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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.

  • UK Financial Conduct Authority Consults on Amendments to Guidance on Treatment of Domestic PEPs
    July 18, 2024

    The Financial Conduct Authority has published the findings of its multi-firm review into the treatment of Politically Exposed Persons and launched a consultation on proposed amendments to its related guidance. The review was required under the Financial Services and Markets Act 2023, following concerns from U.K. Parliamentarians that firms were not effectively applying the FCA's guidance. The FCA found that most firms in its review did not subject PEPs to excessive or disproportionate checks and none would deny them an account based on their status. However the FCA has identified areas for improvement and has called on firms to, among other things: (i) ensure their definition of a PEP, family member or close associate is tightened and in line with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (known as the MLRs)s and the FCA's guidance; (ii) review the status of PEPs and their associates promptly once they leave public office; (iii) communicate to PEPs effectively and in line with the Consumer Duty, explaining the reasons for their actions where possible; (iv) effectively consider the actual level of risk posed by the customer, and ensure that information requests are proportionate to those risks; and (v) improve the training offered to staff who deal with PEPs. The FCA has provided detailed feedback to the firms that were reviewed and in a small number of cases, has instigated an independent and more detailed review of firms' practices.

    Read more.
  • UK Financial Conduct Authority Policy Statement on Implementing the Overseas Funds Regime
    July 17, 2024

    The Financial Conduct Authority has published a policy statement on its implementation of the Overseas Funds Regime. The OFR will be a new gateway through which certain collective investment schemes, domiciled in jurisdictions deemed to be equivalent by the Government, will be able to market to U.K. retail investors upon recognition by the FCA. The final policy sets out (i) the information that OFR fund operators will need to submit as part of the recognition process; (ii) ongoing change notification requirements for OFR funds; (iii) disclosure requirements for OFR funds to inform investors about compensation and dispute resolution schemes; and (iv) procedures for suspending and revoking recognition of an OFR fund or censuring its operator or depositary.

    Following consultation feedback to CP23/26, the FCA has made changes to the final policy, including: (a) removing the proposed 30-day period between notifying the FCA of changes to OFR funds and when those changes could take effect in the U.K.; (b) providing further explanation and clarification as to which categories of changes should be notified; (c) including guidance relating to additional information in disclosures for fund prospectus' and point of sale information; and (d) clarified which U.K. fund prospectus requirements apply to OFR funds. The final rules will come into force on July 31, 2024. The OFR gateway is expected to open later this year. The FCA advises operators with funds currently in the Temporary Permissions Regime to check their landing slot on the FCA website for details of when they can apply for OFR recognition.
    Topic : Funds
  • European Central Bank Report on Bank Digitalization Assessment Criteria
    July 11, 2024

    The European Central Bank has published a report defining bank digitalization assessment criteria and collection of sound practices. Understanding bank digitalisation and the management of related risks is a key priority of the ECB and the criteria are intended to assess how banks shape, steer and implement their digitalisation strategies, focusing closely on risk identification and mitigation. The criteria and sound practices are grouped into three areas: (i) business model; (ii) governance; and (iii) risk management.

    The report also outlines the sound practices the ECB has observed in the digital context. The ECB found that banks demonstrating sound practices assess both the opportunities and risks related to their digital strategy, based on a granular assessment of their business environment. The most advanced digital strategies are those embedded in business or IT strategies, translated into digital initiatives driven by business use cases and technological developments which are then consistently evaluated for efficacy during the execution phase. While most banks have adopted digital solutions to transform their back and front office operations, many have not defined sufficiently granular KPIs, including those assessing the impact of their digital strategies on profit and loss. This means they cannot determine the effectiveness of their strategies and whether they have met their objectives. The ECB states that it will expand the focus of its supervisory work to include reviewing the use of specific technologies more broadly, including the deployment of artificial intelligence and related business use cases.
  • Financial Conduct Authority Publishes Final UK Listing Rules
    July 11, 2024

    The Financial Conduct Authority has published a policy statement on the primary markets effectiveness review. The statement summarizes the main feedback from the responses to CP23/31 on the proposed reforms and sets out the final U.K. listing rules. The final rules are broadly as consulted on in CP23/31, with certain amendments that are described in the policy statement. They aim to encourage prospective issuers to choose a U.K. listing by streamlining the rules and removing the 'premium' and 'standard' listing segments in favour of a new commercial companies' category for equity shares. The new rules also remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. The changes are designed to remove frictions to growth once companies are listed, while continuing to place an emphasis on disclosure so that investors can make properly informed investment decisions. The new rules will come into force on July 29, 2024, when the current Listing Rules sourcebook will cease to have effect and will be replaced by the new Listing Rules sourcebook. The rules will also appear in the FCA Handbook on that date.

    Read more.
  • European Securities and Markets Authority Consults on MiFID II Review Changes
    July 10, 2024

    The European Securities and Markets Authority has published a consultation paper on equity transparency, the volume cap, circuit breakers, Systematic Internalisers, the equity consolidated tape provider, and flags for non-equity transparency. The consultation aims to increase transparency and system resilience in financial markets, reducing reporting burden and promoting convergence in the supervisory approach. This package includes:
    • amendments to rules on the liquidity assessment for equity instruments, on equity transparency and on the volume cap;
    • a draft of the new ITS on Systematic Internalisers;
    • a section on the equity CTP in relation to the input/output data, to ensure full alignment between the transparency requirements and the CTP specifications;
    • a section on flags to be used in the post-trade transparency reports for non-equity instruments which was missing in the previous consultation; and
    • new rules specifying organizational requirements of trading venues, adding new provisions on circuit breakers and with targeted amendments to adapt to the Digital Operational Resilience Act framework.
    The deadline for comments on the technical advice, RTS 1, the RTS on input and output data for CTP, and the flags under RTS 2 is September 15, 2024. The deadline for comments on the SI ITS, RTS 3 and RTS 7 is October 15, 2024. ESMA will prepare a final report and submit to the European Commission the technical advice and the draft technical standards for RTS 1, the whole input and output data RTS and RTS 2 in December, and the remaining mandates in March 2025.
    Topic : MiFID II
  • European Securities and Markets Authority Issues Public Statement on Use of Collateral by Non-Financial Counterparties Acting as Clearing Members
    July 10, 2024

    The European Securities and Markets Authority has published a public statement on deprioritizing supervisory actions linked to the eligibility of uncollateralised public guarantees, public bank guarantees, and commercial bank guarantees for Non-Financial Counterparties acting as clearing members, pending the entry into force of the latest revisions to the European Market Infrastructure Regulation, known as EMIR 3. We discuss EMIR 3, which is anticipated to enter into force in Q4 2024, in our note "EMIR 3 and Clearing in the EU".

