reasoned decision on the selected applicant by early July. The successful applicant will be selected to operate the CTP for a period of five years, and invited to apply for authorization with ESMA without undue delay. Once authorized, the CTP will be supervised by ESMA. Further information about the process is available on the dedicated webpage.Topic : MiFID II -
European Central Bank issues statement on framework for assessing capital buffers of other systemically important institutions
December 20, 2024
The European Central Bank has published a statement on its framework for assessing capital buffers of other systemically important institutions. In the statement, the ECB announced that it will enhance the floor methodology used to assess capital buffers for O-SIIs so that it also takes into account the systemic importance of O-SIIs for the banking union as a whole. This will lead to a more consistent treatment of O-SIIs across Member States participating in the banking union. The effect of these changes will be that for each O-SII at the highest level of consolidation within the banking union, the O-SII buffer should be no less than the higher of the minimum buffer rates implied by the banking union perspective and the national perspective. Moreover, the enhanced methodology will contribute to deepening financial integration by reducing the current disparity between capital requirements for domestic and cross-border activities within the banking union.
The ECB began using the enhanced floor methodology to assess O-SII buffers notified by national authorities from January 1, 2024, with the enhanced methodology being fully phased in as of January 1, 2028. -
European Securities and Markets Authority consults on the internal control framework for certain market agencies
December 19, 2024
The European Securities and Markets Authority has published a consultation on draft guidelines on internal controls for benchmark administrators, credit rating agencies, and market transparency infrastructures (which include trade repositories, data reporting services providers, and securitization repositories). The guidelines outline ESMA's expectations for the components and characteristics of an effective internal control system. The proposed guidelines build on the internal control guidelines currently in place for CRAs and extend them to BMAs and MTIs. They also revise ESMA's expectations considering the growing impact of technology on supervised entities' operations, including in terms of managing technology risk from external and internal sources, and the integration of new technologies into supervised entities' internal controls. The draft guidelines also explain in greater detail how ESMA applies proportionality in its expectations regarding the internal controls for a supervised entity. The deadline for comments is March 19, 2025. ESMA expects to publish a final report by Q4 2025.Topic : Financial Market Infrastructure -
Bank of England policy statement and statement of policy on power to direct a CCP to address impediments to resolvability
December 19, 2024
The Bank of England has published a statement of policy setting out its approach to exercising its power to direct a CCP to address impediments to resolvability under the Financial Services and Markets Act 2023. This power applies to U.K.-based CCPs. The BoE also has a new power to direct a parent company of a CCP to establish a separate holding company for specific purposes, if the CCP is a subsidiary of a company incorporated in the U.K.
The policy statement summarizes the feedback received to the BoE's July 2024 consultation on the subject and provides the BoE's responses to the points raised in relation to: (i) the approach to the BoE's use of its power; (ii) the publication of directions; (iii) the approach to the resolvability assessment of CCPs; (iv) engagement with industry and other regulators; (v) the BoE's objectives; and (vi) the approach to CCP resolution publication.
In the policy statement, the BoE confirms that it still intends to publish in due course a document on its general approach to CCP resolution. -
Updated memorandum of understanding on FMI supervision between Bank of England and UK Financial Conduct Authority published
December 19, 2024
The Bank of England has published an updated memorandum of understanding between the BoE and the U.K. Financial Conduct Authority on the supervision of markets and financial market infrastructures. The memorandum sets out a high-level framework the BoE and FCA use to co-operate on the supervision of markets and market infrastructure. The framework also caters for the BoE's obligations under the Banking Act 2009 to consult the FCA on the exercise of its payment system oversight responsibilities. The memorandum has been updated to reflect changes made by the Financial Services and Markets Act 2023, including to reflect the extended rule making powers, the designated activities regime and cooperation in relation to FMI sandboxes. It has been agreed pursuant to section 17A of the FSMA 2000.Topic : Financial Market Infrastructure -
Bank of England policy statement and statement of policy on commercially reasonable payments in a statutory tear up in CCP resolution
December 19, 2024
The Bank of England has published a statement of policy setting out its approach to determining commercially reasonable payments to clearing members whose contracts are subject to a statutory tear up in CCP resolution, together with a policy statement responding to feedback received to the BoE consultation paper on the subject.
Respondents were generally supportive of the proposals in the consultation paper, while recognizing the challenging circumstances in which a statutory tear up may occur. The policy statement summarizes the feedback received and provides the BoE's responses to the points raised in relation to: (i) CCPs' role in proposing prices for torn up contracts; (ii) responsibility for determining a commercially reasonable price; (iii) definition of a commercially reasonable price; (iv) CCPs' incentives when proposing prices; (v) access to pricing information in stressed market conditions; (vi) benefits to the high bar for deviating from CCPs' proposed prices; (vii) determining an alternative price; (viii) scope of a statutory tear up; and (ix) the BoE's approach to CCP resolution.
