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 Announces Final Reforms to Financial Services Retail Disclosure Requirements
September 19, 2024
Post Brexit, the U.K. Government and Financial Conduct Authority are committed to the ongoing reform programme to reinvigorate the U.K.'s capital markets. As part of this, the Government and FCA are committed to replacing EU-inherited consumer cost disclosure regulation with a new framework tailored to U.K. markets and firms, and removing the legal uncertainties that arose from the EU Packaged Retail and Insurance-Based Investment Products Regulation, particularly as to the scope of instruments captured. HM Treasury and the FCA have announced final plans to reform U.K. retail disclosure rules. HM Treasury plans to replace the EU-inherited PRIIPs Regulation with a new framework for Consumer Composite Investments (CCIs). HM Treasury aims to lay legislation as soon as possible to provide the FCA with the appropriate powers to deliver this reform. The new CCI regime will deliver more tailored and flexible rules which will address concerns across industry with current disclosure requirements, including for costs.
Read more.Topic : Consumer Protection -
UK Payment Systems Authority Consults on Draft Statement of Policy on its Cost Benefit Analysis Framework
September 18, 2024
The Payment Systems Authority has published a consultation paper on a draft statement of policy on its cost benefit analysis (CBA) framework. The draft statement builds on and replaces the draft CBA framework published earlier this year, and explains the PSR's approach to CBAs and how the CBA framework in this document helps the PSR develop policies with a positive impact. The draft statement of policy also:- Sets out the purposes of the PSR's CBAs and how it sees them being applied in the most useful way.
- Explains the typical circumstances in which the PSR develops and publishes CBAs.
- Presents the scope and high-level methodology of the PSR's CBAs, including the questions it tries to answer and how the PSR goes about answering them.
- Describes how the PSR develops CBAs.
The deadline for comments is November 3, 2024. The PSR aims to publish its final statement of policy at the end of the year.Topic : Consumer Protection -
UK Financial Conduct Authority Review of Implementation of Price and Value Outcome Under Consumer Duty
September 18, 2024
The Financial Conduct Authority has published its findings from the first year of the implementation of the price and value outcome under the Consumer Duty. The specific focus of the price and value outcome rules is to ensure that the price a customer pays for a product or service is reasonable compared to the overall benefits they receive. Firms are expected to think about price when assessing fair value, but it should not be the sole consideration. The FCA rules do not set prices, require prices to be low or require firms to charge the same as competitors. However, the FCA requires firms to assess whether they are providing fair value and act if they are not.
Read more.Topic : Consumer Protection -
UK Financial Conduct Authority Publishes Update on Cash Savings Market
September 18, 2024
The Financial Conduct Authority has published an update on progress in the cash savings market. This update provides further detail on how the cash savings market has developed since the FCA's update in December 2023. Specifically, the update considers the progress that has been made in respect of the points identified by the FCA in its July 2023 Review. In this update, the FCA identifies eight FCA-specific actions that should be helpful for all firms which offer cash savings products and highlights areas where it expects to see further improvements.
Since publication of the review, the FCA has seen improvements in both the rates available to savers and the volume and timing of firms' communications to savings customers. However, despite these improvements, the review of fair value assessments has shown that many firms have found the assessment of value challenging and the largest firms generally continue to pay below the market average for standard easy access products. The FCA reminds firms that they should be carefully reviewing its good and poor practice examples. The FCA also expects firms to improve fair value assessments over time and the FCA will take appropriate action where it considers this is not the case.
The FCA will continue to closely monitor firms' future savings rate changes and will expect a clear explanation where it identifies that a firm has changed its savings rates significantly more quickly and fully in response to interest rate reductions, compared to previous interest rate increases. The FCA explains that while it will continue to monitor how well the savings market is operating, it does not anticipate providing further savings updates unless it identifies further market-wide concerns not addressed within this publication.Topic : Consumer Protection -
UK Prudential Regulation Authority Consults on Restatement of UK Capital Requirements Regulation Rulebook Requirements
September 12, 2024
The U.K. Prudential Regulation Authority has published a consultation on its proposals to restate, and in some cases modify, the U.K. Capital Requirements Regulation requirements relating to the definition of own funds in its own rulebook. The PRA rules will replace the existing definition of own funds under CRR, which HM Treasury is proposing to revoke under draft legislation published on September 12, 2024 (discussed above).
