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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UK Listed Investment Companies (Classification etc) Bill Published
September 5, 2024
The Listed Investment Companies (Classification etc) Bill 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.
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European Central Bank Supervisory Board Speech on Banks' Operational Resilience
September 4, 2024
The European Central Bank has published a speech by Frank Elderson, ECB Executive Board member and Supervisory Board Vice-Chair, on banks' operational resilience. Operational resilience has become a key priority for regulators globally. Mr Elderson notes that EU's Digital Operational Resilience Act, which applies from January 17, 2025, will significantly enhance IT and cyber risk management. However, the ECB's cyber resilience stress test earlier this year illustrated that there is scope for improvement, and the ECB appeals to Eurozone banks to prioritize operational and cyber resilience.
Read more.Topic : Operational Resilience -
UK Payments Regulator Consults on Reducing Maximum Level of Reimbursement for APP Scams
September 4, 2024
Following feedback from industry and other stakeholders, the Payments Systems Regulator published a consultation paper on reducing the maximum level of reimbursement for the Faster Payments APP fraud reimbursement limit from £415,000 to £85,000. The APP reimbursement requirement obliges payment services providers to reimburse consumers when a payment is executed over the Faster Payments Scheme and the payment was executed following fraud or dishonesty. The PSR proposes to implement the policy with an initial maximum level of reimbursement set at the Financial Services Compensation Scheme reimbursement limit, which is currently £85,000, per each Faster Payments APP scam claim. The previous maximum reimbursement value of £415,000 matched the Financial Ombudsman Service maximum reimbursement limit at that time (the FOS has since raised it to £430,000). The new reimbursement level would come into effect on October 7, 2024 as planned. No other changes to the reimbursement rules are proposed at this stage.
Read more.Topic : Payment Services -
UK Financial Conduct Authority Reports on Payment Account Access and Closures
September 4, 2024
The Financial Conduct Authority has published a report setting out the findings from its follow-up work on payment account access and closures. The report follows on from the FCA's 2023 report, UK Payment Accounts: Access and Closures, which detailed findings from an initial review of issues relating to payment account access for both individuals and organizations. The 2023 report arose from the "de-banking" of higher risk or less profitable clients by several institutions and scandals in the U.K. involving account terminations of some politicians.
Read more.Topic : Payment Services -
UK Financial Services and Markets Act 2023 (Commencement No 7) Regulations 2024 Published
September 3, 2024
The Financial Services and Markets Act 2023 (Commencement No 7) Regulations 2024 (SI 2024/891) have been made. The Regulations revoke certain instruments listed in the Financial Services and Markets Act 2023 relating to securitization, specifically: (i) the Securitisation Regulations 2018; (ii) provisions of the retained EU Securitisation Regulation that have not already been revoked; and (iii) the retained instruments that amended or supplemented the Securitisation Regulation and Capital Requirements Regulation. These instruments are to be revoked so that the new U.K. securitization framework, established under the Securitisation Regulations 2024 can come into force on November 1, 2024 as provided for by the Securitisation (Amendment) Regulations 2024.Topic : Securities -
UK Financial Conduct Authority Confirms Date for Opening of Overseas Funds Regime Gateway to New Schemes
August 22, 2024
The Financial Conduct Authority has updated its webpage on the Overseas Funds Regime to confirm that it will open the gateway to new schemes on September 30, 2024. From that date, new schemes (schemes not in the Temporary Marketing Permissions Regime) will be able to apply for recognition at any time without a landing slot.
For schemes in the TMPR, landing slots will start in October and will be available for operators of stand-alone EEA UCITS. After that, the FCA intends to issue landing slots to operators of umbrella UCITS by alphabetical order of the fund operator's name. The FCA explains that the sequence of landing slots will then be staggered monthly to help with operational efficiency.
The OFR is a new gateway through which certain collective investment schemes, domiciled in jurisdictions deemed to be equivalent by the Government, will be able to market to U.K. retail investors upon recognition by the FCA. At the outset, the OFR will be available to most funds established in EEA and EU member states that have been authorized under the UCITS Directive following the Government's decision to grant equivalence in relation to those funds (excluding money-market funds).Topic : Funds -
EU Guidelines on Funds' Names Using ESG or Sustainability-Related Terms
August 21, 2024
The European Securities and Markets Authority has published the official translations of its guidelines on funds' names using ESG or sustainability-related terms. The objective of the guidelines is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names, and to provide asset managers with clear and measurable criteria to assess their ability to use ESG or sustainability-related terms in fund names.
The guidelines establish that to be able to use these terms, a minimum threshold of 80 percent of investments should be used to meet environmental, social characteristics or sustainable investment objectives. The guidelines will start applying on November 21, 2024. The transitional period for funds existing before the application date is six months after that date, on May 21, 2025. Any new funds created on or after the application date are expected to apply the guidelines immediately. -
UK Payment Systems Regulator Publishes Response to Call for Views on Expanding Variable Recurring Payments
August 15, 2024
The U.K. Payment Systems Regulator has published a response to its call for views on proposals for the expansion of variable recurring payments. VRPs allow customers to safely connect authorised payment providers to their bank accounts using open banking so that they can initiate recurring payments (which may be made at flexible intervals and in varying amounts). The Competition and Markets Authority has already mandated nine U.K. banks (the 'CMA9') to implement VRPs for payments between accounts belonging to the same person. The PSR's proposals would enable payments between accounts in different names (so-called 'non-sweeping VRPs'). Phase 1 of the expansion would enable the extension of VRPs to low risk use cases, namely regulated financial services, regulated utilities sectors, and local and central government. The PSR sets out its responses to stakeholder feedback on the key changes required to expand VRPs in this way, including: (i) coordinating the expansion of VRPs through a multilateral agreement - the PSR continues to view an MLA as an efficient way of managing relationships between sending firms and payment initiation service providers, but acknowledges concerns regarding Pay.UK's capacity to deliver the MLA on time. The PSR will work closely with the VRP implementation group to assess which specific rules an MLA should include and who might be best placed to operate it; (ii) mandated participation - the PSR agrees that the 'CMA9' concept should not be used to determine participation in the expanded VRPs and will continue to assess the necessity and scope of mandated participation; and (iii) pricing principles and possible price intervention - the PSR will evaluate different approaches to pricing VRP Application Programming Interface access in Phase 1. The PSR aims to share a set of updated proposals in the autumn.Topic : Payment Services -
European Banking Authority Sets 2025 Priorities for Resolution Authorities and Reports on the Progress Achieved in 2023
August 13, 2024
The European Banking Authority published its 2025 European Resolution Examination Programme report. The report sets three priorities for resolution authorities and banks for 2025 and looks at the progress achieved in 2023, identifying any areas of improvement. In 2023, convergence increased within the EU with regards to resolution planning practices and objectives: (i) on the minimum requirement for own funds and eligible liabilities, only four banks did not meet their target as of 1 January 2024; (ii) on the operationalization of the bail-in tool, most resolution authorities have now published their bail-in mechanics and consider that certain challenges (e.g., the identification of holders of instruments, suspension of trading and requirements for issuing prospectuses for the new instruments) persist and are particularly prominent in relation to third country stakeholders; (iii) while some progress has been observed in the area of liquidity in resolution, resolution authorities plan to further increase the intensity of their testing and to challenge the severity of banks' scenarios; and (iv) resolution authorities have performed further testing of management information systems for valuation as some banks showed significant gaps in data quality, automation, granularity and timeliness of report delivery.
