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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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 Intelliegence -
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 Intelliegence -
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 -
Final Basel Committee guidelines for counterparty credit risk management
December 11, 2024
The Basel Committee on Banking Supervision has published the final version of its guidelines for counterparty credit risk management, replacing its "Sound Practices for Banks' Interactions with Highly Leveraged Institutions" (originally published in January 1999). The guidelines provide a supervisory response to the significant shortcomings that have been identified in banks' management of CCR, including the lessons learned from recent episodes of non-bank financial intermediary distress.
The guidelines include the need to: (i) conduct comprehensive due diligence both at initial onboarding and on an ongoing basis; (ii) develop a comprehensive credit risk mitigation strategy to manage counterparty exposures effectively; (iii) measure, control and limit CCR using a wide variety of complementary metrics; and (iv) build a strong CCR governance framework. Banks and supervisors are encouraged to take a risk-based and proportional approach in the application of the guidelines. The Basel Committee will continue to monitor implementation of the guidelines on an ongoing basis. -
Financial Stability Board publishes final report on liquidity preparedness for margin and collateral calls
December 10, 2024
The Financial Stability Board has published a final report on liquidity preparedness for margin and collateral calls. The report sets out policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls in centrally and non-centrally cleared derivatives and securities markets (including securities financing such as repo). The FSB has analyzed recent incidents of liquidity stress, as well as completed a survey of financial authorities and feedback from industry stakeholder outreach events. Together, the FSB has found there is need for policy adjustments to deal with liquidity strains in the NBFI sector arising from spikes in margin and collateral calls during times of market stress. The findings suggest that while margin and collateral calls are a necessary protection against counterparty risk, they can also amplify the demand for liquidity by market participants if they are unexpected in times of stress and affect a large enough part of the market. The increase in such calls can impact market participants differently depending on the size of positions and level of liquidity preparedness. The FSB also identified liquidity risk management and governance weaknesses of some market participants as key causes of their inadequate liquidity preparedness for margin and collateral calls.
The FSB's eight policy recommendations in this report cover: (i) liquidity risk management and governance; (ii) stress testing and scenario design; and (iii) collateral management practices of non-bank market participants, focusing on liquidity risks arising from spikes in margin and collateral calls, including under extreme but plausible stressed conditions. The FSB explains that the recommendations should be applied proportionately to the underlying risks of different non-bank market participants. -
European Commission writes to EU authorities on the interplay between crypto asset and payment services regulations
December 10, 2024
The European Banking Authority has published a letter from the European Commission (dated December 6, 2024) to the EBA and the European Securities and Markets Authority regarding the interplay between Markets in Crypto Assets Regulation and the Payment Services Directive. The Commission notes the diverging interpretations among member states about the interplay between MiCAR and PSD2 and asks the EBA, with ESMA, to explore the possibility of issuing a "no action letter" on the enforcement of PSD2 authorization requirements as regards services with electronic money tokens provided by crypto asset service providers (or by entities benefiting from the transitional period under MiCAR) that may be inadvertently caught by PSD2. Where dual authorization would nevertheless be required, the Commission invites the EBA, with ESMA, to explore whether the PSD2 authorization process could be streamlined to reduce the operational burden on institutions. The EBA has responded (in a letter dated December 10, 2024), stating that it agrees with the concerns, and is assessing the issues in co-ordination with ESMA. The EBA aims to publish a response by April 2025. -
UK authorities respond to Treasury Committee questions about Sexism in the City inquiry recommendations
December 10, 2024
The House of Commons Treasury Committee has published letters from HM Treasury, the Prudential Regulation Authority and the Financial Conduct Authority setting out progress made to date in relation to the Committee's "Sexism in the City" inquiry. The FCA letter (dated November 29, 2024) explains that the FCA has prioritized work on non-financial misconduct and the FCA rules, and plans to publish a policy statement in early 2025. The FCA is currently working through feedback received on its wider proposals relating to data collection and target-setting, and intends to set out next steps jointly with the PRA in Q2 2025. In 2025, the FCA plans to strengthen its messaging to whistleblowers, including providing clearer guidance for whistleblowers who are impacted by a non-disclosure agreement but wish to report to the FCA.
The PRA letter (dated December 2, 2024) reiterates the PRA's support for work being done in this area and acknowledges that developments in government policy on diversity and inclusion may impact its proposals for moving forward. The PRA letter also notes that following the removal of the bonus cap, both the PRA and the FCA expect firms to take care to avoid adverse impacts on pay gaps, and it plans to review the effect on pay gaps when sufficient evidence is available.