The PRA proposes to restate in its rules the vast majority of the current U.K. CRR requirements in this area, with some modifications to ensure their operability in the PRA Rulebook, and to omit some provisions that are not necessary or relevant for U.K. firms. The PRA also proposes to make some minor adjustments to enhance the proportionality or transparency of the PRA's approach covering the following elements of the definition of own funds framework: (i) proportionality in the Pre/Post-Issuance Notification regime; (ii) inclusion of interim profits in Common Equity Tier 1 capital resources; (iii) reduction of Additional Tier 1 and Tier 2 instruments; (iv) clarification of the regulatory capital treatment of non-CET1 shares; (v) a requirement for PRA permission for additional forms of capital reduction; and (vi) permitting the terms governing CET1 instruments to reflect the possibility of (but not commit to) a future capital reduction.
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UK Prudential Regulation Authority Consults on Streamlining Pillar 2A Capital Framework and Capital Communications Process
September 12, 2024
The U.K. Prudential Regulation Authority has published a consultation on streamlining the Pillar 2A capital framework and capital communications process. In addition to PRA-regulated banks, building societies, designated investment firms and PRA-approved or PRA-designated holding companies, the revised rules will also be relevant to Small Domestic Deposit Takers, firms who meet the SDDT criteria and are considering becoming a SDDT and firms that anticipate being subject to the Interim Capital Regime. The deadline for comments is December 12, 2024.
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UK Prudential Regulation Authority Publishes Second Near-Final Policy Statement on Implementation of the Basel 3.1 Standards
September 12, 2024
The U.K. Prudential Regulation Authority has published its second near-final Policy Statement on the implementation of the Basel 3.1 standards. The PRA has decided to move the implementation date by a further six months to January 1, 2026 with a transitional period of 4 years to ensure full implementation by January 1, 2030.
The policy statement provides feedback to responses to the following sections of the PRA's Consultation Paper 16/22: Chapter 3 – credit risk – standardized approach; Chapter 4 – credit risk – internal ratings based approach; Chapter 5 - credit risk mitigation; Chapter 9 - output floor; Chapter 11 - disclosure (Pillar 3); and Chapter 12 - reporting. The statement also contains feedback to responses on the parts of Pillar 2 relating to the Pillar 2A credit risk methodology, use of IRB approach benchmarks, and the interaction with the output floor.
Read more.
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UK Prudential Regulation Authority Consults on Simplified Capital Regime for Small Domestic Deposit Takers
September 12, 2024
The U.K. Prudential Regulation Authority has published a consultation on its proposed simplified capital regime and additional liquidity simplifications for small domestic deposit takers. This consultation forms the second phase of the PRA's simplified prudential regulation for SDDTs, the PRA having already finalised its requirements in relation to non-capital related prudential regulation, along with the criteria that must be met to be a SDDT. Together with the Phase 1 simplifications, the proposals would create a simpler, more certain and less costly capital regime for SDDTs.
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UK Prudential Regulation Authority Consults on Updates to UK Policy Framework for Capital Buffers
September 12, 2024
The U.K. Prudential Regulation Authority has published a consultation on amendments to the U.K. framework on capital buffers under the Capital Requirements (Capital Buffers and Macro-Prudential Measures) Regulations (CBR), which will be revoked. HM Treasury has published a draft statutory instrument that will restate certain of the CBR provisions. Other provisions under the CBR will be transferred to the PRA's rulebook. The CBR sets out the statutory framework for the Countercyclical Capital Buffer (CCyB), Capital Conservation Buffer (CcoB), Global Systemically Important Institutions (G-SII) buffer, Other Systemically Important Institutions (O-SII) buffer and the Systemic Risk Buffer (SRB).
The PRA's consultation does not propose changes to its policy approach to capital buffers, but rather streamlines some of its policy materials to enhance usability and clarity. The PRA may make further amendments to its proposals depending on the outcome of HM Treasury's proposed changes to the CBR. The PRA proposes to: (i) revoke the U.K. Technical Standards on the methodology for the identification of G-SIIs; (ii) introduce a new Statement of Policy (SoP) setting out the PRA's approach to G-SII identification and buffers, which will replace the aforementioned U.K. Technical Standards and relevant provisions to be revoked in the CBR; (iii) make minor amendments to the PRA's existing Statements of Policy on O-SII designation and O-SII buffer setting to reflect proposed amendments to the CBR; and (iv) make minor consequential amendments to PRA rules that refer directly to the current CBR.