The BoE statement of policy entered into effect from December 19, 2024. In the policy statement, the BoE confirms that it still intends to publish in due course a document on its approach to CCP resolution. -
UK Financial Conduct Authority consults on a new product information framework for consumer composite investments
December 19, 2024
The U.K. Financial Conduct Authority has published a consultation on a new product information framework for Consumer Composite Investments. The regime will apply in respect of a CCI which is or may be distributed to a retail investor in the U.K. and seeks to help consumers understand the products they are buying while giving firms flexibility to innovate. The proposals aim to simplify existing requirements, enable better digital communications, and ensure consistency and comparability across the market. The new regime aligns with the Consumer Duty, prioritizing good consumer outcomes. Through the new regime, the FCA wants consumers to: (i) be presented with information that is accurate, understandable, and broadly comparable; (ii) engage with product information and use it in their decision-making process; and (iii) be able to compare investments more effectively and find the best product for their needs more easily. The deadline for comments is March 20, 2025. The FCA plans to publish a further consultation with draft rules for consequential amendments and transitional provisions in early 2025. The FCA also plans to issue a policy statement and final rules in 2025. -
UK Financial Conduct Authority publishes policy statement on further temporary changes to handling rules for motor finance complaints
December 19, 2024
The U.K. Financial Conduct Authority has published a policy statement on further temporary changes to handling rules for motor finance complaints. The FCA has extended the time motor finance firms have to respond to motor finance complaints not involving a discretionary commission arrangement. Firms now have until after December 4, 2025, to provide a final response to such complaints received on or after October 26, 2024. Consumers who receive a final response to these complaints have until the later of either 15 months from when the final response is sent, or July 29, 2026, to decide whether to refer their complaint to the Financial Ombudsman Service. The rules broadly mirror those for motor finance DCA commission complaints, which were made in January and subsequently extended in September.
Read more.Topic : Consumer Protection -
European Securities and Markets Authority consults on EU code of conduct for issuer-sponsored research
December 18, 2024
The European Securities and Markets Authority has published a consultation on draft regulatory technical standards to establish an EU code of conduct for issuer-sponsored research. When final, the RTS will supplement the revised Markets in Financial Instruments Directive, as amended by the Listing Act Directive, which provides that investment firms distributing to clients or potential clients research that is paid for, fully or partially, by an issuer, is labelled as issuer-sponsored research. Only research that is prepared in accordance with an EU code of practice may be labelled issuer-sponsored research. The code of conduct sets out standards of independence and objectivity for research providers and specifies procedures and measures for the effective identification, prevention, and disclosure of conflicts of interest, with a view to enhancing the trust in and use of issuer-sponsored research.
Read more.Topic : MiFID II -
Bank of England publishes annual report on the supervision of financial market infrastructures
December 18, 2024
The Bank of England has published its annual report on its supervision of financial market infrastructures, covering the period December 16, 2023 —December 17, 2024. The report sets out the work undertaken by the BoE over the past year in relation to FMIs to deliver its financial stability objective and secondary innovation objective. The report also outlines the BoE's objectives for the coming year.
Read more.Topic : Financial Market Infrastructure -
EU technical advice on amendments to credit rating agency regulatory framework concerning ESG factors in credit rating methodologies
December 18, 2024
The European Securities and Markets Authority has published technical advice on revisions to Delegated Regulation (EU) 447/2012 and Annex I of the CRA Regulation. The proposed amendments are intended to ensure the better traceability on the incorporation of ESG factors in credit rating methodologies and better disclosure of the relevance of ESG factors to individual credit rating actions. The proposals address the need to update several provisions of Delegated Regulation (EU) No 447/2012 to reflect ESMA's supervisory observations. The technical advice includes ESMA's final proposals following the conclusion of the consultation conducted by ESMA and explains how this feedback has been considered in developing the final technical advice. In addition, Annex III provides ESMA's proposed amendments to Delegated Regulation (EU) No 447/2012 and Annex I of the CRA Regulation. -
Financial Stability Board consults on leverage in non-bank financial intermediation
December 18, 2024
The Financial Stability Board has published a consultation report on policy measures to address leverage in non-bank financial intermediation where it can create financial stability risks. The measures aim to help authorities and market participants to monitor vulnerabilities from NBFI leverage, contain NBFI leverage where it may create risks to financial stability, and mitigate the impact of these risks.
The nine policy recommendations cover: (i) risk identification and monitoring; (ii) addressing data challenges; (iii) public disclosures; (iv) addressing NBFI leverage in core financial markets; (v) using a wide range of measures to address such financial stability risk; (vi) counterparty credit risk management; (vii) the adequacy of private disclosure practices between leveraged non-bank financial entities and leverage providers; (viii) addressing incongruences in the regulatory treatment of NBFI leverage by adopting the principle of "same risk, same regulatory treatment"; and (ix) enhancing cross-border cooperation and coordination.