Read more.Topic : Recovery & Resolution -
European Banking Authority Publishes Final Draft Regulatory Technical Standards on Market Risk Framework
August 13, 2024
The European Banking Authority has published its final amendments to the Regulatory Technical Standards on the market risk framework, also known as the Fundamental Review of the Trading Book. The EU Capital Requirements Regulation III introduced a number of changes to the FRTB, as implemented in the EU via CRR II, and consequently mandated the EBA to review its RTS in areas where the underlying CRR legal basis has been amended, namely on the treatment of foreign-exchange and commodity risk in the banking book, the profit and loss attribution test, and the risk factor modellability assessment. The EBA's RTS therefore amend the following: (i) Commission Delegated Regulation (EU) 2022/2059, which sets out the details on the profit and loss attribution test. The amending RTS remove the aggregation formula for computing the total own funds requirements for market risk for an institution using the alternative internal model approach as this formula has been now introduced in the CRR III; (ii) Commission Delegated Regulation (EU) 2022/2060, which relates to the risk factors' modellability assessment. The amending RTS ensure that institutions are able to identify how far they rely on a third-party vendor for the purpose of assessing the modellability of a risk factor; and (iii) Commission Delegated Regulation (EU) 2023/1577, which relates to the treatment of foreign exchange and commodity risk in the non-trading book. The amending RTS ensure that translation risk is duly captured by institutions. The EBA will submit the final draft RTS to the European Commission for endorsement. -
UK Financial Conduct Authority Updates on Consolidated Tapes for Equities and Bonds
August 13, 2024
The FCA has published two new webpages on its work establishing consolidated tapes for equities and bonds. The final FCA framework for the bond CT was published in December 2023, along with a consultation on proposed payments from the bond consolidated tape provider to data providers, as well as responses to the FCA's discussion paper on the design of the equities CT. Feedback to the FCA's discussion paper was divided as to whether, and how much, pre-trade data should be included in an equities CT. The FCA has now appointed consultants to analyse the potential impact of including pre-trade data on the stability and resilience of U.K. equity markets and the outcomes for different types of users of the market. The FCA intends to provide a further update before the end of the year. As regards the bonds CT, the FCA published a Handbook Notice in April 2024 confirming that it would not require the bond CTP to make payments to data providers. The FCA is finalising the tender design to appoint a bond CTP and expects to commence the tender before the end of the year. The FCA requests any who are interested in taking part in the tender process to contact them by September 13, 2024 to allow it to be in contact with all relevant parties when making decisions to finalise the tender process. -
European Banking Authority Responds to European Commission's Delegated Act Postponing Application of Market Risk Framework
August 12, 2024
The European Banking Authority has published a no-action letter in response to the European Commission's postponement of the application of the revised market risk framework, also known as the Fundamental Review of the Trading Book. In the no-action letter, the EBA recommends that competent authorities should not prioritize any supervisory or enforcement action relating to the amendments to the provisions setting the boundary between the banking and trading books, or those defining internal risk transfers between books. The EBA also clarifies that the points it made in its separate no-action letter on the same topic issued in 2023 should remain applicable. The EBA considers that the front-loaded application of the revised provisions on the boundary and internal risk transfers, compared to the rest of the FRTB framework, would subject institutions to an operationally complex, fragmented, and costly two-step implementation. There are also no jurisdictions at the global level that envisage such a two-step implementation of the FRTB framework. This means that a front-loaded application of the boundary provisions would lead to global institutions being subject to very different regulatory requirements depending on where the risk management is performed, leading to a fragmentation of the regulatory framework. In a separate document, the EBA shares some considerations on technical questions and implementation issues arising from the postponement, that were deemed material and relevant with a view to achieving a harmonised implementation of the market risk framework across institutions during the postponement period. The EBA also provides clarity on the supervisory benchmarking exercise. The EBA considers that a legislative proposal to provide the necessary legal certainty should be introduced by the European Commission, under an accelerated adoption procedure by the European Parliament and the Council of the European Union, if possible. -
European Banking Authority Amends Implementing Technical Standards Specifying the Data Collection for the 2025 Benchmarking Exercise
August 9, 2024
The European Banking Authority has published its final draft Implementing Technical Standards amending the Implementing Regulation on the benchmarking of credit risk, market risk, and IFRS9 models for the 2025 exercise. The EU Capital Requirements Directive requires competent authorities to conduct an annual assessment of the quality of internal approaches used for the calculation of own funds requirements. To assist competent authorities in this assessment, the EBA calculates and distributes benchmark values to competent authorities that allows a comparison of individual institutions' risk parameters. These benchmark values are based on data submitted by institutions as laid out in Commission Implementing Regulation (EU) 2016/2070 which specifies the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercises. Proposed changes for the 2025 benchmarking exercise include the expansion to all asset classes of the alternative standardised approach validation portfolios. Only minor changes are proposed in relation to credit risk. The EBA notes that the templates based on the alternative internal model approach have not been implemented because of the postponed implementation of the Fundamental Review of the Trading Book in the EU. The EBA has submitted the draft ITS to the European Commission for endorsement. -