    Read more.
    Topic : Derivatives
  • Basel Committee Consults on Principles for the Sound Management of Third-Party Risk
    July 9, 2024

    The Basel Committee on Banking Standards has published a consultation on principles for the sound management of third-party risk in the banking sector. The principles address banks' increasing reliance on third-party service providers due to the ongoing digitalization and rapid growth in financial technology, establishing a common baseline for banks and supervisors for the risk management of these arrangements. The consultation consists of 12 high-level principles offering guidance to banks and supervisors on effectively managing and supervising risks from third-party arrangements. The principles introduce the concept of a third-party life cycle and emphasise overarching concepts such as criticality and proportionality. They also address supply chain risk and concentration risk and highlight the importance of supervisory coordination and dialogue across sectors and borders.

    While primarily directed at large internationally active banks and their prudential supervisors, the principles also offer benefits to smaller banks and authorities in all jurisdictions. They establish a common baseline for banks and supervisors for the risk management of third parties, while providing the necessary flexibility to accommodate evolving practices and regulatory frameworks across jurisdictions. The deadline for comments is October 9, 2024.
  • EU Consultation on Rules to Recalibrate and Further Clarify the Framework Under CSDR Refit
    July 9, 2024

    The European Securities and Markets Authority has published three consultation papers on different aspects of the Central Securities Depositories Regulation Refit. The proposed rules relate to the information to be provided by EU the Central Securities Depositories to their national competent authorities for the review and evaluation process, the information to be notified to ESMA by third-country CSDs, and the scope of settlement discipline.

    The draft rules are set out in three separate consultation papers, covering:
    • The review and evaluation process of EU CSDs, suggesting a harmonization of the information to be shared by CSDs on their cross-border activities and the risks to be considered by the relevant authorities for the purpose of feeding the overall assessment of the competent authorities.
    • Third-country CSDs, where ESMA is proposing to streamline the information to be notified, aiming for an accurate understanding of the provision of notary, central maintenance and settlement services in the Union, limiting the reporting burden.
    • The scope of settlement discipline, covering ESMA's proposals on the underlying cause of settlement fails that are considered as not attributable to the participants in the transaction, and the circumstances in which operations are not considered as trading.

    The deadline for comments is September 9, 2024. Following the consultation, the responses will be assessed to finalize the proposals, before submission to the European Commission in Q1 2025. ESMA states that other consultations about other aspects of CSDR will follow in the coming months.
  • European Banking Authority Consults on Draft Technical Standards on Credit Valuation Adjustment Risk
    July 8, 2024

    The European Banking Authority has published a consultation paper on draft regulatory technical standards to specify the conditions and the criteria to assess whether the credit valuation adjustment risk exposures arising from fair-valued securities financing transactions are material, as well as the frequency of that assessment. The draft RTS support the revised framework for the determination of own funds requirements for CVA risk introduced under CRR 3, which provides that firms should include SFTs in the calculation where the SFTs are fair valued and the firm's CVA risk exposures arising from those transactions are material. The concept of materiality set out in the draft RTS will therefore determine whether fair-valued securities financing transactions can be exempted from own funds requirements for CVA risk. The draft RTS included in this consultation paper propose to employ a quantitative approach for the determination of the materiality of such CVA risk exposures. In particular, they propose to perform the assessment on the basis of a ratio that quantifies the amount of CVA risk arising from fair valued SFTs relative to the CVA risk of transactions in scope of the own funds requirements for CVA risk. The draft RTS propose to conduct this assessment on a quarterly basis, to ensure consistency with the regular calculation and reporting cycle of own funds requirements by institutions. Comments may be submitted until October 8, 2024.
  • EU Proposals on Supervisory Expectations for Management Bodies of Firms Directly Supervised by ESMA
    July 8, 2024

    The European Securities and Markets Authority has published a consultation paper on supervisory expectations for the management bodies of firms directly supervised by ESMA, namely credit rating agencies, benchmark administrators of EU critical benchmarks and third-country recognized benchmarks, third-country Tier 2 (i.e., systemically important) CCPs, data reporting service providers, securitisation repositories and trade repositories. The consultation paper sets out ESMA's supervisory expectations in relation to good practice in governance arrangements, such as on the role, operation, and effectiveness of the management bodies of these entities. The expectations set out in this consultation paper are intended to provide all of ESMA's supervised entities with the same reference point for ESMA's expectations regarding governance arrangements. ESMA believes that the publication of these expectations will ensure that all ESMA supervised entities are equally aware of ESMA's expectations in this area. It will also increase transparency for any potential applicant or future supervised entities as to what ESMA expects in this area.

    The deadline for comments is October 18, 2024. ESMA will consider the feedback it receives to the consultation with a view to finalising its supervisory expectations in Q1 2025.
  • European Securities and Markets Authority Consults on Liquidity Management Tools for Funds
    July 8, 202

    The European Securities and Markets Authority has published for consultation draft regulatory technical standards and guidelines relating to liquidity management tools under the Alternative Investment Fund Managers Directive and the Undertakings for the Collective Investment in Transferable Securities Directive. The draft RTS will apply to Alternative Investment Fund Managers managing open-ended the Alternative Investment Funds and UCITS. In the draft RTS ESMA defines the constituting elements of each LMT, such as calculation methodologies and activation mechanisms.