The deadline for responses to the PRA's consultation is December 12, 2024. The PRA proposes that the implementation date for the changes will be Q2 2025. -
HM Treasury Publishes Policy Update on Applying the Financial Services and Markets Act 2000 Model to the UK Capital Requirements Regulations
September 12, 2024
HM Treasury has published a policy update to confirm its legislative approach for applying the "FSMA model" to the assimilated EU capital requirements regime under the U.K. Capital Requirements Regulation and Capital Buffers Regulations. The application of the Financial Services and Markets Act model, which transfers firm-facing rulemaking powers to the regulators, will take place in three stages. HM Treasury will: (i) revoke articles of the U.K. CRR which the U.K. Prudential Regulation Authority will replace with rules in order to implement the Basel 3.1 package; (ii) revoke any U.K. CRR provisions left on the statute book following Basel 3.1 implementation and revoke and restate (with modifications) the CBR; and (iii) publish new legislation to: (a) restate the U.K. CRR equivalence regimes in legislation (with the exception of the Article 142 regime); (b) restate (with certain modifications) key U.K. CRR definitions which are needed to ensure that the overall framework continues to operate as intended; and (c) make any consequential amendments to other parts of the statute book which will be needed once the U.K. CRR has been completely revoked.
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UK Financial Conduct Authority Publishes Guidance on Approach to Recognition of Funds under the Overseas Funds Regime
September 12, 2024
The U.K. Financial Conduct Authority has published guidance to assist firms in making an application for an overseas investment fund to be recognised under the Overseas Funds Regime. The OFR will allow certain investment funds established outside the U.K. to be promoted in the U.K., including to retail clients. At the outset, the OFR will be available to most funds established in EEA and EU member states that have been authorised under the Undertakings for Collective Investment in Transferable Securities Directive (other than EEA UCITS that have been authorised as money market funds).
The FCA provides details of the application process and sets out the standards required of funds to be eligible for the regime, including that they are managed in the best interests of investors, hold appropriate investments that align with a clear investment objective and policy and demonstrate good governance. The FCA sets out certain features that funds may exhibit that are unlikely to be compatible with its standards. These include: (i) funds with unsuitable names; (ii) funds that have economic exposure to cannabis-related investments; (iii) funds that have exposure to crypto-currency; (iv) funds that have exposure to contingent convertible bonds; and (v) liquid funds that charge permanent redemption/exit charges.
Read more.Topic : Funds -
UK Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 Published
September 12, 2024
The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (together with explanatory memorandum) have been laid in Parliament. The Regulations equip the soon to be launched Office of Trade Sanctions Implementation (OTSI) with its civil enforcement powers. Breach of trade, aircraft and shipping sanctions is already a criminal offence, but it is hoped the introduction of civil penalties will strengthen the U.K. government's enforcement capability. OTSI will be responsible for the civil enforcement of certain trade sanctions as they relate to U.K. services and overseas trade with a U.K. nexus. The office will be able to impose monetary penalties of up to £1 million, or 50% of the estimated value of the breach, whichever is higher. Where a civil monetary penalty can be imposed, breaches may be determined on a 'strict liability' basis. OTSI will also be empowered to make public disclosure of breaches. The Regulations introduce reporting obligations for relevant persons, and powers to request information. Failure to comply with either of these can amount to a criminal offence. The powers will come into effect on 10 October. To assist people in complying with the new regulations, the Department for Business and Trade has published statutory guidance. It covers the prohibitions and requirements imposed by the regulations and provides guidance on compliance, enforcement and the circumstances where they do not apply. -
UK Financial Conduct Authority Consults on New Regulatory Reporting Return for Consumer Credit Firms
September 12, 2024
The U.K. Financial Conduct Authority has published a consultation paper on a new regulatory reporting return for consumer credit firms engaging in any one, or more, of the regulated activities of credit broking, providing credit information services, debt adjusting and debt counselling services. If introduced, the new return will replace some of the existing returns for these activities. The return will include the following five mandatory sections of questions for all firms in scope: (i) permissions – regarding the regulated activities firms have undertaken in the past 12 months; (ii) business model – regarding the financial products, goods, and/or services that firms are providing; (iii) marketing – regarding the channels firms are using to target consumers; (iv) revenue – total revenue from credit-related activities and non-credit related activities; and (v) employees – regarding the number of employees and incentive and remuneration arrangements. Firms will then be presented tailored questions specific to the relevant permissions they hold. The FCA hopes to receive more detailed, accurate, and consistent data from firms through the proposed return, as well as simplifying the experience for firms. This should enable the FCA to accurately identify how firms are using their permissions so that it can better understand which firms are engaging in activities with a higher risk of harm to consumers and how these risks are changing over time. The data will also help the FCA to identify earlier firms that aren't using their permissions and no longer require authorisation. The deadline for comments is October 31, 2024. The FCA intends to publish a final policy statement in Spring 2025. The FCA proposes that the first reporting period will cover January 1 to December 31, 2025. There will be no change to the reporting frequency for firms.Topic : Consumer Protection -