HM Treasury's letter (dated December 9, 2024) focuses on: (i) the HM Treasury Women in Finance Charter; (ii) gender pay gap and sexual harassment in the workplace; and (iii) the Plan to Make Work Pay – the government initiative on labour market reform. -
UK Financial Conduct Authority writes to Treasury Committee on the FCA's regulatory perimeter
December 10, 2024
The House of Commons Treasury Committee has published a letter (dated December 6, 2024) from Nikhil Rathi, Chief Executive of the Financial Conduct Authority, regarding the FCA's perimeter report. In the letter, Mr. Rathi explains that he is keen to maintain transparency about the actions the FCA is taking on the perimeter and sees the December report as a refreshed opportunity for the FCA to discuss with both HM Treasury and the Treasury Committee some of the current strategic gaps in the overall U.K. legislative framework.
The letter refers to various longstanding concerns including:- whether investment consultants should be within the perimeter, especially since the liability-driven investment crisis.
- the issue of SME lending and the FCA's keenness to work with the government to reform the Consumer Credit Act 1974.
- the continued risks of harm where principals do not adequately oversee the activities of their appointed representatives.
- where the perimeter should lie in relation to sports and non-financial spread-betting. In the FCA's view, an alternative framework for sports spread-betting could be more tailored to the risks of sports gambling.
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UK Financial Conduct Authority sets out focus areas for Consumer Duty
December 9, 2024
The Financial Conduct Authority has set out its priorities under the Consumer Duty for the remainder of 2024 and for 2025. The FCA's priorities include embedding the Consumer Duty and raising standards, enhancing understanding of the price and value outcome, and realizing the benefits of the Consumer Duty. Expected FCA outputs include:
- By the end of Q1 2025, a review of board/governing body reports and complaints, a review of the treatment of customers in vulnerable circumstances, and a review of the consumer support outcome and supporting informed decision-making.
- H1 2025, publish the findings of a "digital journeys assessment" considering whether firms' digital tools sufficiently help consumers to understand credit agreements.
- H1 2025, consult on rules for better support for consumers in retail investments and pensions as a part of the advice guidance boundary review.
Topic : Consumer Protection -
UK Financial Conduct Authority writes to the Chancellor of the Exchequer on growth, strategy, its international role, and risk
December 9, 2024
The Financial Conduct Authority has published a letter from Nikhil Rathi, FCA Chief Executive, and Ashley Alder, FCA Chair, to Rachel Reeves, Chancellor of the Exchequer. The letter sets out how the FCA is supporting growth, the development of its strategy, the FCA's international role and approach to risk.
Regarding growth, the letter notes upcoming work in relation to PISCES, the new market for private company shares, the ongoing work to streamline the FCA rulebook, and consultations and proposals in relation to pensions and retail investments. On strategy for 2025-2030, the letter highlights the FCA's prioritization of financial crime and operational effectiveness as a regulator. Relating to the U.K.'s international leadership, the letter confirms the FCA's intention to advocate for global co-operation and openness but notes that on some issues it may choose initially to make progress with a smaller group of like-minded jurisdictions. Regarding risk, notably the FCA is seeking to understand the government's perspective on issues of compensation and where liability should fall in the context of the scale of the U.K. financial services sector. -
UK Financial Conduct Authority updates its perimeter report
December 9, 2024
The Financial Conduct Authority has updated its perimeter report. The report describes issues the FCA has identified with its regulatory perimeter and the action it is taking in response.
One new issue identified is in relation to investment trust cost disclosure. On November 22, 2024, the Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 (SI 2024/1204) came into force, excluding closed-ended U.K.-listed investment funds from the disclosure requirements in the U.K. Packaged Retail and Insurance-based Investment Products Regulation and U.K. Markets in Financial Instruments Organisation Regulation. The FCA reminds these firms that they remain within the wider regulatory perimeter and are subject to the Consumer Duty and conduct of business requirements to communicate in a manner that is fair, clear and not misleading.
The second issue identified is in relation to an exclusion from the regulatory perimeter for trustees acting in the course of discharging their general obligations. The FCA has identified a number of instances where consumers have lost money when their trusts have been invested in opaque, high-risk investments which have subsequently failed through a trust structure. The FCA welcomes wider consideration about the circumstances when exclusions, including for unregulated trustees, could be disapplied to enable the FCA to have greater oversight. -
Financial Stability Board Sets out Resolution Work for 2025
December 5, 2024
The Financial Stability Board has published its resolution report for 2024. The report takes stock of the FSB resolution-related work of the past year as well as of the progress made by FSB members in implementing resolution reforms and enhancing resolvability across the banking, financial market infrastructure, and insurance sectors. It also sets out the FSB's 2025 priorities in the resolution area and outlines the work the FSB is undertaking to address the remaining lessons from the 2023 bank failures and to advance the resolution framework for insurers and central counterparties. Ensuring an effective resolution framework for the banking sector has been a significant focus for the FSB. The bank failures in 2023 provided several lessons for resolution planning and for the broader elements of the crisis management framework for banks. In the coming year, the FSB will continue to address areas that remain outstanding, specifically: (i) advancing the work on operationalizing the use of transfer tools in resolution; (ii) sharing information and enhancing monitoring of implementation of public sector backstop funding mechanisms; (iii) supporting the work on open bank bail-in execution and securities law compliance building on the 2024 technical work; and (iv) promoting cross-border cooperation and information sharing with authorities outside of crisis management groups.