    ESMA is also consulting on guidelines on LMTs of UCITS and open-ended AIFs, which provide guidance on how managers should select and calibrate LMTs in the light of their investment strategy, their liquidity profile and the redemption policy of the fund.

    The draft RTS and guidelines are designed to promote convergent application of the Directives for both UCITS and open-ended AIFs and ensure that EU fund managers are better equipped to manage the liquidity of their funds, in preparation for market stress situations. They also intend to clarify the functioning of specific LMTs, such as the use of side pockets, a practice that currently varies significantly across the EU. The deadline for comments is October 8, 2024. ESMA aims to deliver the final RTS and guidelines by April 16, 2025.
    Topic : Funds
  • Corporate Sustainability Due Diligence Directive Published
    July 5, 2024

    The Corporate Sustainability Due Diligence Directive (Directive (EU) 2024/1760) has been published in the Official Journal of the European Union. The Directive aims to ensure that companies operating in the EU internal market contribute to sustainable development and the sustainability transition by identifying, preventing and mitigating actual or potential adverse human rights and environmental impacts connected with companies' operations, the operations of their subsidiaries and of their business partners in their chain of activities. CSDDD imposes obligations upon large EU and non-EU companies which meet certain conditions on turnover and employee thresholds.

    The CSDDD will enter into force on July 25, 2024, and member states have until July 26, 2026 to transpose it into national law. Application will then be on a staggered basis, starting from July 26, 2027, for the largest companies.
  • UK Financial Conduct Authority Sets Overseas Funds Regime Landing Slots for Funds
    July 5, 2024

    The Financial Conduct Authority has published information regarding landing slots under the incoming overseas funds regime for firms currently operating under the temporary marketing permissions regime. The landing slots specify the dates when overseas funds operating under the TMPR can apply for 'recognised scheme' status under the OFR. The OFR is a new gateway introduced as part of the U.K.'s post-Brexit reforms, granting access to the U.K. market for certain categories of investment funds.

    Read more.
    Topic : Funds
  • EU Final Report on Guidelines on Enforcement of Sustainability Information
    July 5, 2024

    The European Securities and Markets Authority has published a final report on the guidelines on enforcement of sustainability information and a public statement on the first application of the European Sustainability Reporting Standards. The documents aim to support the consistent application and supervision of sustainability reporting requirements introduced under the EU Corporate Sustainability Reporting Directive.

    The Guidelines were mandated under the EU Transparency Directive as amended by CSRD and are designed to build convergence on supervisory practices on sustainability reporting. ESMA has aimed to align them with the existing Guidelines on Enforcement of Financial Information, to ensure that enforcement of sustainability information is consistent with enforcement of financial information and is held to be on a par with such information.

    The Standards specify the information that firms subject to the EU Accounting Directive, as amended by CSRD, should report in accordance with sustainability reporting requirements. Through the public statement on the first-time application of the Standards, ESMA intends to support large issuers with the implementation of these new reporting requirements. ESMA will continue to monitor the sustainability reporting practices in 2025 as well as the application of the Guidelines. ESMA will translate the Guidelines into all EU languages and make these translations available on its website. In addition, ESMA will release in Q4 recommendations on the sustainability statements of listed companies in its public statement on the 2024 European Common Enforcement Priorities.
  • European Commission Report on EU Whistleblowing Directive
    July 3, 2024

    The European Commission has published a report on the implementation and application of the EU Whistleblowing Directive. The Directive aims to guarantee a high level of balanced and effective protection for persons who report information on breaches of EU law in key policy areas where such breaches may cause harm to the public interest.

    Read more.
  • European Systemic Risk Board Assessment of Implementation of its Recommendation on Guidance for Setting Countercyclical Buffer Rates
    July 3, 2024

    The European Systemic Risk Board has published a report on its second assessment of implementing actions taken by EU Member State bodies responsible for setting the countercyclical buffer rate, following the ESRB's Recommendation on setting countercyclical buffer rates. The report assesses compliance with the Recommendation, which is addressed to the designated EU Member State bodies, as well as the European Central Bank. The report concludes that the overall level of compliance remains high, with all addressees graded as either fully or largely compliant, and that the deficiencies in compliance identified are not sufficiently material to diminish the efficiency of macro-prudential policies or the single market. The next ESRB follow-up assessment is expected to take place in three years' time, starting from the last reporting deadline.
  • Network for Greening the Financial System Reports on Nature-Related Risks
    July 2, 2024

    The Network for Greening the Financial System has published two complementary reports on nature-related risks. The first report is the final version of the Conceptual Framework for nature-related financial risks, which aims to guide policies and action by central banks and financial supervisors. The aim of the framework is to create a common science-based understanding of, and language for, nature-related financial risks among NGFS members that provides greater clarity on the meaning of key concepts and the way these interrelate. The report includes two illustrative cases, which demonstrate how this framework can be applied in practice. The NGFS encourages central banks and supervisors to identify, assess and, where relevant, act on material economic and financial risks stemming from dependencies and impacts on nature and their nexus with climate change. The second report outlines the key emerging trends related to nature-related litigation, including cases concerning biodiversity loss, deforestation, ocean degradation, carbon sinks and plastic pollution. This report argues that nature-related legal actions will likely evolve and grow, taking inspiration from successful climate-related litigation cases, and benefiting from an increasing awareness of the nature crisis. The NGFS considers that, in the coming years, two key categories of nature-related litigation might be expected to develop in particular: (i) an increase in the number of rights-based nature cases against states and public entities; and (ii) an increase in the number of cases based on corporate responsibility. The NGFS encourages central banks, supervisors and financial institutions to closely monitor developments in nature-related litigation.
  • European Commission Adopts Implementing Regulation Amending Implementing Technical Standards on Mapping Credit Assessments of External Credit Assessment Institutions under the EU Capital Requirements Regulation
    July 1, 2024