UK Financial Conduct Authority Consults on Enhancing the National Storage Mechanism
August 9, 2024
The U.K. Financial Conduct Authority has published a consultation on proposals to change the requirements for submitting regulated information to the National Storage Mechanism. The NSM is a free-to-use online archive of company information allowing users to access information about issuers. Regulated information is that disclosed by regulated market issuers in accordance with the Disclosure Guidance and Transparency Rules, Listing Rules, and parts of MAR. The FCA proposes to introduce more comprehensive metadata requirements to improve the functionality of the NSM by making it easier for NSM users to find regulated information. This includes expanding the requirements for the filing of legal entity identifiers and to update some of the headline information that is used to categorize regulated information. The FCA also proposes to standardise the way that Primary Information Providers, those firms approved by the FCA to disseminate regulated information on behalf of issuers, submit information to the NSM using the same standard schema and Application Programming Interface. The FCA states that its proposed changes will enable it to implement improved data quality controls and make it easier for NSM users to find regulated information. The deadline for comments is September 27, 2024.Topic : Securities -
European Commission Provides Further Clarifications on EU Corporate Sustainability Reporting Rules
August 7, 2024
The European Commission has published a draft Commission Notice on the interpretation of certain legal provisions in the Accounting Directive, Audit Directive, Audit Regulation, Transparency Directive, Regulation (EU) 2023/2772 (which contains the first set of European Sustainability Reporting Standards), and the Sustainable Finance Disclosure Regulation as regards sustainability reporting. The notice contains a set of replies to FAQs clarifying the interpretation of certain provisions introduced by the Corporate Sustainability Reporting Directive with the aim of facilitating their implementation by undertakings. They aim to support stakeholders in the implementation of the EU corporate sustainability reporting rules.
The FAQs include (among others) questions addressing:- sustainability information reporting under Articles 19a and 29a of the Accounting Directive;
- sustainability information reported under Article 40a of the Accounting Directive;
- assurance of sustainability reporting;
- key intangible resources disclosures;
- additional FAQs on requirements for third-country undertakings; and
- the correlation between indicators published under CSRD and those published under SFDR.
Topic : Climate & Sustainable Finance -
European Banking Authority Reports on Creditworthiness Assessment Practices of Non-Bank Lenders
August 7, 2024
The European Banking Authority has published a report on the fact-finding exercise on creditworthiness assessment practices of non-bank lenders. The exercise is a follow-up to the Consumer Trends Report published in April 2023. The report summarizes the EBA's key findings from the exercise, with a view to bringing about more insight into the creditworthiness assessment practices of non-bank lenders, on which potential legislative, regulatory and/or supervisory action can also be drawn in the future. Overall, the EBA found that, while during their creditworthiness assessments some non-bank lenders might service segments of the population that may have limited opportunities to access traditional banks for credit, a significant number of the surveyed non-bank lenders appear to apply inadequate practices for information gathering and verification.
Read more.Topic : Shadow Banking -
Bank of England Publishes Resolvability Assessment of Major UK Banks 2024
August 6, 2024
The Bank of England has published the findings from its second assessment of the eight major U.K. banks under the Resolvability Assessment Framework. The assessment finds that the major U.K. banks have continued to make progress in improving their preparations for resolution, including embedding resolution preparations into their everyday business, and in addressing issues outstanding from the first assessment in 2022. The BoE used the second Resolvability Assessment Framework assessment to assess the major U.K. banks' progress against issues outstanding from the first assessment, and for the first time to test how their preparations for resolution work in practice. The assessment focused on one of the three outcomes major U.K. banks need to achieve to be considered resolvable: having adequate financial resources in the context of resolution. In doing so, the BoE has identified new issues, although it notes that none of these new issues are likely to impede its ability to execute a resolution. Banks are expected, as a priority, to address the feedback from this and the previous Resolvability Assessment Framework assessment and continuously maintain and improve their resolvability capabilities.
Read more.Topic : Recovery & Resolution -
House of Lords Committee Re-Opens FCA-Related Inquiries
August 5, 2024
The House of Lords Financial Services Regulation Committee announced that it has reopened the following inquiries into:- The Financial Conduct Authority's enforcement guidance consultation (CP24/2). The deadline for responding to the call for evidence is now October 11, 2024. The Committee also confirmed that it will invite the FCA to provide oral evidence at a later date.
- The secondary international competitiveness and growth objective given to the FCA and the Prudential Regulation Authority under the Financial Services and Markets Act 2023. The deadline for comments to this call for evidence is November 29, 2024.
The calls for evidence were reopened following the Committee's reappointment on July 29, 2024. The Committee was dissolved on May 30, 2024, following the dissolution of Parliament.Topic : Recovery & Resolution -
EU Report on Payment Fraud
August 1, 2024
The European Central Bank and the European Banking Authority have published a joint report on payment fraud data. The report assesses payment fraud reported by the industry across the EEA and covers semi-annual data reported for the three reference periods H1 2022, H2 2022 and H1 2023, with a focus on the payment instruments of credit transfers, direct debits, card payments (from an EU/EEA issuing perspective), cash withdrawals and e-money transactions. Payment fraud amounted to EUR4.3bn in 2022 and EUR2.0bn in H1 2023.