Press releaseTopic : Recovery & Resolution -
EMIR 3 Published in the Official Journal of the European Union
December 4, 2024
The EMIR 3 Regulation and Directive have been published in the Official Journal of the European Union and will enter into force on December 24, 2024. The EMIR 3 Regulation amends the European Market Infrastructure Regulation and applies from December 24, 2024, except for the amendments to the calculation of the clearing thresholds for financial counterparties and non-financial counterparties which will only apply once the related technical standards enter into force. The EMIR 3 Directive amends the Directive on Undertakings for the Collective Investment in Transferable Securities, the Capital Requirements Directive and Investment Firm Directive. Member States must transpose the EMIR 3 Directive into national laws and bring those into force by June 25, 2026. This aligns with the implementation date for CRD VI.
Read more. -
European Supervisory Authorities Urge Financial Entities to Ensure Timely Compliance with EU Digital Operational Resilience Act
December 4, 2024
The European Supervisory Authorities have published a joint statement on the application of the EU Digital Operational Resilience Act. The ESAs emphasise that as DORA does not provide for a transitional period, it is important for financial entities to adopt a robust, structured approach in order to meet their obligations in a timely manner. DORA, and the technical standards and guidelines supplementing it, applies from January 17, 2025. Financial entities are expected to identify and address in a timely manner gaps between their internal setups and the DORA requirements. Financial entities should also prepare for the new reporting obligations. In particular, financial entities need to have their registers of ICT third-party providers' contractual arrangements available for competent authorities early in 2025, as the latter will have to report them to the ESAs by April 30, 2025. The ESAs note that competent authorities will supervise compliance with the DORA requirements in a risk-based manner considering the risk profile, size, complexity and scale of financial entities. The ESAs invite ICT third-party service providers, which consider they may meet the criticality criteria published in May, to assess their operational setup against DORA requirements. The first designation of critical third-party service providers is expected to take place in H2, 2025.Topic : Operational Resilience -
UK Financial Conduct Authority Publishes Short Selling Update
December 4, 2024
The U.K. Financial Conduct Authority has provided an update on the notification and disclosure of net short positions. Firstly, the FCA is currently undertaking its biannual review of the U.K. List of Exempted Shares, which is set out in Article 16(2) of the U.K. Short Selling Regulations. The updated list will be uploaded to the FCA's website on January 1, 2025, and will apply to all positions from this date. Secondly, the government intends to lay the draft Short Selling Regulations 2024 before parliament and replace the assimilated EU law Short Selling Regulations before the end of the year, parliamentary time allowing.Topic : Securities -
UK Financial Conduct Authority Begins Process of Appointing a UK Bond Consolidated Tape Provider
December 4, 2024
The U.K. Financial Conduct Authority has announced that it is starting the process of appointing a bond consolidated tape (CT) provider. It has published a concession notice that sets out the FCA's next steps for running the tender process and updated its related information page. By January 31, 2025, the FCA will publish draft tender documents on Atamis, the FCA's procurement portal which will contain details of the award process, the licences the successful bidder will need to provide, how to participate in the tender, and the information that the FCA expects firms to submit as part of the application process. The FCA will also publish a draft contract between the CT provider and the FCA. The CT provider is not required to go live before the bond transparency regime changes take effect on December 1, 2025.Topic : MiFID II -
UK Financial Conduct Authority Supports Expedition of Appeals of Motor Finance Decisions
December 3, 2024
The U.K. Financial Conduct Authority has published a letter addressed to the Supreme Court regarding the applications for permission to appeal to the SC and requests for expedition in the recent motor finance commission judgments. On October 25, 2024, the Court of Appeal handed down its judgment in three related appeals regarding a lenders' liability to a consumer in the context of a credit broking arrangement—Johnson v FirstRand Bank Ltd (London Branch) (t/a MotoNovo Finance) [2024] EWCA Civ 1282. Allowing all three appeals, the CA stated that there was a fiduciary relationship between the dealer and the consumer. In addition, the court stated that there was a conflict of interest and the consumers had not given fully informed consent to the commission to be paid by the lender to the dealer. In two of the cases, the CA found that the commission had not been disclosed to the consumer and was secret, meaning that the lender was liable. In the other case, the CA found that the partial disclosure negated secrecy, meaning that the lender was liable only as an accessory to the breach of the fiduciary relationship. These transparency requirements go further than the FCA's current rules on commission disclosure. Permission to appeal to the SC decision has since been made.