The FSB notes that market structures, legal frameworks, and financial stability risks related to leverage vary across jurisdictions and so a combination of policy measures may be most effective. The deadline for comments is February 28, 2025. The final report will be published in mid-2025.Topic : Shadow Banking -
European Supervisory Authorities dry run exercise on reporting registers of information under Digital Operational Resilience Act
December 17, 2024
The European Supervisory Authorities have published a summary report with the key findings from the 2024 Dry Run exercise on reporting the registers of information under DORA. The quality of data observed in the registers submitted by almost 1,000 financial entities across the EU was in line with the ESAs' expectations, considering the 'best effort' nature of the exercise. The ESAs are confident that the objective of having registers of sufficient quality in 2025 that would allow for the designation of critical third-party service providers is not out of reach, subject to some additional efforts from the industry. The ESAs advise that all industry stakeholders carefully consider the report and all supporting materials to aid in preparing to report the registers in 2025.Topic : Operational Resilience -
European Banking Authority publishes no action letter on application of European Market Infrastructure Regulation 3 with respect to initial margin model authorization
December 17, 2024
The European Banking Authority has published a no action letter stating that competent authorities should not prioritize any supervisory or enforcement action in relation to the processing of applications for initial margin (IM) model authorization received as a result of the entry into force of EMIR 3.
EMIR 3 requires that counterparties apply for authorization to their competent authorities before using, or adopting a change to, a model for initial margin calculation. Compliance with this requirement immediately after EMIR 3 enters into force may cause difficulties for competent authorities and counterparties until the EBA has established its central validation function and the draft regulatory technical standards and guidelines setting out key requirements have been published.
The no action letter sets a registration process for counterparties in scope of IM model authorization for any first application submitted after EMIR 3 enters into force and for subsequent changes to such IM models. As per the no action letter, however, competent authorities should not prioritize the processing of such applications, until the draft RTS on Initial Margin Model Validation and the guidelines on application and authorization process mandated under EMIR 3 come into application. -
UK Financial Conduct Authority publishes consultation on the regulatory framework for PISCES
December 17, 2024
The U.K. Financial Conduct Authority has published a consultation on the regulatory framework for the Private Intermittent Securities and Capital Exchange System (PISCES), the proposed new platform for trading shares in private companies. The draft legislation implementing the PISCES sandbox ( the Financial Service and Markets Act 2023 (Private Intermittent Securities and Capital Exchange System Sandbox) Regulations 2025 were published in November 2024. The consultation contains the FCA's proposed rules and guidance for the PISCES sandbox, as well as alternative options the FCA considered in its policy development process.
Read more. -
EU Platform on Sustainable Finance report on categorization of products under Sustainable Finance Disclosure Regulation
December 17, 2024
The EU Platform on Sustainable Finance has published a report on the categorization of products under the Sustainable Finance Disclosure Regulation. The Platform recommends categorizing products with the following sustainability strategies:- sustainable — contributions through Taxonomy-aligned Investments or Sustainable Investments with no significant harmful activities, or assets based on a more concise definition consistent with the EU Taxonomy;
- transition — investments or portfolios supporting the transition to net zero and a sustainable economy, avoiding carbon lock-ins, in line with the European Commission's recommendations on facilitating finance for the transition to a sustainable economy; and
- ESG collection — excluding significantly harmful investments/activities, investing in assets with better environmental and/or social criteria or applying various sustainability features. All other products should be identified as unclassified products.