UK Office of Financial Sanctions Implementation Annual Frozen Asset Review
September 11, 2024
The Office of Financial Sanctions Implementation has published a financial sanctions notice reminding firms of their annual frozen assets reporting requirement. Every year HM Treasury carries out a review to update its records to reflect any changes to these assets during the reporting period. As part of this review, HM Treasury requests all persons that hold or control funds or economic resources belonging to, owned, held, or controlled by a designated person, to provide a report to OFSI with the details of these assets. The deadline for submission is November 11, 2024. The report must include details of all funds or economic resources frozen in the U.K. as well as those overseas where these funds or economic resources are subject to U.K. financial sanctions legislation. Accounts blocked solely by other national authorities (e.g., Office of Foreign Assets Control) do not need to be reported. The report must include the value of all such assets as at close of business on September 30, 2024. Reports therefore must not be submitted before this date. Firms that submitted a report last year (other than a nil return) and no longer hold the frozen assets should submit a nil return. -
Euopean Commission report on the future of European competitiveness
September 10, 2024
The European Commission has published a report on the future of European competitiveness, prepared by Mario Draghi, former President of the European Central Bank. The report aims to set out a new industrial strategy for Europe to overcome barriers to the EU's competitive strength. It sets out priority proposals in the short and medium term in key strategic sectors. For financial regulation, the report focuses on the completion of the Capital Markets Union and the Banking Union.
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UK Central Counterparties (Transitional Provision) (Extension and Amendment) Regulations 2024 Published
September 10, 2024
The U.K. Central Counterparties (Transitional Provision) (Extension and Amendment) Regulations 2024 (together with explanatory memorandum) have been published. The Regulations come into force on November 29, 2024. The SI:- extends the temporary recognition regime for overseas central counterparties by 12 months, until December 31, 2026. This will allow overseas CCPs in the regime to continue to offer clearing services in the U.K. whilst they wait for their applications for recognition to be determined by the Bank of England; and
- extends the transitional regime for overseas qualifying central counterparties (QCCPs) contained within the U.K. Capital Requirements Regulation for an additional 12 months. The expiry date of the QCCP transitional regime varies between individual CCPs as it is dependent on when a firm has applied for recognition in the U.K., but the explanatory memorandum notes that for a large percentage of firms this currently expires on December 31, 2024. The extension will ensure that U.K. firms with indirect exposures to the QCCPs within the regime will not face a sudden and disruptive increase in their capital requirements on the expiry of the QCCP transitional regime. HM Treasury has previously extended the temporary recognition regime and the QCCP transitional regime twice, by 12 months each time.
Topic : Financial Market Infrastructure -
UK Prudential Regulation Authority Thematic Findings of Internal Audit Review of the Credit Risk Management Framework
September 10, 2024
The U.K. Prudential Regulation Authority has sent a letter to lenders' chief risk officers to share the thematic findings from an internal audit review of non-systemic U.K. deposit takers' credit risk management framework. Approximately two-thirds of the findings related to notable breaches of rules around lending. The PRA considers that its observations reinforce the need for some firms to continue to enhance their portfolio management controls and affordability assessments, with consideration of changes in the macroeconomic environment to ensure that new lending is sustainable. The PRA sets out the key improvements that were identified in the following areas (in priority order based on the number of findings): affordability assessment, quality assurance and underwriting process, quality of management information, credit risk appetite, lending policy and collections. The PRA recommends that lenders use the points outlined in the letter as a reference when they next review and assess their credit risk management framework controls and potential areas that might need strengthening. -
UK Prudential Regulation Authority Publishes Direction for Modification by Consent for Leverage Ratio Requirements
September 10, 2024
The U.K. Prudential Regulation Authority has announced that it is reviewing the leverage ratio requirement thresholds and is offering a modification by consent, where certain conditions are met, to disapply the relevant part of the PRA Rulebook until the review is complete. The modification by consent is available to a firm if it: (i) did not meet the criteria set out in 1.1 of the Leverage Ratio – Leverage Ratio – Capital Requirements and Buffers Part of the PRA Rulebook before September 10, 2024; and (ii) expects to meet the criteria after the next accounting reference date or any accounting reference date before December 31, 2025. This modification will cease to have effect at the end of June 30, 2026, however the PRA may revoke the modification earlier, at an appropriate time following the completion of the review. -
UK Financial Conduct Authority Publishes Temporary Measures for Firms on Naming and Marketing Sustainability Rules
September 9, 2024
The U.K. Financial Conduct Authority has set out temporary measures to offer firms flexibility to comply with the naming and marketing rules under the Sustainability Disclosure Requirements (SDR) regime, which come into force from December 2, 2024. It has taken longer than expected for some firms to make the required changes to comply with the new regime, so the FCA is offering limited temporary flexibility, until 5pm on April 2, 2025, for firms to comply with the naming and marketing rules set out in ESG 4.3.2R to ESG 4.3.8R.