Read more.Topic : Consumer Protection -
The Markets in Financial Instruments (Equivalence) (Singapore) Regulations 2024
December 3, 2024
The Markets in Financial Instruments (Equivalence) (Singapore) Regulations 2024 have been published, together with an explanatory memorandum and de minimis assessment. The Regulations set out HM Treasury's determination that Singapore's regulatory and supervisory regime for trading in derivatives continues to be equivalent to the U.K.'s under U.K. MiFIR and allows U.K. counterparties to fulfil their derivatives trading obligation when they trade derivatives instruments on trading venues in Singapore.
Commission Implementing Decision (EU) 2019/541, granting equivalence to Singaporean trading venues became part of assimilated law in the U.K. under the EU Withdrawal Act. However, equivalence applies only to those authorized trading venues listed in the Decision's Annex. Since assimilation, seven additional trading venues have been authorized and therefore the Decision, at the request of the Monetary Authority of Singapore, needs to be re-enacted and updated.
The Regulations come into force on December 31, 2024 and will replace the assimilated implementing decision, which will be revoked at the same time. -
Bank of England Consults on Revocation of UK Technical Standards on Simplified Obligations
December 2, 2024
The Bank of England has published a consultation paper on the proposed revocation of the U.K. technical standards on simplified obligations. The U.K. retained the EU framework for determining the level of information required within recovery and resolution plans, including the process set down by these technical standards to determine whether simplified obligations can be imposed for RRPs. The BoE explains that the assessment prescribed in the Technical Standards identifies the same firms as the process that results in the setting of a preferred resolution strategy of modified insolvency. The BoE considers that the same outcomes are achievable using this more efficient, existing process and avoids duplication. The ability to apply simplified obligations and any consequential benefits to firms will not be affected by this proposal; the BoE only proposes to simplify the process whereby a firm is designated as eligible for simplified obligations. The deadline for comments is February 2, 2025.Topic : Recovery & Resolution -
Implementing Regulation on Standard Templates for the Register of Information
December 2, 2024
Commission Implementing Regulation 2024/2956 laying down Implementing Technical Standards for the application of the EU Digital Operational Resilience Act with regard to standard templates for the register of information, was published in the Official Journal of the European Union. Under Article 28(3) of DORA, as part of their ICT risk management framework, financial entities must maintain and update at entity level, and at sub-consolidated and consolidated levels, a register of information for all contractual arrangements on the use of ICT services provided by ICT third-party service providers. These ITS set out the standard templates for the register of information.
The European Commission rejected the European Supervisory Authorities' draft ITS in September on the basis that financial entities should have the choice of using either EU unique identifiers or legal entity identifiers. The ESAs published an opinion in October setting out their concerns for introducing the EUID as an identifier for these purposes. Nonetheless, the Implementing Regulation refers to financial entities using a valid and active LEI or EUID.
The Regulation enters into force on December 22, 2024, 20 days after publication in the Official Journal.Topic : Operational Resilience -
UK Financial Conduct Authority Policy Statement on Changes to Financial Crime Guide
November 29, 2024
The U.K. Financial Conduct Authority has published a policy statement on changes to its financial crime guide, following its consultation in April. The changes cover the following areas: (i) sanctions—to reflect information learnt from assessments of firms' sanctions' systems and controls following Russia's invasion of Ukraine in 2022; (ii) proliferation financing—to ensure that proliferation financing is explicitly referenced throughout the guide, where appropriate. This includes highlighting a 2022 change to the MLRs, which requires firms to conduct proliferation financing risk assessments; (iii) transaction monitoring—to provide further guidance on how firms can implement and monitor transaction monitoring systems. This includes supporting responsible innovation and new technological approaches; (iv) cryptoasset businesses—to make clear that cryptoasset businesses registered under the MLRs should refer to the guide; (v) Consumer Duty—to clarify that firms should consider whether their systems and controls are consistent with their obligations under the Duty; and (vi) consequential changes—includes replacing expired links, updating outdated references to EU rules and refreshing case studies based on more recent FCA enforcement notices.