The Platform recommends evaluating whether the scope of the categorization should go beyond the current SFDR, potentially categorizing all products and services under sustainability preferences in the Insurance Distribution Directive and the Markets in Financial Instruments Directive. The Platform also recommends that the European Commission develops a common understanding on impact investing in the EU sustainable finance framework and how it relates to the EU Taxonomy and thereafter determines how to integrate it in the categorization scheme. -
UK Financial Markets Standards Board transparency draft statement of good practice on the governance of sustainability-linked products
December 17, 2024
The Financial Markets Standards Board has published a consultation on its transparency draft of its statement of good practice on the governance of sustainability-linked products. SLPs are products whose financial and/or structural characteristics can vary depending on whether the user (i.e., borrower or issuer of, or counterparty to, SLPs) achieves specific sustainability or ESG objectives. They can be used for general corporate purposes, which allows many users (e.g., borrowers, issuers, or counterparties to sustainability-linked products) to access the sustainable finance market in a more flexible way. The FMSB's statement is intended to codify good practice for the governance of SLPs and support consistent approaches across asset classes and jurisdictions. It is hoped this will enhance the quality and integrity of SLPs; boost market confidence; help mitigate greenwashing risk; and support the development of a deeper, more robust sustainability-linked product market. The statement of good practice is intended to apply to service providers (e.g., firms acting as sustainability-linked loan lenders, bookrunners, or lead arrangers on a sustainability-linked bond issuance or counterparties to a sustainability-linked derivative) or users of SLPs in wholesale financial markets and to support, and be read in conjunction with, existing asset-class specific guidance (notably ICMA, LMA, and ISDA principles). The deadline for comments is February 21, 2025. -
The Banking Act 2009 (Wholesale Cash Oversight Fees) Regulations 2024
December 17, 2024
The Banking Act 2009 (Wholesale Cash Oversight Fees) Regulations 2024 have been published, together with an explanatory memorandum. The Financial Services and Markets Act 2023 enabled the Bank of England to oversee certain firms recognized by HM Treasury in the wholesale cash distribution market. These Regulations set the scale of fees that the BoE may charge to these firms. The payment of these fees will reimburse the BoE for its costs incurred in connection with overseeing these firms. The BoE may charge: (i) an annual oversight fee which may not exceed GBP400,000 in any one calendar year; and (ii) a special projects fee if it considers that events require further supervision of a recognized firm up to a maximum of GBP150,000 in any one calendar year. The Regulations do not apply to persons that are recognized by HMT as having systemic significance for the wholesale cash distribution market. HMT does not expect in the near term to recognize any such firms and would make further regulations to provide a separate scale of fees if that should change.
The Regulations come into force on January 24, 2025.Topic : Payment Services -
European Securities and Markets Authority publishes final report on bond transparency and 'reasonable commercial basis' for market data under MiFIR Review
December 16, 2024
The European Securities and Markets Authority has published its final report covering mandates under the MiFIR Review for the review of the regulatory technical standards on transparency requirements for bonds, structured finance products and emission allowances, and the RTS on the "reasonable commercial basis" upon which firms should provide market data.
Regarding the non-equity transparency requirements set out in Commission Delegated Regulation (EU) 2017/583, the draft RTS propose amendments to: (i) the pre-trade transparency requirements, in particular in relation to the definition and characteristics of central limit order books and periodic auctions; (ii) the pre-trade waiver regime; (iii) the deferral regime for bonds, structured finance products, and emission allowances; and (iv) specific transparency fields and flags.
Read more.Topic : MiFID II -
European Securities and Markets Authority publishes final report on equity transparency under revised Markets in Financial Instruments Directive
December 16, 2024
The European Securities and Markets Authority has published a final report, setting out proposals for amendments related to equity transparency under the revised Markets in Financial Instruments Directive. The report includes proposals for the amendment of the regulatory technical standards as well as the technical advice on the provisions on equity transparency, covering: (i) changes to the definition of a liquid market for equity instruments. The new liquidity assessment for shares is now solely based on the market capitalization instead of the free-float; (ii) specification of information to be disclosed for pre-trade transparency purposes, which is also of relevance for the equity consolidated tape; (iii) review of the pre-trade transparency requirements for systematic internalizers, including the calibration of two quoting sizes; and (iv) post-trade transparency reports, including flags for equity instruments. In addition, the proposals include changes related to the discontinuation of reporting of data for the purpose of transparency calculations. Going forward, ESMA will perform these calculations using transaction data reported under Article 26 of MiFIR.
The final report has been submitted to the EC, which has three months to decide whether to endorse the proposed amendments to the RTS. Similar amendments will be proposed in early 2025 for the volume cap mechanism.Topic : MiFID II -
European Securities and Markets Authority publishes final report and technical standards on consolidated tape providers and data reporting service providers
December 16, 2024
The European Securities and Markets Authority has published a final report on new and revised technical standards for consolidated tape providers and other data reporting services providers under the Markets in Financial Instruments Regulation.
The report covers the final regulatory technical standards applicable to CTPs on: (i) data quality and reporting (changes to ESMA's original proposal have been made regarding input data formats, CTPs' responsibilities on input data quality and latency requirements); (ii) revenue redistribution and authorization (refinements from ESMA's original proposal have been made to allow greater flexibility to the CTP when applying the revenue distribution scheme); and (iii) clock synchronization (which largely align with ESMA's original proposal). The report also includes revised Technical Standards on the authorization of DRSPs (which were largely as consulted on).
The final report has been submitted to the European Commission, which has three months to decide whether to endorse the proposed amendments to the RTS.Topic : MiFID II -
European Securities and Markets Authority publishes feedback statement on future selection of consolidated tape provider
December 16, 2024
The European Securities and Markets Authority has published a feedback statement providing an overview of responses received from stakeholders to its public consultation on the future selection of consolidated tape providers. ESMA provides a detailed summary of the feedback collected for each of the selection criteria: (i) governance and organization requirements; (ii) costs, fees, and revenue redistribution; (iii) the ability to process data and dissemination speed; (iv) data quality, modern interface, and record-keeping; and (v) resilience, cyber-risk, and energy consumption.