    The European Commission has adopted the Commission Implementing Regulation amending the Implementing Technical Standards laid down in Commission Implementing Regulation (EU) 2016/1799 as regards the mapping tables specifying the correspondence between the credit risk assessments of external credit assessment institutions and the credit quality steps set out in the EU Capital Requirements Regulation. The mappings need to be updated as: (i) the quantitative and qualitative factors underpinning the credit assessments of some mappings have changed due to the additional quantitative information collected and the qualitative developments registered by some ECAIs; and (ii) some ECAIs have extended their credit assessments to new market segments, resulting in new rating scales and new credit rating types. The Implementing Regulation will enter into force 20 days after it is published in the Official Journal of the European Union.
  • UK Financial Conduct Authority Update on Notification of Use of Investment Labels Under Sustainability Disclosure Requirements Regime
    July 1, 2024

    The U.K. Financial Conduct Authority has provided an update on how firms should notify the FCA when they are using an investment label under the sustainability disclosure requirements and investment labelling regime. Firms must notify the FCA when using an investment label through the form available on Connect. The labels can be displayed from July 31, 2024 and firms must meet the naming and market EU rules from December 2, 2024. The FCA notes that it does not approve labels, but firms are still required to notify it when they use, revise or stop using a label. The FCA provides the specific steps for notification in relation to four scenarios: (i) an authorized fund that the fund manager considers meets the criteria for a label without the need for changes to the pre-contractual disclosures; (ii) an authorized fund that the fund manager considers requires changes to the pre-contractual disclosures to meet the label criteria; (iii) a new fund that the fund manager considers will meet the label criteria; and (iv) an in-scope unauthorized alternative investment fund looking to use an investment label.
  • UK Financial Conduct Authority Publishes Handbook Notice No. 120
    June 28, 2024

    The U.K. Financial Conduct Authority has published Handbook Notice No. 120. The Notice sets out the changes to the FCA Handbook made by Handbook Administration (No 70) Instrument 2024. The instrument makes only minor changes to the Fees manual, providing clarification and correcting existing provisions. It came into force on June 28, 2024.
  • European Supervisory Authorities update Q&As on EU Packaged Retail and Insurance-Based Investment Products Regulation Key Information Document
    June 28, 2024

    The European Supervisory Authorities (the European Securities and Markets Authority, European Banking Authority and European Insurance and Occupational Pension Schemes Authority) have updated their Q&As on the EU Packaged Retail and Insurance-based Investment Products Regulation Key Information Document. A new Q&A has been added, under the heading "General topics", on whether foreign exchange forwards fall within the scope of the PRIIPs Regulation.
  • European Banking Authority Publishes Final Draft Regulatory Technical Standards on Extraordinary Circumstances for Continuing the Use of Internal Models for Market Risk
    June 28, 2024

    The European Banking Authority has published its final draft regulatory technical standards on the conditions and indicators that the EBA shall use to determine whether extraordinary circumstances have occurred for the purposes of Articles 325az(5) and 325bf(6) of the EU Capital Requirements Regulation. Under the CRR, national regulators may permit institutions to soften or waive the application of certain requirements for the use of internal models in accordance with the Fundamental Review of the Trading Book, under extraordinary circumstances. The draft RTS establish a high-level framework for identifying the occurrence of extraordinary circumstances, setting out conditions that need to be met and indicators that could support the identification of extraordinary circumstances. More specifically, they set out that only a situation of cross-border financial market stress, or a regime shift, can qualify as a situation of extraordinary circumstances, and only subject to the additional condition that this stress or regime shift impacts the validity or suitability of the results of the back-testing or the profit and loss attribution test. The draft RTS will be submitted to the European Commission for endorsement following which they will be subject to scrutiny by the European Parliament and the Council of the European Union before being published in the Official Journal of the European Union. The draft RTS will apply from 20 days after their entry into force.
  • European Banking Authority Amends Guidelines on Arrears and Foreclosure Following Changes to Mortgage Credit Directive
    June 28, 2024

    The European Banking Authority has published amended guidelines on arrears and foreclosure following the changes introduced in the Mortgage Credit Directive. The amendments are as follows:
    • deletion of guideline 4 on the resolution process between creditor and borrower. This reflects the amendment made to Article 28 by the Credit Servicers Directive, which inserted wording into new Article 28(1) that was practically identical to guideline 4. The EBA has also made consequential changes to guideline 5;
    • deletion of the material in the guidelines concerning the regime for national competent authorities designated as competent under the MCD that are not also national competent authorities under the EBA Regulation. This regime is no longer needed following amendments to the definition of "competent authorities" in the EBA Regulation made by Regulation (EU) 2019/2175; and
    • a new guideline 6 on outsourcing that cross-refers to the EBA guidelines on outsourcing arrangements.
    The amendments to the guidelines will apply from two months after publication of the translations into the EU official languages.
  • Joint EU Guidelines on Suitability of Management Body Members and Shareholders for Entities Under the Markets in Crypto-Assets Regulation
    June 27, 2024

    The European Banking Authority and European Securities and Markets Authority have published joint guidelines on the suitability of members of the management body, and on the assessment of shareholders and members with qualifying holdings for issuers of asset-referenced tokens and crypto-asset service providers, under MiCAR. The guidelines are part of the EBA and ESMA's ongoing efforts to foster a transparent, secure, and well-regulated crypto-assets market, and complement the recently published governance package.