The FCA sets out where additional clarity has been added in response to feedback to the April consultation. The FCA states that firms need to consider the adjustments that may be needed to their financial crime systems and controls. The FCA notes that it is also considering further revisions to other chapters in due course. The changes to the FCA Handbook to update the financial crime guide, as well as consequential changes, are set out in the policy statement and in the Financial Crime Guide (Amendment) Instrument 2024 (FCA 2024/46), which came into force on November 29, 2024. -
UK Prudential Regulation Authority Publishes Policy Statement on Definition of an Interim Capital Regime Firm
November 29, 2024
The U.K. Prudential Regulation Authority has published its final policy statement and statement of policy relating to the definition of an Interim Capital Regime firm and an ICR consolidation entity. The policy statement explains the means by which ICR-eligible firms can join the ICR. Joining the ICR will enable eligible firms to preserve their current capital requirements from the implementation date (i.e., January 1, 2026) of the Basel 3.1 standards, until the implementation of the permanent Small Domestic Deposit Taker capital regime. The PRA is currently consulting on proposals to revoke the ICR when the SDDT capital regime is implemented.
Read more. -
European Commission Publishes Draft FAQs on EU Taxonomy Regulation
November 29, 2024
The European Commission has published a draft notice containing a set of FAQs on the interpretation and implementation of certain legal provisions of the EU Taxonomy Environmental Delegated Act, the EU Taxonomy Climate Delegated Act and the EU Taxonomy Disclosures Delegated Act. Topics covered include: (i) the application of general taxonomy requirements and technical screening criteria for specific activities included in the Taxonomy Climate and Environmental Delegated Acts; (ii) the generic 'do no significant harm' criteria; and (iii) the reporting obligations for activities covered by the Climate Delegated Act and the Environmental Delegated Act. The Commission hopes that the document will improve the usability of the framework.
The draft notice has been approved in principle by the Commission and will be formally adopted once versions in all EU languages are ready. -
Bank of England System-Wide Exploratory Scenario Exercise and 2024 Central Counterparty Supervisory Stress Test
November 29, 2024
The Bank of England has published the final report on its system-wide exploratory scenario. The SWES was a 'system-wide' exercise, incorporating a wide range of financial firms and business models, focusing not on the resilience of individual participants, but the impact on important U.K. financial markets.
Through running the SWES, the BoE, working closely with and with the full support of the U.K. Prudential Regulation Authority, Financial Conduct Authority, and the Pensions Regulator, has drawn key financial stability conclusions, including that actions taken by authorities and market participants following recent market shocks have improved gilt market resilience, but further work is required given the other vulnerabilities highlighted by this exercise. The BoE considers that the SWES has proven to be an effective tool to understand system-level vulnerabilities. The BoE, alongside the FCA, will use the experience as a framework for future system-wide analysis and embed it into how market-wide surveillance is conducted. To support this the BoE will invest in its in-house capacity to model system-wide dynamics, supported by continuing engagement with market participants.
The BoE also published the results of its 2024 CCP Supervisory Stress Test. In the core credit stress test, the BoE found that all three U.K. CCPs have adequate pre-funded resources to cover a severe stress scenario and the default of the 'Cover-2' members—the two members whose default generates the greatest depletion of mutualized resources at the CCP. The BoE identified that in some very extreme but plausible scenarios there may be a risk to CCPs, and will follow-up with CCPs to probe how they capture the risks identified by these hypothetical scenarios via their own stress testing. -
Bank of England Amends Approach to Stress Testing UK Banking System
November 29, 2024
The Bank of England has updated its approach to stress testing the U.K. banking system. From 2025 onwards, the BoE will move from an annual to a biennial frequency for its main bank capital stress test. This will be a test of risks related to the financial cycle in which the largest and most systemic U.K. banks participate and will be used to inform the setting of capital buffers for the banking system and individual banks. In the intervening years, the BoE will use stress testing when appropriate to supplement its assessment of the resilience of the banking system to cyclical risks. The BoE will continue to use exploratory exercises as a means of assessing other risks, including structural and emerging risks that are not closely linked to the financial cycle. The scope of firms involved in the tests in intervening years will depend on the risks being assessed. When deciding on the timing of these exercises, the BoE will consider the risk environment and the sequencing and timing of the stress tests described above. The next bank capital stress test will take place in 2025. -
International Organization of Securities Commissions Publishes Final Report on Evolution of Market Structures
November 29, 2024