The final technical specifications will be made publicly available, together with general tendering specifications on the approach and standardized forms, at the launch of each selection procedure. ESMA will launch the selection procedures for the bonds CTP on January 3, 2025, and for the equity CTP in June 2025.Topic : MiFID II -
UK Financial Conduct Authority publishes update on an equity consolidated tape
December 16, 2024
The U.K. Financial Conduct Authority has published a final report commissioned from Europe Economics to evaluate the potential impacts of implementing a pre-trade equities consolidated tape in the U.K., together with an update responding to the findings of the report.
The EE report made a number of findings, including with respect to the usefulness of post-trade data, the institutional and retail use of pre-trade data, the impact of pre-trade data on market resilience, and the licensing of market data. The FCA concludes that there is a strong case for establishing an equities CT (including ETFs) with post-trade data, covering traded prices and volumes, as soon as practicable. Many market participants also think that to reap the full benefits from a CT and ensure it is commercially viable, the inclusion of pre-trade data is necessary. EE's report shows that the demand for a pre-trade CT is dependent on its design features.
The FCA will explore the different policy options for the U.K. equity CT and plans to engage with market participants on potential design options early in 2025, with a view to publishing a consultation paper later in the year. Potential CT providers that wish to participate in the FCA's engagement should respond to the call for interest by January 10, 2025. The FCA has also issued an invitation for potential CT providers to express their interest in providing an equity CT. -
European Securities and Markets Authority publishes final report on amendments to certain technical standards for commodity derivatives
December 16, 2024
The European Securities and Markets Authority has published a final report on proposed amendments to certain MiFID II technical standards in relation to commodity derivatives in response to amendments introduced by the MiFID II review. The final report details the proposed changes to Commission Delegated Regulation (EU) 2022/1299 (RTS on position management controls), Commission Implementing Regulation (EU) 2017/1093 (ITS 4), and Article 83 on position reporting in Commission Delegated Regulation (EU) 2017/565.
Changes relating to commodity derivatives introduced by the MiFID Review include: (i) extending position management controls to trading venues which trade derivatives on emission allowances; (ii) amending the scope of position reporting by excluding emission allowances; and (iii) introducing a new obligation to publish a second weekly position report for trading venues trading options.
The final report has been submitted to the European Commission, which has three months to decide whether to endorse the proposed amendments to the technical standards.Topic : MiFID II -
UK Financial Conduct Authority Dear CEO Letter for benchmark administrators
December 13, 2024
The Financial Conduct Authority has published a Dear CEO Letter setting out its key concerns and priorities over the next two years for benchmark administrators. The FCA's supervisory priorities include:- corporate governance and oversight — the FCA will conduct a governance review in late 2025 to assess how the U.K.-regulated benchmark administrators' business is governed and led by U.K. Approved Persons under the Senior Managers Regime, and to what extent they are able to oversee the full range of risks to which the firm is exposed;
- data quality controls — in early 2025, the FCA will evaluate the adequacy of the due diligence BMAs perform on data providers. Through this multi-firm data controls project, the FCA will seek evidence of how BMAs' control frameworks adequately mitigate the additional risks associated with unregulated or innovative data; and
- benchmarks controls — in H2 2025, the FCA intends to evaluate the adequacy of end to-end benchmark controls. This will involve a multi-firm review, across different asset types, focusing on custom and more complex benchmarks. The FCA will seek evidence that firms have adapted their controls for the launch, calculation, and rebalancing of custom or complex benchmarks.
Topic : Financial Market Infrastructure -
UK Financial Conduct Authority publishes Dear CEO letter for data reporting service providers
December 13, 2024
The U.K. Financial Conduct Authority has published a Dear CEO letter for data reporting services providers. Since its previous letter in May 2022, the FCA has seen improvement in some areas such as within firms' data quality system and controls and more bespoke DRSP documentation. However, there remain risks of harm.
The FCA's ongoing supervisory priorities are:- operational resilience — the FCA has observed a low number of operational resilience-related incidents being reported by DRSPs. While this could reflect strong operational resilience, the FCA is concerned that it may indicate that firms have not set appropriate thresholds for reporting incidents. The FCA will closely monitor reported incidents and work with DRSPs to review the adequacy and compliance of incident management and response procedures;
- data quality systems and controls — the FCA expects DRSPs to prioritize enhancing data quality systems and controls to ensure all reported data is complete, accurate, and submitted on time; and
- communication with the FCA and the notification regime — firms are required to provide prompt and accurate notifications to the FCA. The FCA will undertake a review to assess DRSPs' procedures for submitting notifications, which will focus on ensuring that firms have clearly established and appropriate thresholds for determining when a notification is required.