The report examines the total number of payment transactions and the subset of fraudulent transactions in terms of value and volume. In addition to the aggregated values, the report also presents data based on volumes and sorted by type of payment instruments. The data shows that SCA-authenticated transactions featured lower fraud rates than non-SCA transactions, especially for card payments, both in terms of values and volumes. Furthermore, fraud shares for card payments, both in terms of values and volumes, were ten times higher when the counterpart is located outside the EEA, where the application of SCA is not legally required and may therefore not have been requested. The report considers this proof of the beneficial impact of the SCA requirements. The report also finds that losses due to frauds were distributed differently among liability bearers depending on the payment instrument.
The EBA and the ECB will continue to monitor fraud data and going forward will publish the aggregate data on an annual basis. -
Bank of England Discussion Paper on Approach to Innovation in Money and Payments
July 30, 2024
The Bank of England has published a discussion paper on its proposed approach to innovation in money and payments. It explains that innovations in money and payments present risks and opportunities for central banks' monetary and financial stability objective and that central banks must be quick to engage with them and prepare for their implications. The BoE's proposed approach includes developing additional functionalities for the Real-Time Gross Settlement service such as extending settlement hours and a synchronization interface that would allow RTGS to connect to external ledgers, including those based on programmable platforms, and settle assets in central bank money.
Central bank money could interact with programmable platforms through the use of so-called "wholesale central bank digital currency" (wCBDC) technologies. To inform this work, the BoE proposes a program of experiments to test the use cases, functionalities and prospective designs of both wCBDC and synchronization, and their relative merits. The BoE seeks views on its overall approach and on specific topics including, the benefits and risks of programmable platforms and the likelihood of them being taken up at scale by wholesale markets; the pace of innovation in private money, particularly commercial bank money; and the use of tokenized deposits and stablecoins for wholesale transactions.
Responses to the BoE's proposed approach may be submitted until October 31, 2024.Topic : Payment Services -
UK Prudential Regulation Authority Publishes Policy Statement on Leverage Ratio Treatment of Omnibus Account Reserves
July 29, 2024
The Prudential Regulation Authority has published a policy statement on the leverage ratio treatment of omnibus account reserves and minor amendments to the leverage ratio framework. PRA rules require firms to exclude from the leverage ratio any claims on central banks matched by liabilities in the same currency and of identical or longer maturity. The PRA explains that a new model of reserves holding has emerged where the reserves of several firms are co-mingled in a single account held at the central bank—known as an "omnibus" account. Therefore, the PRA is:- introducing new rules to apply the exclusion consistently across reserves held on omnibus accounts as well as traditionally-held reserves, with the exclusion of the former subject to specific additional conditions; and
- making minor amendments to SS45/15 and the leverage ratio disclosure and reporting instructions to provide clarification about the PRA's expectations and ensure consistency with PRA rules.
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Financial Conduct Authority Publishes Call for Input on Requirements Following Introduction of the Consumer Duty
July 29, 2024
The U.K. Financial Conduct Authority has published a Call for Input on the potential for simplification of existing FCA retail conduct rules and guidance in light of the Consumer Duty. The Consumer Duty was required to be fully implemented by firms by July 31, 2024. The Call for Input responds to concerns voiced by industry about the length and complexity of the FCA's rules and guidance, which in some cases have been found to overlap with the Consumer Duty.
Read more.
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UK Regulator Finalizes Payment Optionality Rules
July 26, 2024
The Financial Conduct Authority has published a policy statement and final rules that introduce payment optionality for research and trading commissions. The unbundling of research costs from execution commissions has been a controversial topic since the requirements were introduced in 2018 by the second Markets in Financial Instruments Directive. It is widely accepted that these measures have led to a substantial decline in research coverage, in particular for small and medium sized companies. Both the U.K. and the EU had tried a quick fix for the issue by introducing an exemption for SME research, however, that did not improve the research market. The unbundling of research and trading commissions also caused major challenges for U.S. broker-dealers who have had to either register under the Advisers Act or take complex operational steps in order to continue providing research to European investment companies. Following the Investment Research Review, the FCA consulted earlier this year on its proposals for introducing payment optionality and, taking account of feedback, has adjusted the details of some of the guardrails that will apply where firms opt to apply joint payments.
Read more.Topic : MiFID II -
UK Financial Markets Standard Board Publishes Spotlight Review on Pre-Hedging Practices
July 26, 2024
The Financial Markets Standard Board has published a spotlight review on pre-hedging practices. The FMSB is examining the practice as it considers, in principal markets, that there remains uncertainty as to how and when pre-hedging may be undertaken, the rationale and client benefits deriving from the activity as well as the distinction between inventory management, pre-hedging and front running. The spotlight review considers trading practices, across the size and liquidity spectrum, in fixed income, FX and exchange traded funds. It also considers evolving risk management practices around new issuances.
The spotlight review supplements existing FMSB guidance applicable to pre-hedging deriving from the FMSB's Standard for the execution of Large Trades in FICC markets with a series of considerations, derived from case studies, debated by FMSB's Pre-Hedging Working Group. The spotlight review is intended to advance the industry debate on pre-hedging but not codify standards of behavior. In due course, the FMSB will determine if standard-setting would be beneficial in this area, also taking into account international regulatory developments with regard to pre-hedging. -
UK Conduct Authority Consults on Changes to the Derivatives Trading Obligation
July 26, 224
The Financial Conduct Authority has launched a consultation on three proposed amendments to different aspects of the U.K. derivatives trading obligation. The consultation is part of the Wholesale Markets Review. The Markets in Financial Instruments Regulation imposes a "trading obligation," requiring mandatory on-venue trading for financial counterparties and non-financial counterparties where they engage in transactions in derivatives that: (i) have been declared subject to the clearing obligation under the U.K.'s European Market Infrastructure Regulation; (ii) are admitted to trading or traded on at least one U.K. trading venue (a regulated market, multilateral trading facility or organised trading facility) or a third-country equivalent trading venue; and (iii) are sufficiently liquid. Responses to the FCA's consultation may be submitted until September 30, 2024. The FCA intends to publish its direction on the modification of the DTO in Q4.