The International Organization of Securities Commissions has published its final report on the evolution in the operation, governance, and business models of exchanges. The Report focuses on equity exchanges, but IOSCO considers that it may be of relevance to other types of trading venues and trading in other classes of financial instruments. In the report IOSCO describes and analyzes the changes in the structure and organization of exchanges and, in particular, their business models and ownership structure. IOSCO then outlines the impact of these changes on market structure, emphasizing the shift from traditional models to more competitive, cross-border, and diversified operations, whereby exchanges have become part of larger corporate groups, leading to resource-sharing and process consolidation. Finally, IOSCO discusses regulatory considerations and potential risks and challenges and outlines good practices that regulators may consider in the supervision of exchanges, particularly when they provide multiple services and/or are part of an exchange group. The good practices are complemented by a non-exhaustive list of regulatory and supervisory tools currently used in IOSCO jurisdictions to address the issues under discussion, which may serve as examples to other regulators. -
New UK Financial Conduct Authority Direction for the Derivatives Trading Obligation
November 29, 2024
The U.K. Financial Conduct Authority has published a new direction for the U.K. derivatives trading obligation, together with an explanatory memorandum. The FCA's existing direction modifying the U.K. DTO using its Temporary Transitional Power expires on December 31, 2024. This allows firms subject to the U.K. DTO, trading with, or on behalf of, EU clients subject to the corresponding obligation under EU MiFIR, namely the EU DTO to be able to transact or conclude those trades on EU trading venues, providing that certain conditions are met. The purpose of this new direction is to provide continuity in the outcomes achieved through the TTP. In the continuing absence of mutual equivalence between the U.K. and the EU for the purposes of the U.K. DTO and EU DTO, certain market participants would be caught by a conflict of law between the U.K. DTO and EU DTO—in particular branches of EU firms in the U.K.—unless a new direction is issued. The new direction set out the same conditions as the existing direction, however the new direction only applies to derivatives subject to the DTO in both the U.K. and the EU. The new direction takes effect on the expiry of the previous one. -
Second Financial Conduct Authority Consultation on Proposals for the Publication of Enforcement Measures
November 28, 2024
The U.K. Financial Conduct Authority has published its second consultation on a proposed new approach to publicising its enforcement investigations and changes to its Enforcement Guide. The FCA first consulted on these changes in February. However, following feedback that raised significant concerns, the FCA has published a further consultation which re-drafts the original proposals to try and address the concerns raised and give more clarity on how they would work in practice. Responses may be submitted until February 17, 2025 and the FCA board plans to decide on the proposals in Q1 2025.
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Basel Committee on Banking Supervision Publishes Report on Countercyclical Capital Buffer
November 28, 2024
The Basel Committee on Banking Supervision has published a report on the range of practices in implementing a positive neutral countercyclical capital buffer. The CCyB aims to ensure that banking sector capital requirements take account of the macro-financial environment in which banks operate, in order to increase the resilience of the banking sector and maintain the flow of credit to the real economy during periods of stress. A positive neutral CCyB is a CCyB that is set at a rate above zero at a time when risks are judged to be neither subdued nor elevated. The Basel Committee observes that authorities that have introduced a positive neutral CCyB have found it helpful for banks in their jurisdictions to have buffers of capital in place that can be released in the event of sudden shocks, including those unrelated to the credit cycle, such as the Covid-19 pandemic.
The report builds on prior publications on the same topic by examining the observed range of practices adopted by jurisdictions which have chosen to implement a positive neutral CCyB. It considers the different jurisdictional frameworks for implementing a positive neutral CCyB, describes the various observed approaches to the calibration and operation of the buffer, and discusses reciprocity considerations. The Basel Committee emphasizes that the adoption of a positive neutral CCyB approach is not required, and the report does not seek to discuss or opine on the merits or demerits of a positive neutral CCyB relative to other macroprudential measures or tools. Some jurisdictions may use tools other than the positive neutral CCyB to address similar risks, based on their specific jurisdictional circumstances. -
UK Financial Conduct Authority Consults on the MiFID Organisational Regulation
November 27, 2024
The Financial Conduct Authority has published a consultation paper on the Markets in Financial Instruments Directive Organisational Regulation (MiFID Org Reg). The FCA is consulting on proposals to transfer the firm-facing requirements of the MiFID Org Reg into FCA Handbook rules when HM Treasury commences the repeal of the MiFID Org Reg. The FCA is proposing to retain the current substance of the requirements to provide continuity for firms. Provisions that the FCA is not replacing in regulatory rules will either be restated or repealed by HM Treasury to coincide with the Handbook rules coming into force, and HM Treasury will publish a draft statutory instrument setting out how the Government will deal with the non-firm-facing elements.
The consultation paper also includes a discussion chapter about further reform, either now or in the future, to make the rules better suited to the range of U.K. licensed firms and their clients. This includes in circumstances where the Consumer Duty does not apply. It considers how the FCA could rationalize or improve MiFID II derived conduct and organizational rules, including for Article 3 firms. The FCA also discusses whether and how the client categorization rules could work more effectively.