Topic : Financial Market Infrastructure -
UK Financial Conduct Authority publishes Dear CEO letter for trading venues
December 13, 2024
The U.K. Financial Conduct Authority has published a Dear CEO letter setting out its key concerns and priorities over the next two years for trading venues (that is, recognized investment exchanges, multilateral trading facilities and organized trading facilities).
The FCA's supervisory priorities include:- operational resilience — in the coming period, the FCA will focus on the preparedness of RIEs for the new regulatory framework surrounding operational resilience confirmed by PS21/3. The FCA will also be selecting certain MTFs and OTFs for a further review of their operational resilience;
- market orderliness — the FCA will continue to discuss with trading venues how they are developing the systems and controls they have, to maintain an orderly market in response to the evolving technology and risk landscape, with a focus on volatility management;
Read more.Topic : Financial Market Infrastructure -
UK authorities consult on operational incident and third-party reporting
December 13, 2024
The Financial Conduct Authority, Prudential Regulation Authority, and the Bank of England have launched consultations on operational incident and third-party reporting. The regulators propose to establish a framework to enhance incident and third-party risk management, strengthen firms' operational resilience and minimize harm. To achieve this, the regulators propose a definition for an operational incident and introduce new material third-party reporting rules. The proposals introduce standardized reporting templates to allow the regulators to collect data which would be used to monitor and respond to potential risks arising from operational incidents and firms' increasing reliance on third parties.
The deadline for comments is March 13, 2025. The FCA intends to publish finalized rules in H2 2025. The PRA and the BoE propose that the implementation date for the proposals will be no earlier than H2 2026. You may like to see our client bulletin, "Operational incident reporting: UK financial regulators propose new rules", which goes into the details of these proposals. -
European Securities and Markets Authority publishes Q&As on application of guidelines on funds' names using environmental, social, and governance or sustainability-related terms
December 13, 2024
The European Securities and Markets Authority has published three sets of Q&As to provide further detail on the guidelines on funds which use ESG or sustainability-related terms in their names. The guidelines relate to requirements under the Undertakings for Collective Investment in Transferable Securities Directive, the Alternative Investment Fund Managers Directive, and the Cross-Border Distribution of Investment Funds Regulation to act honestly and fairly in conducting their business and to ensure marketing communications are fair, clear, and not misleading. The Q&As have been published separately for UCITS and AIFs but are identical in content.
Read more. -
UK Financial Conduct Authority publishes dear CEO letter for custody and fund services
December 13, 2024
The U.K. Financial Conduct Authority has published a Dear CEO Letter setting out its supervision strategy for firms in the custody and fund services sector. The custody and fund services sector broadly covers firms acting as third-party custodians, depositaries for both authorized and non-authorized funds, and third-party administrators who provide services such as fund accounting and transfer agency.
Read more.Topic : Financial Services -
UK Financial Conduct Authority publishes Dear CEO letter for contract for differences providers
December 13, 2024
The U.K. Financial Conduct Authority published a Dear CEO letter setting out its strategy for providers and distributors of contract for differences over the next two years. The FCA's planned work relates to:- Consumer Duty — the FCA will continue to test the embedding of the Consumer Duty and plans to conduct a multi-firm review focusing on the Consumer Duty's 'price and value' outcome;
- market abuse — the FCA aims to improve the identification of market abuse in the portfolio, focusing on transaction reporting and continuing its firm-specific targeted reviews of surveillance arrangements;
- reducing harm for firm failure — the FCA will continue to assess firms' implementation of the Investment Firms Prudential Regime, using regulatory returns and targeted data requests to identify outliers. The FCA will also oversee the progress of smaller firms on their MIFIDPRU capital glide paths and take action where firms have inadequate plans to increase capital in line with minimum glide path expectations;
Read more.Topic : Financial Services -
EU provisional agreement on regulation amending the Benchmarks Regulation
December 12, 2024
The Council of the European Union and the European Parliament have reached a provisional agreement on the proposed Regulation amending the Benchmark Regulation. The proposed Regulation will amend the scope of the benchmark rules, the use of benchmarks provided by a third-country administrator, and certain reporting requirements. The Council and EP agreed:- To reduce the regulatory burden on administrators of non-significant benchmarks by removing them from the scope of current rules.
- That only those benchmarks defined as critical or significant, EU Paris-aligned benchmarks, EU Climate Transition benchmarks, and certain commodity benchmarks should remain in scope. In addition, there will be the option for out-of-scope administrators to opt-in voluntarily under certain conditions.
- To add further qualitative criteria to the calculation methodology for significant benchmarks.