Read more. -
Financial Conduct Authority Consults on Rules for Admission of Securities to UK Trading Platforms
July 26, 2024
The Financial Conduct Authority has opened a consultation on proposed rules for companies seeking to admit securities to a U.K. regulated market or "primary" multilateral trading facility under the new Public Offers and Admissions to Trading Regulations. The Public Offers and Admissions to Trading Regulations, which were published in January, provide a new framework to replace the U.K. Prospectus Regulation. The FCA proposes to create a new Prospectus Rules: Admission to Trading on a Regulated Market sourcebook, removing the Prospectus Regulation Rules sourcebook. The FCA will also add a new chapter to the Market Conduct sourcebook.
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Financial Conduct Authority Consults on New Public Offer Platform Regime
July 26, 2024
The Financial Conduct Authority has launched a consultation on proposed rules for a new public offer platform regime, which will allow public offer platforms to facilitate companies making public offers of securities to investors outside public markets when raising more than £5 million. The new regulated activity was created by the Public Offer and Admissions to Trading Regulations 2024, which will replace the current U.K. Prospectus Regulation. This new activity will supplement existing regulation, such as existing investment-based crowd funding that is already regulated. Firms wishing to operate a public offer platform will either need to vary their permissions, or seek authorization from the FCA.
Read more. -
Final Technical Standards on Subcontracting ICT Services Under the EU Digital Operational Resilience Act
July 26, 2024
The European Supervisory Authorities have published a final report on draft regulatory technical standards to specify the elements that a financial entity needs to determine and assess when subcontracting ICT services supporting critical or important functions as mandated by Article 30(5) of the Digital Operational Resilience Act. The draft RTS set out requirements when the use of subcontracted ICT services supporting critical or important functions or material parts thereof by ICT third-party service providers is permitted by financial entities and set out the conditions applying to such subcontracting. In particular, the draft RTS require financial entities to assess the risks associated with subcontracting during the precontractual phase, which includes the due diligence process.
The draft RTS also set out requirements regarding the implementation, monitoring, and management of contractual arrangements regarding the subcontracting conditions for the use of ICT services supporting critical or important functions or material parts thereof ensuring that financial entities are able to monitor the entire ICT subcontracting chain of ICT services supporting critical or important functions. The ESAs will now submit the draft RTS to the European Commission for adoption.Topic : Operational Resilience -
UK Prudential Regulation Authority Policy Statement on its Approach to Rule Permissions and Waivers
July 25, 2024
The U.K. Prudential Regulation Authority has published a policy statement on its approach to rule permissions and waivers. The policy statement provides feedback to responses the PRA received to CP3/24 published in January. Appendix 1 contains the four responses received to the consultation paper and Appendix 2 contains the PRA's final statement of policy on the same topic. The statement of policy sets out the PRA's approach to the granting of rule permissions under section 138BA of the Financial Services and Markets Act 2000, as inserted by FSMA 2023. The PRA explains that following the responses it received to its consultation it has made two amendments to the statement of policy: (i) what the PRA generally expects to include in a subject specific statement of policy; and (ii) that there may be exceptional circumstances where it may be appropriate to grant a s138BA FSMA permission for which it has not set out criteria despite the s138A FSMA statutory tests not being met. The PRA expects these changes to be beneficial to persons subject to PRA rules by making its policy on s138BA FSMA permissions clearer and more transparent. The statement of policy takes immediate effect on publication of this policy statement. -
European Commission Adopts Delegated Regulation Amending EU Capital Requirements Regulation Postponing Application Date of Own Funds Requirement for Market Risk
July 24, 2024
The European Commission has adopted a Delegated Regulation amending the EU Capital Requirements Regulation with regard to the date of application of the own funds requirements for market risk. In addition, alongside the Delegated Regulation, the Commission has published a related Q&A document. Article 461a of the CRR, as amended by CRR III, requires the Commission to monitor the international implementation of the Basel III Fundamental Review of the Trading Book standards across jurisdictions and includes an empowerment to adopt delegated acts to ensure an international level playing field, if there are significant deviations in implementation by third countries.
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European Securities and Markets Authority Opinion on the Functioning of the Sustainable Finance Framework
July 24, 2024
The European Securities and Markets Authority has published an Opinion on the sustainable finance regulatory framework, setting out possible long-term improvements. ESMA acknowledges that while the EU sustainable finance framework is already well developed and includes safeguards against greenwashing, it does believe that, in the longer-term, the framework could further evolve to facilitate investors' access to sustainable investments and support the effective functioning of the sustainable investment value chain. The opinion builds on ESMA's progress report on greenwashing and the joint opinion of the European Supervisory Authorities on the review of the EU Sustainable Finance Disclosure Regulation. The opinion also represents the last component of ESMA's reply to the Commission's request for input related to greenwashing, next to the final report on greenwashing.
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Financial Conduct Authority Policy Statement on Rules for Access to Cash
July 24, 2024
The Financial Conduct Authority has published a policy statement on the final rules and guidance for a new regulatory regime to support access to cash for the consumers and businesses that rely on it, along with a research note setting out empirical analysis of characteristics associated with cash reliance in the U.K. The policy statement also summarizes the responses the FCA received to its December consultation paper (CP23/29). Overall, most respondents supported the need for a new regulatory regime to protect access to cash. However, on certain issues, there were diverging views between consumer groups and different industry respondents, and the FCA received some challenge on specific rules.
In response to the feedback, the FCA has made changes to the rules it consulted on, including extending the period for banks and building societies to carry out cash access assessments and giving local communities more time to make their case. Firms will also be able to review the provision of identified cash services after two years. In addition, the FCA is providing an eight-week implementation period between publishing the policy statement and the new regime coming into force on September 18, 2024. This is designed to give designated entities time to familiarize themselves with the rules and establish the necessary processes to comply with them.