    Read more.
    Topic : FinTech
  • UK Financial Conduct Authority Publishes Expectations for Principals of Overseas Appointed Representatives
    June 27, 2024

    The Financial Conduct Authority has published guidance on the challenges and expectations for principal firms with overseas appointed representatives. The AR regime allows authorized firms to appoint representatives to conduct certain regulated activities on their behalf. The FCA updated its AR rules and expectations at the end of 2022, which included introducing a requirement for principal firms to report additional information about the business conducted by their ARs and amending its rules and guidance on its expectations of principals and their responsibilities, such as the expectation that principals manage their arrangements with ARs so that there are no conflicts of interest and enhance their monitoring of a delegated task or function, and to specify that the principals' activities should not result in undue risk of harm to consumers or market integrity. The new rules also require principals annually to assess the fitness and propriety and competency and capability of individuals at ARs.

    Read more.
  • UK June Financial Stability Report Published
    June 27, 2024

    The U.K. Financial Policy Committee has published the financial policy summary and record of the FPC meeting on June 11, 2024, as well as its June financial stability report. The FPC considers the overall risk environment to be broadly unchanged from Q1. Markets continue to price mostly for a benign central case outlook, and some risk premia have tightened even further, despite the global risk environment facing several challenges. Some of these challenges have become more concerning and proximate.

    Read more.
  • European Banking Authority Updates on Own Funds and Eligible Liabilities Instruments
    June 27, 2024

    The European Banking Authority has published an updated report on the monitoring of Additional Tier 1, Tier 2 and total loss absorbing capacity as well as the minimum requirement for own funds and eligible liabilities instruments of EU institutions. The update provides new guidance on the prudential valuation of non-CET1 instruments and on other aspects related to the terms and conditions of the issuances. The report builds upon the 2023 update with substantial amendments made.

    Read more.
  • European Banking Authority Announces Anti-Money Laundering Priorities for 2024/25
    June 26, 2024

    The European Banking Authority has published a press release welcoming the entry into force of the new EU framework establishing the Anti-Money Laundering and Countering the Financing of Terrorism Authority. The EBA also published a factsheet on how it is preparing for AMLA. Going forward, the EBA will retain its AML/CFT powers and mandates until December 2025 to minimize disruption and provide continuity, and it will also be working closely with AMLA. In particular, after transferring the powers that are specific to AML/CFT to AMLA, the EBA will remain responsible for addressing ML/TF risk across its prudential remit. The EBA will also be providing the European Commission with technical advice on important aspects of the future EU AML/CFT framework to ensure that AMLA can begin to operate efficiently and effectively as of its establishment. The EBA plans to provide this advice in October 2025. In the press release the EBA sets out its AML and CTF priorities for 2024/25, which include: (i) a methodology for selecting financial institutions for direct EU-level AML/CFT supervision; (ii) a common risk assessment methodology; (iii) information necessary to carry out customer due diligence; and (iv) criteria to determine the seriousness of a breach of AML/CFT provisions.
  • EU Technical Standards on classification of ICT-Related Incidents, Contractual Arrangements Policy and Risk Management Tools Published
    June 25, 2024

    The following three regulatory technical standards supplementing the Digital Operational Resilience Act have been published in the Official Journal of the European Union:
    • RTS on the criteria for the classification of ICT-related incidents and cyber threats, setting out materiality thresholds and specifying the details of reports of major incidents (Delegated Regulation 2024/1772).
    • RTS specifying the detailed content of the policy regarding contractual arrangements on the use of ICT services supporting critical or important functions provided by ICT third-party service providers (Delegated Regulation 2024/1773).
    • RTS specifying ICT risk management tools, methods, processes and policies and the simplified ICT risk management framework (Delegated Regulation 2024/1774).

    The Delegated Regulations will enter into force on July 15, 2024, the twentieth day following their publication in the Official Journal.
  • European Banking Authority Publishes Final Draft Implementing Technical Standards on Pillar 3 Disclosure Framework under Third Capital Requirements Regulation
    June 21, 2024

    The European Banking Authority has finalized its draft implementing technical standards on public disclosures by institutions that implement the changes in the Pillar 3 disclosure framework introduced by the third Capital Requirements Regulation, which stem from the latest Basel III reforms. The ITS implement the CRR III prudential disclosure requirements by including new requirements on output floor, credit risk, market risk, CVA risk, operational risk, and a transitional disclosure on exposures to crypto-assets. In addition, they aim to provide institutions with a comprehensive, integrated set of uniform disclosure formats. The ITS repeal the Commission Implementing Regulation (EU) 2021/637 on public disclosures, with a view to enabling the EBA to comply with its mandate to develop IT solutions, making the technical standards more user-friendly for institutions. Later in 2024, the EBA will complement these ITS with the CRR III disclosure requirements that are not directly linked to Basel III implementation, in particular the extension of the disclosure requirements on environmental, social and governance risks to all institutions in accordance with the proportionality principle, and new disclosure requirements on shadow banking.
  • UK Financial Conduct Authority Research on Digital Engagement Practices in Trading Apps
    June 20, 2024

    The Financial Conduct Authority has published a research note setting out the outcomes of an experiment to investigate the effect of digital engagement practices (DEPs) on trading behavior. The FCA tested an experimental trading app platform with over 9,000 consumers and found that DEPs, such as push notifications and prize draws, can increase trading frequency and risk taking. These features are able to attract consumer attention while conveying no additional information which could improve trading. The FCA has previously warned stock trading apps to review game-like design features in 2022 ahead of the Consumer Duty's implementation. In its press release, the FCA has confirmed that with the usage and popularity of trading apps growing, it will be keeping them under review to ensure customers can make investment decisions that suit their needs.
  • European Banking Authority Final Draft Regulatory Technical Standards for Assessing the Materiality of Extensions and Changes to New Market Risk Internal Models
    June 20, 2024