The temporary relief applies in exceptional circumstances in relation to a U.K. authorised investment fund caught by the regime where the firm: (i) has submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for that fund by 5pm on October 1, 2024; and (ii) is currently using one or more of the terms 'sustainable', 'sustainability' or 'impact' (or a variation of those terms) in the name of that fund and is intending either to use a label, or to change the name of that fund. Where firms can comply with the rules without requiring this flexibility, they should do so. The FCA also expects firms to comply with the rules as soon as they can, without waiting until April 2, 2025. The FCA has received queries about the authorisation of mergers, wind-ups or terminations before December 2, 2024 and will take a supportive, proportionate and outcomes-based approach in these circumstances. Firms with questions should contact their supervisor or usual supervisory contact to discuss on a case-by-case basis. -
UK Financial Conduct Authority Findings from Review into Firm Oversight of Appointed Representatives
September 6, 2024
The U.K. Financial Conduct Authority has published its key findings, good practices and areas for improvement following a review of how principal firms are meeting the FCA's enhanced appointed representative rules that were introduced in December 2022. Examples of good practice from principals included keeping clear documentation to show compliance with the FCA's enhanced rules, outlining any material deficiencies in the principal's AR oversight and proposals to address them, and using a broad range of checks and gathering information to oversee and monitor ARs' activities. Firms are expected to consider the examples of good practice when reviewing their own approach to AR oversight. The FCA found some firms were taking a tick-box approach to complying with its rules, relying on basic information like website checks, or using self-declarations from their ARs, to demonstrate effective oversight. The review also found: (i) 1 in 5 principals had not carried out a required self-assessment or annual review of their ARs; (ii) approximately half of principals were not regularly reviewing their AR agreements; (iii) a third of principals were not using data or management information to keep tabs on whether ARs were acting within the scope of AR agreements; and (iv) most firms had not changed their AR onboarding or termination procedures since the rules were introduced. The FCA states that it has followed up directly with firms in the review and will take swift action where it sees principals not meeting its standards in the future.Topic : Conduct & Culture -
UK Listed Investment Companies (Classification etc) Bill Published
September 5, 2024
The Listed Investment Companies (Classification etc) Bill (with explanatory memorandum) has been published on the U.K. Parliament website, following its first reading in the House of Lords on the same day. The Bill seeks to make provisions about listed investment companies, the classification and characteristics of those companies which regulators must take into account when, among other things, making any rules or guidance. It relates to collective investment undertakings of the closed-end type, the shares of which are admitted to trading on any market or venue operated by a U.K.-recognized investment exchange, known as Listed Closed-End Investment Companies and does not relate to collective investment undertakings other than the closed-end type. The Bill is sponsored by Baroness Bowels of Berkhamsted. The date of the Bills second reading has not yet been announced.Topic : Funds -
Financial Conduct Authority Talks about a Targeted and Outcomes-Based Approach to Tackling Financial Crime
September 5, 2024
The Financial Conduct Authority has published a speech by Sarah Pritchard, FCA Executive Director, Markets and International, on taking a targeted and outcomes-based approach to tackling financial crime. Points of interest in the speech include:- The FCA is using its powers more assertively than ever. In the last financial year, the FCA charged 21 individuals with financial crime offenses; the highest number of charges it has ever achieved in a single year.
- Using data and technology, the FCA has increased its ability to identify illegal financial promotions, including on social media.
- Using the FCA's own supervisory reach, the FCA has created a dedicated financial crime function within its Consumer Investments department—an area it has seen evolving threats of financial crime and fraud. Over the past 18 months the team has been out on unannounced spot visits, gathering evidence and intervening to prevent harm by, for example, imposing requirements on firm's permissions, compelling asset restrictions or banning firms from providing financial services.
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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.
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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.