Read more.Topic : Consumer Protection -
EU Statement on Transition of OTC-Transactions to New Post-Trade Transparency Regime
July 22, 2024
The European Securities and Markets Authority has published a public statement on the transition to the new regime for post-trade transparency of OTC-transactions in light of the revised Markets in Financial Instruments Regulation. According to Article 21a of MiFIR II, Designated Publishing Entities, when they are party to a transaction, are responsible for making the transaction public through an approved publication arrangement. MiFIR II requires ESMA to establish by September 29, 2024, a public register of all Designated Publishing Entities, specifying their identity and the classes of financial instruments for which they act as Designated Publishing Entities. MiFIR II does not provide for a transitional provision for the application of the Designated Publishing Entities regime for post-trade transparency.
Considering the need to ensure an orderly transition to the Designated Publishing Entities regime, ESMA and national competent authorities have agreed on a two-step approach: (i) ESMA starts publishing the Designated Publishing Entities register on September 29, 2024; and (ii) the new Designated Publishing Entities regime for post-trade transparency becomes fully operational on February 3, 2025. Therefore, ESMA expects that as of February 3, 2025, registered Designated Publishing Entities, which are party to a transaction, will make the transaction public through an APA. At the same time, ESMA expects that the current approach relying on systematic internalisers to make transactions public through an APA should stop applying as of this date.
Read more.Topic : MiFID II -
Financial Stability Board Progress Report on Enhancing Resilience of Non-Bank Financial Intermediation
July 22, 2024
The Financial Stability Board has published a progress report to the G20 on enhancing the resilience of non-bank financial intermediation. The aim of policies by the FSB to enhance NBFI resilience has been to reduce excessive spikes in the demand for liquidity, enhance the resilience of liquidity supply in stress, and enhance risk monitoring and the preparedness of authorities and market participants. The report sets out the recent and ongoing work by the FSB, in collaboration with standard-setting bodies, to enhance the resilience of the NBFI sector. The FSB notes that the design and implementation of NBFI policies continues to advance, albeit at an uneven pace across jurisdictions. The report includes a table which provides an overview of the FSB's medium-term NBFI work program. The report concludes by outlining further work to assess and address systemic risk in NBFI that the FSB, in collaboration with the standard-setting bodies, will carry out. The work is structured in three main areas: (i) in-depth assessment and ongoing monitoring of vulnerabilities in NBFI; (ii) the development of policies to enhance NBFI resilience; and (iii) the monitoring of the implementation and assessment of the effects of NBFI reforms. The FSB explains that this work will help it to determine whether collectively the reforms have sufficiently addressed systemic risk in NBFI, including whether to develop additional tools for use by authorities.
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UK Regulator Provides Guidance on Operational Impact of Overseas Funds Applying for Recognition
July 19, 2024
The Financial Conduct Authority has updated its webpage on the overseas funds regime providing guidance on the operational impact for operators of funds in the temporary marketing permissions regime. The FCA explains that for operators of funds in the TMPR that make an application to be recognized in the U.K. under the OFR, it is important for the fund population data at the beginning of the landing slot window to be accurate and stable. The FCA requests operators not to make any changes to the fund population data during the allotted landing slot and to plan accordingly.
Read more.Topic : Funds -
European Commission Adopts Delegated Regulation Under ELTIF Regulation
July 19, 2024
The European Commission has adopted a Delegated Regulation supplementing the European Long-Term Investment Funds Regulation with regard to regulatory technical standards specifying when derivatives will be used solely for hedging the risks inherent to other investments of the ELTIF, the requirements for an ELTIF's redemption policy and liquidity management tools, the circumstances for the matching of transfer requests of units or shares of the ELTIF, certain criteria for the disposal of ELTIF assets, and certain elements of the costs disclosure.
Among other things, the adopted legislation sets out the:- circumstances in which the use of financial derivative instruments for hedging purposes is considered as solely serving the purpose of hedging the risks inherent to the investments of the ELTIF;
- circumstances in which the life of an ELTIF is to be considered compatible with the life cycles of each of its individual assets;
- criteria to be used by the ELTIF managers to determine the minimum holding period referred to in Article 18(2), first subparagraph, point (a), of the ELTIF Regulation;
- minimum content requirements to the full or partial matching of transfer requests of units or shares of the ELTIF by existing and new investors where an ELTIF provides for that possibility under Article 19(2a) of the ELTIF Regulation; and
- criteria for the assessment of the market for potential buyers.
Topic : Funds -
Bank Resolution (Recapitalisation) Bill 2024-25
July 18, 2024
Following the King' Speech, the Bank Resolution (Recapitalisation) Bill 2025-25 has been introduced to Parliament. The Bill intends to avoid additional upfront financial costs for the financial services sector, by relying on the existing Financial Services Compensation Scheme funding system where industry is only levied to pay for the costs of failure after the event. Specifically, it: (i) expands the statutory functions of the FSCS, requiring it to provide funds to the Bank of England upon request which could be used to meet certain costs arising from the use of the resolution regime to manage the failure of a bank, building society or PRA-authorized investment firm; (ii) allows for the FSCS to use its levy-raising powers to recover any funds provided to the BoE after a failure event through imposing levies on the banking sector; (iii) extends the BoE's ability, through explicit provision, to require the issuance of shares in connection with a resolution, to facilitate the BoE's use of the funds provided by the FSCS to meet a failing bank's recapitalization costs; and (iv) makes a number of minor and consequential amendments to legislation to support the measures outlined above and ensure FSCS funds can be used effectively in a resolution.Topic : Recovery & Resolution -
Payment Systems Regulator Proposes Guidance for Supporting Identification of APP Scams and Civil Disputes
July 18, 2024
The Payment Systems Regulator has opened a consultation on draft guidance to support payment service providers in their assessment of whether an authorized push payment scam claim raised by a consumer is not reimbursable under the reimbursement requirement because it is a private civil dispute. Private civil disputes are not reimbursable under the mandatory reimbursement requirement. They most often involve situations where the consumer has not received good or services, or they are defective in some way, and there is no indication of an intent to defraud on the part of the alleged scammer. The APP reimbursement requirement, which applies from October 7, 2024, obliges PSPs to reimburse consumers when a payment is executed over the Faster Payments Scheme and the payment was executed following fraud or dishonesty.