Read more.Topic : MiFID II -
Basel Committee on Banking Supervision Consults on Hedging of Counterparty Credit Risk Exposures
November 27, 2024
The Basel Committee on Banking Supervision has published a consultation on technical amendments on the hedging of counterparty credit risk exposures. The interpretative issues addressed relate to the circumstance where a bank has a derivative exposure and uses a guarantee or credit default swap to hedge the CCR arising from the derivative counterparty. While the CCR rules include a specific approach for the recognition of collateral, the recognition of guarantees or credit derivatives, such as CDSs, is not explicitly addressed, suggesting that banks may use the substitution approach of the credit risk mitigation framework. To address this inconsistency, the Basel Committee proposes amendments to the credit risk and CCR standards, which aim to better align the treatment of guarantees and credit derivative protection with the treatment of eligible collateral in the CCR framework. The proposed amendments do not affect the need for banks to check whether the requirements in CRE22.81 and CRE40 are met and need to be applied accordingly. Responses may be submitted until January 31, 2025. -
Basel Committee on Banking Supervision Finalizes Various Technical Amendments to the Basel Framework
November 27, 2024
The Basel Committee on Banking Supervision has published a document on the finalization of various technical amendments to the Basel framework. The amendments relate to: (i) the definition of specialized lending in the standardized approach to credit risk (to better align it with the definition in the internal ratings-based approach); and (ii) the curvature charge for Group 2a cryptoassets in the cryptoasset exposure standard to align the treatment with other asset classes. Basel Committee members have agreed to implement the technical amendments set out in this document as soon as practical, within three years at the latest. The technical amendment to SCO60.80 will be implemented as part of the final cryptoasset exposures standard, i.e., from January 1, 2026. The amendments were published for consultation in July and have been finalized as originally proposed. -
UK Regulations Amending Temporary Recognition and Marketing Regimes for CCPs and Collective Investment Schemes
November 26, 2024
The Collective Investment Schemes (Temporary Recognition) and Central Counterparties (Transitional Provision) (Amendment) Regulations 2024 have been published, alongside an explanatory memorandum. The Regulations amend the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 to remove the requirement that a CCP must continue to be recognized in the EU to remain in the temporary recognition regime for overseas CCPs.
The Regulations also make amendments to the Collective Investment Schemes (Amendment etc.) EU Exit Regulations 2019 (CIS EU Exit Regulations), which established the temporary marketing permissions regime for EEA investment funds. Amendments include extending the duration of the TMPR from five to six years (that is, until December 31, 2026). This reflects an HM Treasury policy announcement made in January 2024. In addition, technical amendments are made to the TMPR to ensure that sub-funds are able to transition smoothly to the Overseas Funds Regime on direction by the Financial Conduct Authority where they are in scope of the U.K. government's equivalence decision concerning EEA states or alternatively apply for recognition. The FCA published guidance in October 2024 to assist firms in making an application for an overseas investment fund to be recognized under the OFR.
The Regulations come into force with immediate effect, that is November 26, 2024. -
UK Financial Conduct Authority Discusses Strategy for 2025 to 2030
November 26, 2024
The U.K. Financial Conduct Authority has published a speech by Emily Shepperd, FCA Chief Operating Officer, on the FCA's strategy for 2025 to 2030. In the speech, Ms. Shepperd sets out the four main themes of the FCA's strategy. Ms. Shepperd emphasises that trust in both the FCA and the financial services sector underpins these themes and will be crucial as the FCA looks to pursue growth, alongside ensuring proportionality in regulation and encouraging innovation. She also explains that the FCA has decided to set its ambitions on 2030, a five-year strategy, learning from its first 3-year strategy that it takes time to deliver and cement change.
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UK Regulators Consult on Compensation Reform
November 26, 2024
The U.K. Prudential Regulation Authority and Financial Conduct Authority have published a joint consultation on compensation reform. The consultation paper sets out proposed amendments to the remuneration part of the PRA Rulebook, Supervisory Statement SS2/17 and the FCA's associated non-Handbook Guidance relating to compensation for dual-regulated firms. The proposals complement previous compensation regime changes enhancing proportionality for small firms, and removing the bonus cap.
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International Organization of Securities Commissions Report on Principles for the Regulation and Supervision of Commodity Derivatives Markets
November 25, 2024
The International Organization of Securities Commissions has published a report on a targeted implementation review on principles for the regulation and supervision of commodity derivatives markets. In October, IOSCO conducted a targeted implementation review of five selected principles: Principles 9, 12, 14, 15, and 16 that aim to address excessive commodity market volatility, OTC derivatives transparency, and orderly functioning of the commodity derivatives markets. IOSCO believes that an appropriate implementation of the selected principles would help mitigate the impact of external factors which may disrupt commodity markets, as recently experienced. As such the report sets out IOSCO's recommendations to its members for improving the implementation of specific elements of the selected principles, as well as the intention to conduct further work in the OTC markets area.