Read more. -
European Securities and Markets Authority consults on the draft technical standards on open-ended loan-originating alternative investment funds
December 12, 2024
The European Securities and Markets Authority has published a consultation paper on draft regulatory technical standards on open-ended loan originating Alternative Investment Funds under the revised Alternative Investment Fund Managers Directive. Under the revised AIFMD, an Alternative Investment Fund Manager is required to ensure any loan-originating AIFs it manages is closed-ended. However, there is a carve-out for open-ended loan-originating AIFs where the AIFM is able to demonstrate that the AIF's liquidity risk management system is compatible with its investment strategy and redemption policy.
The draft RTS set out the requirements for loan-originating AIFs to maintain an open-ended structure as per this carve-out. The requirements include: (i) a sound liquidity management system; (ii) the availability of liquid assets and stress testing; and (iii) an appropriate redemption policy having regard to the liquidity profile of loan-originating AIFs.
Responses may be submitted until March 12, 2025. ESMA intends to finalize the draft RTS by Q3/Q4 2025.Topic : Funds -
European Securities and Markets Authority consults on technical advice on Listing Act implications
December 12, 2024
The European Securities and Markets Authority has published a consultation on technical advice required following changes to the EU Market Abuse Regulation and the Markets in Financial Instruments Directive and Regulation as a result of the Listing Act. Regarding MAR, ESMA is invited to provide technical advice on the disclosure of inside information in a protracted process, and conditions to delay the disclosure of inside information. ESMA is also providing information on the revenues of trading venues with a cross-border activity above 50% in the context of the Cross Market Order Book mechanism to exchange order data. Regarding MiFID, ESMA is providing technical advice on the delegated acts regarding requirements for a multilateral trading facility (or an MTF segment) to be registered as a Small and Medium Enterprises Growth Market.
In line with the objectives of the Listing Act, ESMA's technical advice aims to ensure that the EU's regulatory framework promotes better access to public capital markets for EU companies, especially SMEs, by reducing the administrative burden of listing while ensuring integrity and confidence in capital markets. The deadline for comments is February 13, 2025. ESMA aims to deliver its technical advice to the EC before the set deadline or April 30, 2025.Topic : Securities -
UK Government responds to Treasury Committee report on SME Finance
December 12, 2024
The U.K. government has published its response to the Treasury Committee on access to financing for small businesses. The report, by the Treasury Select Committee of the previous Parliament, made recommendations related to de-banking and the Business Banking Resolution Service. The government makes a number of commitments such as: (i) continued funding for key business support programs in 2025/26; (ii) continued funding for the Help to Grow: Management programme; (iii) extending the SME Digital Adoption Taskforce by at least six months; and (iv) bringing forward a Small Business Strategy Command Paper next year.
The government also acknowledges the Treasury Committee's concerns about the removal of the SME supporting factor under Basel 3.1 and notes the Prudential Regulation Authority's adjustments in this area, commending the PRA's consideration of feedback and adaptations. On business de-banking, the government agrees that current account closure requirements could be improved and notes that HM Treasury intends to bring forward legislation so customers receive detailed explanations when providers close their accounts and a longer notice period (subject to certain exceptions). It also plans to monitor for evidence of de-banking of legitimate businesses and the work of relevant bodies, including the Financial Conduct Authority. On personal guarantees, the government will take a close interest in the outcomes of the FCA's current investigation into personal guarantees and will continue to monitor for evidence of the effect and proportionality of the use of personal guarantees. On December 9, 2024, the FCA published a webpage on its follow-up work on the Federation of Small Businesses super-complaint concerning the use of personal guarantees by lenders to support loans to small businesses. -
EU Regulation on environmental, social and governance rating activities published
December 12, 2024
Regulation (EU) 2024/3005 on the transparency and integrity of environmental, social and governance rating activities has been published in the Official Journal of the European Union. The Regulation aims to strengthen the reliability and comparability of ESG ratings by improving the transparency and integrity of the operations that ESG ratings providers carry out and by preventing potential conflicts of interest. ESG ratings providers established in the EU will be authorized and supervised by European Securities and Markets Authority and will have to comply with transparency requirements, in particular with regard to their methodology and sources of information. The Regulation also introduces a requirement for the separation of business and activities to prevent conflicts of interest. The Regulation will enter into force on January 2, 2025. It will apply directly across the EU from July 2, 2026.Topic : Climate & Sustainable Finance -
UK Independent Review of the Payment and Electronic Money Institution Insolvency Regulations 2021
December 12, 2024
HM Treasury has published its letter inviting Adam Plainer to lead an independent review of the Payment and Electronic Money Institution Insolvency Regulations 2021 (PESAR). HM Treasury also published the PESAR terms of reference, setting out the scope of the review. HM Treasury is required to appoint a reviewer to consider how the PESAR regime has been embedded and is working in practice. The PESAR regime was introduced to bring in new objectives to mitigate against administrators of payment and electronic money firms causing delays in customers gaining access to their funds. The reviewer will produce a report to be laid before Parliament. Submissions of evidence may be submitted until May 30, 2025. -
Financial Stability Board issues recommendations for regulating cross-border payments
December 11, 2024
The Financial Stability Board has published two final reports on recommendations to promote greater alignment and interoperability across data frameworks related to cross-border payments, and consistency in the regulation and supervision of bank and non-bank payment service providers. In addition to the two reports, the FSB also published overviews of the consultation responses, setting out the main changes made to the final report in order to address comments raised in the public consultation.