    The European Banking Authority has finalized its draft regulatory technical standards on the conditions for assessing the materiality of model extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc under Article 325az(8)(a) of the EU Capital Requirements Regulation. The final draft RTS differentiate between material extensions and changes under the internal models approach (IMA), to be approved by competent authorities, and non-material extensions and changes, to be notified to CAs four weeks in advance. This last category is further divided into two subcategories: extensions and changes notified with additional information, and extensions and changes with basic information. For the categorization of extensions and changes to the relevant categories and subcategories, the final draft RTS set out a combination of qualitative and quantitative conditions. In particular, the quantitative conditions aim at assessing the effect of the extension or change on the IMA own funds requirements and on the relevant components of the Fundamental Review of the Trading Book IMA, before and after the planned extension or change. The final draft RTS also include guiding principles that institutions should follow in the categorization process, provisions on the implementation of extensions and changes, and documentation requirements. With the submission of these final draft RTS to the Commission for endorsement, the EBA completes its roadmap on market and counterparty credit risk approaches published on June 27, 2019.
  • Package of EU Anti-Money Laundering Legislation Published
    June 19, 2024

    A package of anti-money laundering legislation has been published in the Official Journal of the European Union, which includes:
    • the Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Regulation (EU) 2024/1624) (AML Regulation), which enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. It will apply from July 10, 2027, except in relation to football agents and certain transactions conducted by professional football clubs, to which it will apply from July 10, 2029;
    • the Regulation establishing the Anti-Money Laundering Authority (Regulation (EU) 2024/1620) (AMLA Regulation), which enters into force on June 26, 2024, seven days after publication in the Official Journal of the European Union. It will apply from July 1, 2025, with the exception of Articles 1, 4, 49, 53 to 55, 57 to 66, 68 to 71, 100, 101, and 107, which will apply from June 26, 2024, and Article 103, which will apply from December 31, 2025.; and
    • the Sixth Money Laundering Directive (MLD6) (Directive (EU) 2024/1640), which enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. Member states are required to bring into force the laws, regulations, and administrative provisions necessary to comply with MLD6 by July 10, 2027, with the exception of Article 74, for which the transposition deadline is July 10, 2025; Articles 11 to 13 and 15, for which the transposition deadline is July 10, 2026; and Article 18, for which the transposition deadline is July 10, 2029. MLD4 will be repealed with effect from July 10, 2027.
  • Directive on Cross-Border Law Enforcement Access to Bank Account Registries Published in Official Journal of the European Union
    June 19, 2024

    Directive (EU) 2024/1654 has been published in the Official Journal of the European Union, amending Directive (EU) 2019/1153 regarding access by competent authorities to centralized bank account registries through the interconnection system and technical measures to facilitate the use of transaction records. The amending Directive aims to ensure more effective investigations into illicit finance by making it easier to retrieve data across borders from centralized bank registries. It mandates EU Member States to ensure that the information from centralized registries is available through an access point to be developed and operated by the European Commission. The Directive enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. Member states are required to bring into force the laws, regulations, and administrative provisions necessary to comply with the Directive by July 10, 2027, with the exception of Article 1(4) and (5), which relates to the bank account registers interconnection system, in respect of which member states are required to bring into force the necessary measures by July 10, 2029.
  • Third Capital Requirements Regulation and Sixth Capital Requirements Directive Published
    June 19, 2024

    The EU has published the final legislation implementing revisions to the EU Capital Requirements Regulation and Capital Requirements Directive (commonly referred to as the EU banking package) in the Official Journal of the European Union, namely:
    • a Regulation amending the EU Capital Requirements Regulation regarding requirements for credit risk, credit valuation adjustment risk, operational risk, market risk, and the output floor ((EU) 2024/1623) (CRR III). The Regulation enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. CRR III will apply from January 1, 2025, with the exception of certain specified points of Article 1, which will apply from July 9, 2024; and
    • a Directive amending the EU Capital Requirements Directive regarding supervisory powers, sanctions, third-country branches, and environmental, social and governance risks ((EU) 2024/1619) (CRD VI). The Directive enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. Member states are required to adopt and publish the laws, regulations, and administrative provisions necessary to comply with CRD VI by January 10, 2026, and to apply those measures from January 11, 2026, with the exception of Article 1(9) and (13), which shall apply from January 11, 2027. A further exception provides for measures necessary to comply with the amendments set out in Article 1(13) regarding Article 48k and 48l of CRD, which shall apply from January 11, 2026, and Article 1(9) regarding Article 21c(5) of CRD, which shall apply from July 11, 2026.
  • European Banking Authority Publishes Package of Draft Regulatory and Implementing Technical Standards and Guidelines under the EU Markets in Crypto Assets Regulation
    June 19, 2024

    The European Banking Authority has published its final package of regulatory and implementing technical standards and guidelines under the EU Markets in Crypto Assets Regulation. The package consists of:
    • final draft RTS, which specify the methodology to be applied by issuers of asset-referenced tokens and non-EU currency denominated e-money tokens for estimating the number and value of transactions associated with uses of these tokens "as a means of exchange", for the purpose of the reporting under MiCAR;
    Read more.
    Topic : FinTech
  • Council of the European Union Agrees Mandate on Bank Crisis Management and Deposit Insurance Framework
    June 19, 2024

    The Council of the European Union has agreed on a negotiating mandate on the review of the crisis management and deposit insurance framework for banks. The proposals consist of three pieces of legislation, the proposed texts of which the Council has also published: (i) a proposed Directive amending the EU Bank Recovery and Resolution Directive regarding early intervention measures, conditions for resolution, and financing of resolution action; (ii) a proposed Regulation amending the Single Resolution Mechanism Regulation regarding early intervention measures, conditions for resolution, and funding of resolution action; and (iii) a proposed Directive amending the EU Deposit Guarantee Scheme Directive as regards the scope of deposit protection, use of deposit guarantee schemes funds, cross-border cooperation, and transparency. In its announcement, the Council highlights its proposals, including in relation to the public interest assessment, using the DGS funds to "bridge the gap" after MREL, allowing them to subsequently unlock an intervention of the Single Resolution Fund, the hierarchy of claims, preventative and alternative measures, extraordinary public financial support, and SRB governance. As the European Parliament adopted its position in first reading on April 24, 2024, interinstitutional negotiations may now begin.
  • Second Edition of Network for Greening the Financial System Guide on Climate-Related Disclosure for Central Banks Published
    June 19, 2024