The PSR's draft guidance sets out a proposed non-exhaustive set of factors a PSP should consider in its assessment, including: (i) the communication and relationship between the consumer and the alleged scammer; (ii) the trading status of the alleged scammer; (iii) the alleged scammer's capability to deliver the goods or services; and (iv) the extent to which the alleged scammer deceived the consumer as to the intended purpose of the payment. The guidance will apply to claims for payments made via Faster Payments and CHAPS.
The PSR expects sending PSPs to take a proportionate approach to validating claims based on the relative complexity and value of the fraud. PSPs are not expected to undertake complex or resource intensive investigations for simple APP fraud claims. Responses to the consultation may be submitted until August 8, 2024.Topic : Payment Services -
International Stocktake of Regulatory and Supervisory Initiatives on Nature-Related Financial Risks
July 18, 2024
The Financial Stability Board has published a stocktake of its member financial authorities' initiatives related to the identification and assessment of nature-related financial risks. The stocktake, which will be delivered to the July 25-26 meeting of G20 Finance Ministers and Central Bank Governors, describes both supervisory and regulatory initiatives, and also central banks' and supervisors' analytical work on whether and how nature degradation, including loss of biodiversity, is a financial risk.
The findings include:- Financial authorities are at different stages of evaluating the relevance of biodiversity loss and other nature-related risks as a financial risk, with approaches varying, in part due to differing mandates.
- Financial authorities categorize nature-related risks into the same two types of risks typically used in climate-related financial risk analysis: physical and transition risks. However, analytical work faces major data and modelling challenges. Authorities' work to date indicates that financial institutions face large exposures to physical risk via their investments and financing activities, but that analytical work needs to be further developed to better translate estimates of financial exposures into measures of risk. Authorities recognize the strong connections between climate risk and nature, and that more needs to be done to develop a more holistic approach that considers interdependencies between climate- and nature-related financial risks.
Read more.Topic : Climate & Sustainable Finance -
UK Financial Conduct Authority Consults on Amendments to Guidance on Treatment of Domestic PEPs
July 18, 2024
The Financial Conduct Authority has published the findings of its multi-firm review into the treatment of Politically Exposed Persons and launched a consultation on proposed amendments to its related guidance. The review was required under the Financial Services and Markets Act 2023, following concerns from U.K. Parliamentarians that firms were not effectively applying the FCA's guidance. The FCA found that most firms in its review did not subject PEPs to excessive or disproportionate checks and none would deny them an account based on their status. However the FCA has identified areas for improvement and has called on firms to, among other things: (i) ensure their definition of a PEP, family member or close associate is tightened and in line with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (known as the MLRs) and the FCA's guidance; (ii) review the status of PEPs and their associates promptly once they leave public office; (iii) communicate to PEPs effectively and in line with the Consumer Duty, explaining the reasons for their actions where possible; (iv) effectively consider the actual level of risk posed by the customer, and ensure that information requests are proportionate to those risks; and (v) improve the training offered to staff who deal with PEPs. The FCA has provided detailed feedback to the firms that were reviewed and in a small number of cases, has instigated an independent and more detailed review of firms' practices.
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UK Financial Conduct Authority Policy Statement on Implementing the Overseas Funds Regime
July 17, 2024
The Financial Conduct Authority has published a policy statement on its implementation of the Overseas Funds Regime. The OFR will be a new gateway through which certain collective investment schemes, domiciled in jurisdictions deemed to be equivalent by the Government, will be able to market to U.K. retail investors upon recognition by the FCA. The final policy sets out (i) the information that OFR fund operators will need to submit as part of the recognition process; (ii) ongoing change notification requirements for OFR funds; (iii) disclosure requirements for OFR funds to inform investors about compensation and dispute resolution schemes; and (iv) procedures for suspending and revoking recognition of an OFR fund or censuring its operator or depositary.
Following consultation feedback to CP23/26, the FCA has made changes to the final policy, including: (a) removing the proposed 30-day period between notifying the FCA of changes to OFR funds and when those changes could take effect in the U.K.; (b) providing further explanation and clarification as to which categories of changes should be notified; (c) including guidance relating to additional information in disclosures for fund prospectus' and point of sale information; and (d) clarified which U.K. fund prospectus requirements apply to OFR funds. The final rules will come into force on July 31, 2024. The OFR gateway is expected to open later this year. The FCA advises operators with funds currently in the Temporary Permissions Regime to check their landing slot on the FCA website for details of when they can apply for OFR recognition.Topic : Funds -
Basel Committee Finalizes Standards for Banks' Crypto-Asset Exposures
July 17, 2024
The Basel Committee on Banking Standards has published its final disclosure framework for banks' crypto-asset exposures and targeted amendments to its standard for banks exposures to crypto-assets to tighten the criteria for certain stablecoins to receive a preferential regulatory treatment. The final disclosure framework, which is based on the disclosure requirements in the final prudential standard on banks' crypto-asset exposures, includes a standardized table and templates covering banks' crypto-asset exposures. These require banks to disclose qualitative information on their crypto-asset-related activities and quantitative information on the capital and liquidity requirements for their crypto-asset exposures. The targeted amendments to the crypto-asset prudential standard aim to further promote a consistent understanding of the standard, particularly regarding the criteria for stablecoins to receive a preferential "Group 1b" regulatory treatment. Various other technical amendments clarify other aspects of the standard. Both standards have an implementation date of January 1, 2026. -
King's Speech 2024
July 17, 2024
The King's speech to Parliament sets out the new government's legislative program. The government has published background briefing notes relating to the King's Speech, providing a summary of the legislation to be brought forward. The Bills announced, in relation to financial services, include:- A Bank Resolution (Recapitalisation) Bill, which would aim to enhance the U.K.'s resolution regime, providing the Bank of England with a more flexible toolkit to respond to the failure of small banks. The Bill would expand the statutory function of the Financial Services Compensation Scheme to provide funds to the BoE upon request, to be used where necessary to support the resolution of a failing bank. The FSCS would then recover the funds provided by charging levies on the banking sector, similar to the current arrangements for funding depositor pay-outs in insolvency. Credit unions will not be in scope of this levy. The BoE will also be provided with the power to require a bank in resolution to issue new shares, facilitating the use of FSCS funds to meet a failing bank's recapitalization costs.