The first report sets out final recommendations for promoting alignment and interoperability across data frameworks applicable to cross-border payments. The recommendations fall into four broad categories: (i) addressing uncertainty about how to balance regulatory and supervisory obligations; (ii) promoting the alignment and interoperability of regulatory and data requirements related to cross-border payments; (iii) mitigating restrictions on the flow of data related to payments across borders; and (iv) reducing barriers to innovation.
The second report sets out recommendations for regulating and supervising bank and non-bank PSPs offering cross-border payment services to strengthen consistency in a way that is proportionate to the risks associated with such activities. The FSB explains that this approach aims to reduce the prospect of regulatory arbitrage by establishing a level playing field that takes into account differences in business models and risk profiles.Topic : Payment Services -
UK Financial Conduct Authority publishes guidance on firms' approaches to Consumer Duty board reports
December 11, 2024
The Financial Conduct Authority has published its findings following a thematic review into firms' approaches to completing the first annual Consumer Duty board report. Under the Duty, a firm must prepare a report for its governing body setting out the results of its monitoring of consumer outcomes and any actions required as a result of the monitoring.
The FCA findings related to four key areas: (i) report governance; (ii) monitoring and outcomes; (iii) actions taken to comply with Duty obligations; and (iv) future business strategy. Overall, the FCA found that the best reports were structured in a way that made it easy to scrutinize the key aspects and highlighted the following elements of good reports: (i) clear outcomes focus; (ii) good quality data to back up conclusions (including good quality management information); (iii) analysis of different customer types including those with characteristics of vulnerability; (iv) clear processes for reviewing, approving and producing reports within the necessary timeframe; and (v) firm focus on culture, noting the role of a positive culture in delivering good outcomes.
On December 9, 2024, the FCA set out its priorities under the Consumer Duty for the remainder of 2024 and for 2025.Topic : Consumer Protection -
UK Financial Conduct Authority publishes research note on bias in supervised machine learning models
December 11, 2024
The Financial Conduct Authority has published a research note providing a review of literature on bias in supervised machine-learning models. The note explores how biases may arise and be mitigated in models used to make predictions or assist in decision-making about individuals. Points of particular interest include: (i) past decision-making, historical practices of exclusion, and sampling issues are key potential sources of bias; (ii) biases can arise due to choices made during the AI modelling process itself, such as what variables are included, what specific statistical model is used, and how humans choose to use and interpret predictive models; and (iii) in reviewing technical methods for identifying and mitigating such biases, these methods should be supplemented by careful consideration of context and human review processes.Topic : Artificial Intelligence -
Financial Stability Institute insights paper on regulating AI in financial services sector
December 11, 2024
The Financial Stability Institute of the Bank for International Settlements has published a policy implementation insights paper on developments and challenges relating to regulating AI in the financial services sector. The paper explores the potential transformative impact of AI on the financial sector, focusing on operational efficiency, risk management and customer experience in banking and insurance. Among other findings, the paper concludes that while AI exacerbates existing risks such as model risk and data privacy, it does not introduce fundamentally new risks apart from generative AI, which may give rise to hallucination and anthropomorphism risks. Most financial authorities have not issued AI regulations specific to financial institutions as existing frameworks already address most of these risks, but some areas require further regulatory attention, including governance, expertise and skills, model risk management, data governance, non-traditional players in the financial sector, new business models and third-party AI service providers. The paper also notes that the presence of various AI definitions across jurisdictions needs to be addressed by international collaboration, as the lack of a globally accepted definition of AI prevents a better understanding of AI-use cases, and the identification of areas of heightened risk.Topic : Artificial Intelligence -
UK Financial Conduct Authority publishes findings of thematic review into firms' approaches to complaints and root cause analysis
December 11, 2024
The Financial Conduct Authority has published the findings of a thematic review into firms' approaches to complaints and root cause analysis. The FCA completed the thematic review to support effective embedding and implementation of the Consumer Duty. Overall, the FCA found that firms have established processes for carrying out root cause analysis of complaints, identifying trends and themes, and that most firms could evidence clear escalation routes and accountability.
Read more.Topic : Consumer Protection