    The Network for Greening the Financial System has updated its guide on climate-related disclosure for central banks. The guide calls on central banks to disclose their climate-related risks and opportunities. The updated guide is organized around the four thematic areas identified by the Task Force on Climate-Related Financial Disclosures—governance, strategy, risk management, and metrics and targets. It builds on and aims to complement the original TCFD recommendations, providing additional guidance for central banks. The updates include: (i) a new chapter on metrics and targets benefits from the NGFS' work on sustainable and responsible investment; (ii) additional support on the disclosure of internal operations, building on work conducted by the NGFS subgroup on greening central banks' corporate operations; and (iii) new sections on the disclosure on institutional functions, i.e. monetary policy, supervision, financial stability. Looking ahead, the NGFS will build upon the guide to further strengthen its role as a forum for central banks to share their practical experiences and support one another in enhancing their climate-related measures.
  • Council of the European Union Agrees Mandate on Proposed Regulation on Simpler Financial Reporting Requirements
    June 19, 2024

    The Council of the EU agreed its negotiating mandate on the proposed Regulation amending the European Systemic Risk Board (ESRB) Regulation (1092/2010), EBA Regulation (1093/2010), EIOPA Regulation (1094/2010), ESMA Regulation (1095/2010), and InvestEU Regulation ((EU) 2021/523) regarding certain reporting requirements in the fields of financial services and investment support. The proposal updates existing rules on data sharing between the European Supervisory Authorities and other financial sector authorities with the aim of reducing the administrative burden for authorities in the financial sector. Changes to the European Commission proposal highlighted by the Council include: (i) clarification that responsibility for the exchange of information should lie with the ESAs and the ESRB, which should share the information received from the national regulators with other ESAs and EU and national authorities and that it should concern only data stemming from reporting requirements under EU, not national, law; and (ii) removing the newly created AML/CTF Authority from the scope of the authorities that are allowed to issue a request for data sharing at this stage, with a reassessment of its inclusion within two years. As the European Parliament adopted its negotiating mandate on March 12, 2024, interinstitutional negotiations may now begin.
  • Delegated Regulation Published Supplementing EU Capital Requirements Regulation on Identifying Groups of Connected Clients
    June 18, 2024

    Commission Delegated Regulation (EU) 2024/1728 has been published in the Official Journal of the European Union, supplementing the EU Capital Requirements Regulation with regard to regulatory technical standards specifying in which circumstances the conditions for identifying groups of connected clients are met. The definition of a group of connected clients in the CRR makes it possible to identify two or more natural or legal persons who are so closely linked by idiosyncratic risk factors that it is prudent to treat them as a single risk. Consequently, the purpose of the RTS is to set out clear circumstances where interconnections between clients by means of a control relationship and/or an economic dependency relationship lead to a single risk and thus a requirement to group those clients. The Delegated Regulation enters into force on July 8, 20 days after publication in the Official Journal of the European Union.
  • European Commission Announces Delay to Basel Fundamental Review of the Trading Book Market Risk Reforms
    June 18, 2024

    Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union (CMU), made a speech discussing the importance of continuing to make progress on the Banking Union and CMU. Topics on the Commission's agenda to continue development include analyzing the EU securitization market. The European Commission will launch a public consultation in the autumn on how to make the market more attractive to issuers and investors. Ms. McGuinness also announces a delay to the date of application of the BCBS' fundamental review of the trading book (FRTB) market risk reforms by one year, until January 1, 2026. Ms. McGuinness explains that it is now clear there will be a delay in the U.S. in implementing the reforms and therefore a delay in the EU is necessary to ensure a global level playing field. The delay will be adopted by way of a delegated act, which will take a minimum of three months.
  • Bank of England Securities Lending Committee Settlement Efficiency Report
    June 18, 2024

    The Bank of England's Securities Lending Committee has published its Settlement Efficiency Report. The findings have been collated by a Working Group since H2 2023. The aim was to highlight the issues around settlement efficiency in the U.K., building on the work conducted by the International Securities Lending Association. The report confirms that the persistent level of settlement failure within the U.K. securities lending market would be significantly reduced with: (i) enhanced static data management; (ii) real-time communication of position-impacting data between parties; (iii) consistent trade and lifecycle event instruction discipline; (iv) increased investment in pre- and post-trade automation; and (v) a market-wide adoption of industry best practices. It lists a series of recommendations on ways to alleviate the current level of settlement fails. The Committee considers that the report can be useful to all market participants, given it relates to achieving a robust settlement rate alongside a more transparent, real-time framework to address failing and failed securities transactions.
  • European Commission Consults on Artificial Intelligence in the Financial Sector
    June 18, 2024

    The European Commission has published a consultation on the use of artificial intelligence in the financial sector. The consultation aims to aid the Commission in developing guidance for the financial sector across all market areas in preparation for the expected adoption of the AI Act in July 2024. The survey covers three aspects: (i) general questions on the development of AI, (ii) specific use cases in finance, and (iii) the AI Act in relation to the financial sector, focusing on the industry's needs in order to implement the upcoming AI framework. The Commission has specifically requested input from those financial services companies that are actively providing or developing AI technology. The deadline for comments is September 13, 2024. Alongside the consultation, the European Supervisory Authorities will run a series of workshops providing a platform for stakeholders to exchange knowledge about the latest industry developments and present their progress on ongoing projects. The workshops will take place during the Autumn with registration closing on July 26, 2024. If sufficient progress is made, the Commission intends to publish a report on the findings and analysis of main trends and issues arising with the use of AI applications in financial services.
  • European Supervisory Authorities Publish Joint Opinion on the Assessment of the EU Sustainable Finance Disclosure Regulation
    June 18, 2024