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European Supervisory Authorities Finalize Second Set of Technical Standards and Guidelines Under Digital Operational Resilience Act
July 17, 2024
The European Supervisory Authorities have published the final reports for the second collection of policy materials under the Digital Operational Resilience Act. These are the:- ​Final report on draft regulatory technical standards and implementing technical standards on the content, format, templates and timelines for reporting major ICT-related incidents and significant cyber threats under Article 20 DORA.
- Final report on draft RTS on the harmonization of conditions enabling the conduct of the oversight activities under Article 41(1)(c) DORA.
- Final report on draft RTS on the harmonization of conditions enabling the conduct of the oversight activities under Article 41(1)(a), (b) and (d) of DORA.
- Final report on draft RTS specifying elements related to threat-led penetration tests under Article 26(11) DORA.
- Final report on joint guidelines on the estimation of aggregated annual costs and losses caused by major ICT-related incidents under Article 11(11) DORA.
Topic : Operational Resilience -
EU Consultation on Firms' Order Execution Policies Under MiFID Review
July 16, 2024
The European Securities and Markets Authority has opened a consultation on proposed draft regulatory technical standards specifying the criteria for establishing and assessing the effectiveness of investment firms' order execution policies, accounting for whether the orders are executed on behalf of retail or professional clients. These proposals arise out of the MiFID Review, and the resulting changes to the Markets in Financial Instruments Regulation and Directive, which were published in March. We discuss these in our bulletin, "MiFID II: the EU's latest adaptations." The MiFID II best execution requirements oblige investment firms to obtain the best possible result for their clients when executing client orders, and require execution venues and investment firms to make data relating to the quality of execution of transactions publicly available.
Read more.Topic : MiFID II -
Financial Stability Board Consults on Recommendations to Enhance Cross-Border Payments
July 16, 2024
The Financial Stability Board has launched two consultations: the first on proposed recommendations to promote greater alignment in data frameworks related to cross-border payments, and the second on consistency in the regulation and supervision of bank and non-bank payment service providers. First, in relation to data frameworks, the FSB's recommendations aim to address identified frictions that pose significant challenges to improving the cost, speed, transparency, and accessibility of cross-border payments, while maintaining their safety and security and upholding the objective of protecting the privacy of individuals. These frictions include the misalignment of data in payments that interferes with the smooth processing of cross-border payments, restrictions on data sharing that impede the ability to safely process cross-border payments, and increased costs due to data storage and handling requirements. To take forward these recommendations in a coordinated manner and to identify emerging issues that should be addressed, the FSB proposes the establishment of a forum comprised of public-sector stakeholders covering payments, AML/CFT, sanctions, and data privacy and protection.
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UK Regulators Issue Call for Information on 'Big Tech' and Digital Wallets
July 15, 201
The Payment Systems Regulator and the Financial Conduct Authority have launched a joint call for information on "big tech" and digital wallets. With the increasing use by consumers of digital wallets provided by big tech firms, the regulators are concerned about the potential risks arising from big tech business models, but are aware also of the opportunities for enhanced payment experiences through the use of digital wallets. The regulators are looking to gather focused information and evidence on issues including:- the range of benefits that digital wallets bring for service users;
- whether there are any features in the supply of digital wallets that mean payments don't work as well as they could for consumers and/or businesses;
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UK Policy Statement on APP Scams Reimbursement Compliance and Monitoring
July 12, 2024
The Payment Systems Regulator has published its policy statement on compliance and monitoring of the authorized push payment scam reimbursement requirement. As the operator of Faster Payments, Pay.UK is responsible for monitoring all directed payment service providers' compliance with the APP reimbursement rules. Where necessary, and where it has the powers to do so, it will take action to manage compliance.
The PSR's policy statement confirms the requirement for directed PSPs to register with Pay.UK by August 20, 2024. This is one way that PSPs will identify themselves as in-scope of the policy to Pay.UK and will help facilitate a shared FPS Reimbursement Directory. This directory will enable PSPs to find one another's contact details so that they can meet the requirements in the FPS reimbursement rules and related policy, and communicate in respect of FPS APP scam claims received. The PSR sets out the data under reporting standard A that sending PSPs in-scope of the policy are required to retain and report to Pay.UK monthly in respect of transactions they have sent, to enable it to effectively monitor compliance with the FPS reimbursement rules. In addition, the PSR states the reasonable limits it is placing on Pay.UK in respect of the use and disclosure of the compliance data it receives. Finally, the PSR set out its approach to requiring PSPs to inform consumers of their rights under the policy.
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Financial Markets Standards Board Consults on Transparency Draft Standard for Sharing of Standard Settlement Instructions
July 12, 2024
The Financial Markets Standards Board has commenced consulting on a transparency draft of a standard for sharing of standards settlement instructions. The standards settlement instructions specify the "where" of delivery/settlement after the execution of any financial transaction. The most significant cause of fails at the settlement stage, after lack of inventory, is incorrect or missing standards settlement instructions. The FSMB is proposing the standard to mitigate increased inefficiency risks as jurisdictions move to T+1 settlement. The standard aims to increase the adoption of electronic solutions that allow for standardization and pre-authentication of settlement instructions, and which facilitate "straight-through-processing" to improve efficiency of standards settlement instructions management by recipient counterparties and reduce settlement fails through incorrect standards settlement instructions. Where such electronic solutions are not legally or operationally feasible, the standard incorporates templates for manual sharing of standards settlement instructions which incorporate an industry-standard taxonomy (based on ISO 20022), which should minimize ambiguity. The proposal is structured in two main parts: (i) the standard, which sets out core principles for the channels, processes, and governance around sharing of standards settlement instructions; and (ii) standardized templates, based on industry-standard taxonomy, for use in residual cases where standards settlement instructions are sent manually. The deadline for comments is October 18, 2024.Topic : MiFID II