Overall, the survey results show that the majority of respondents were broadly compliant with the selected principles. However, both regulators and exchanges identified significant challenges in implementing certain elements of the selected principles within OTC markets. Based on the results of the review, IOSCO anticipates additional work related to the issues with the ability of exchanges and certain regulators to collect and aggregate, on both an ad hoc and regular basis, information about OTC positions. The specifics of this work are still being determined, but IOSCO is committed to ensuring that any future developments align with IOSCO's strategic goals. -
International Organization of Securities Commissions' Final Report on Post Trade Risk Reduction Services
November 25, 2024
The International Organization of Securities Commissions has published its final report on post trade risk reduction services. The report highlights potential policy considerations and risks associated with the using and offering of PTRRS and presents seven sound practices in this area as guidance to IOSCO members and regulated users of PTRRS. The seven sound practices cover the following areas: (i) transparency, governance, comprehensibility, and fairness of the algorithm; (ii) operational risk; (iii) data integrity and security and regulatory data; (iv) legal certainty; (v) considerations of potential counterparty risk by IOSCO members and PTRRS users; (vi) market concentration and competition; and (vii) standardization and predictability of runs and file formats. The sound practices are designed to improve and complement existing market practices. The report reflects the results of the public consultation launched in January. -
Speech: UK government's Approach to Tokenization and Regulation
November 25, 2024
HM Treasury has published a speech given on November 21, 2024, by Tulip Siddiq, Economic Secretary to the Treasury, on the U.K. government's approach to tokenisation and regulation. In the speech, Ms. Siddiq confirms that HM Treasury intends to implement the proposal for the financial services regulation of cryptoassets in the U.K. in full. The proposals were published in October 2023 and included proposals for the creation of various new regulated activities for cryptoassets, as well as associated regimes for both admissions to trading and market abuse. HM Treasury also intends to proceed with removing the legal uncertainty over whether cryptoasset staking services constitute a collective investment scheme under financial services law. HM Treasury is also proceeding with the proposals for new regulated activities for stablecoin. Ms. Siddiq explains that the regulated activity for stablecoin issuance will ensure that the FCA can properly manage stablecoin specific risks, most notably those associated with management of the backing assets. This proposal will be implemented to the same timetable as the rest of the regulatory regime for cryptoassets. -
UK Securitisation (Amendment) (No. 2) Regulations 2024 Published
November 22, 2024
The Securitisation (Amendment) (No. 2) Regulations 2024 were published on legislation.gov.uk, alongside an explanatory memorandum. At present, U.K. investors in U.K. - or EU-origin Simple, Transparent, and Standardised securitizations can benefit from preferential prudential treatment, due to a temporary arrangement. The time by which EU STS securitizations can enter the temporary arrangement was set to expire on December 31, 2024. The Regulations extend the time by which such EU-origin STS securitizations can enter the temporary arrangement to June 30, 2026. The U.K. government is aiming to provide continuity and certainty to investors, until a non-time-limited assessment is undertaken.Topic : Securities -
EU Responses to Consultation on Macro-Prudential Policies for Non-bank Financial Intermediation
November 22, 2024
The European Central Bank has published the Eurosystem's response to the European Commission's consultation on macroprudential policies for non-bank financial intermediation. This is on behalf of the ECB and the national central banks of member states in the eurozone. On the same day, the European Securities and Markets Authority published its response to the consultation.
Read more.Topic : Shadow Banking -
UK Financial Conduct Authority Finalized Guidance for Payment Firms that Enables a Risk-Based Approach to Processing Suspected Fraudulent Payments
November 22, 2024
The Financial Conduct Authority has published finalized guidance for payment service providers that enables a risk-based approach to processing suspected fraudulent payments. Following the publication of the Payment Services (Amendment) Regulations 2024, the amount of time that a PSP has to process an outbound payment when there are reasonable grounds to suspect fraud or dishonesty was extended to up to four business days. To support these regulations, HM Treasury asked the FCA to issue guidance to explain how it expects PSPs to apply these legislative changes, taking into account feedback from stakeholders.
Following a consultation in September, the finalized guidance sets out:- the requirements for delaying outbound payments and determining whether the threshold for "reasonable grounds to suspect" has been met;
- how PSPs should use the payment delay window;
- obligations on PSPs if they delay an outbound transaction; and
- the treatment of suspicious inbound payments.
The FCA has amended its payment services and electronic money approach document to include the new finalized guidance. The guidance came into effect on November 22, 2024. -
Bank of England and UK Financial Conduct Authority Findings on Third Survey of Artificial Intelligence and Machine Learning in UK Financial Services
November 21, 2024
The Bank of England published the findings of its third joint survey with the U.K. Financial Conduct Authority on the use of Artificial Intelligence and machine learning in financial services. The survey aims to build on existing work to further the BoE's and FCA's understanding of AI in financial services, in particular by providing ongoing insight and analysis into AI use by BoE and/or FCA-regulated firms.
Read more.