    The European Supervisory Authorities have published a joint opinion assessing the EU Sustainable Finance Disclosure Regulation. The opinion proposes simplification of product categories under the existing regulation, following confusion among retail investors about SFDR templates and the labelling of products as "Article 8" or "Article 9" as a method of quality assurance, leading to greenwashing risks. It is argued that disclosures should be jargon free, empowering investors to understand the underlying sustainability profile of financial products. The ESAs recommend the introduction of a product classification system based on regulatory categories or sustainability indicators. The ESAs suggest two product categories, "sustainable" and "transition". The need for an unambiguous definition of "sustainability" that differentiates between "environmentally" and "socially" sustainable categories is noted. The ESAs strongly recommend the European Commission ensures that sustainability disclosures cater to different investor needs and that the Commission implement a sustainability indicator that grades financial products, indicating whether it is environmentally sustainable, socially sustainable, or both.
  • Delegated Regulation Published on Sustainability Impact Disclosures for Simple, Transparent and Standardized Securitizations under the EU Securitization Regulation
    June 18, 2024

    Commission Delegated Regulation (EU) 2024/1700 has been published in the Official Journal of the European Union, supplementing the EU Securitization Regulation with regard to RTS specifying, for simple, transparent, and standardized non-asset backed commercial papers traditional securitization, and for STS on-balance-sheet securitization, the content, methodologies, and presentation of information related to the principal adverse impacts of the assets financed by the underlying exposures on sustainability factors, was published in the Official Journal of the European Union. The Capital Markets Recovery Package amended the Securitization Regulation to provide originators of STS securitizations with the option to disclose available information related to the principal adverse impacts on sustainability factors of the assets financed by residential loans, auto loans, or leases. The Delegated Regulation aims to standardize the type and presentation of information an originator may opt to disclose about the adverse impacts of assets financed by underlying exposures, on the environment, and other sustainability factors. The Delegated Regulation also seeks to ensure as much consistency as possible with the European Supervisory Authorities' work in respect of sustainability-related disclosures in financial services under the EU Sustainable Finance Disclosure Regulation. The Delegated Regulation will enter into force on July 9, 2024, 20 days following its publication in the Official Journal of the European Union.
  • Delegated Regulation Published Supplementing EU Capital Requirements Regulation on Assessments of Internal Models for Market Risk
    June 17, 2024

    Commission Delegated Regulation (EU) 2024/1085 has been published in the Official Journal of the European Union, supplementing the EU Capital RequirementsRegulation with regard to regulatory technical standards on the assessment methodology under which competent authorities verify an institution's compliance with the requirements to use internal models for market risk. The RTS identify all elements that are to be assessed by the competent authority when granting the approval to use an internal model approach to compute the own funds requirements for market risk. They are constituted by three main chapters: (i) assessment of qualitative requirements; (ii) assessment of the internal risk-measurement model used to compute the expected shortfall measure and the stress scenario risk measure; and (iii) assessment of the internal default risk model used to compute the additional own funds requirement for default risk. The Delegated Regulation enters into force on July 7, 2024, 20 days after publication in the Official Journal of the European Union, with the exception of Article 18(1)(a), regarding the environmental risk, Article 18(1)(c)(vii) and Article 18(2)(b)(v), which will apply from January 1, 2025; and Article 21(1)(b), which will apply from January 1, 2026.
  • European Commission Report on Extension of Powers to Adopt Delegated Acts under MAR
    June 17, 2024

    The European Commission has published a report, addressed to the European Parliament and the Council of the European Union, on the delegation of power to adopt delegated acts conferred on the Commission under the EU Market Abuse Regulation. Under Article 35(2), the power to adopt delegated acts is conferred on the Commission for an initial period of five years, ending on December 31, 2024. In the report, the Commission explains why it considers that there is a clear need for the extension of this empowerment for a further period of five years. This is due to there being delegated acts that have not yet been adopted by the Commission—those under Articles 6(6) (extending the exemption from MAR to certain third-country designated public bodies that have entered into an agreement under the EU Emissions Trading Scheme Directive) and 38 (adjusting certain thresholds relating to reporting thresholds) of MAR. The Commission provides reasons as to why these have not yet been adopted and refers to the Listing Act legislative proposal for a Regulation containing amendments to MAR, in which co-legislators have agreed to renew the delegation of powers for a period of five years.
  • UK Payment Systems Regulator Updates List of Faster Payment Scheme Participants Potentially in Scope of Authorised Push Payment Reimbursement Requirements
    June 14, 2024

    The UK Payment Systems Regulator has updated its list of payment service providers that participate in the Faster Payments Scheme, and therefore may fall in scope of Specific Direction 20 and the mandatory authorised push payment fraud reimbursement requirement. The PSR does not guarantee that this is a complete list. Indirect access providers are required to provide monthly updates to the PSR on any changes to the PSPs to which they provide access to FPS.
  • European Banking Authority Publishes Regulatory Products under the Markets in Crypto-Assets Regulation
    June 13, 2024

    Under the Markets in Crypto-Assets Regulation, the European Banking Authority has published a package of technical standards and guidelines on prudential matters, namely own funds, liquidity requirements, and recovery plans. The package of EBA regulatory products includes the following: Read more.
    Topic : FinTech
  • Council of the European Union Agrees Negotiating Mandate on Retail Investment Package
    June 12, 2024

    The Council of the European Union has announced that it has agreed its negotiating position on the retail investment package and published the relevant texts. The package consists of an amending Directive, known as the Omnibus Directive, which revises existing rules set out in the Markets in Financial Instruments II package, the Insurance Distribution Directive, the Undertakings for the Collective Investment in Transferable Securities Directive, the Alternative Investment Fund Managers Directive, and Solvency II, as well as an amending Regulation, which revises the Packaged Retail and Insurance-based Investment Products Regulation.

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